2014 (9) TMI 95 - HC - Income Tax

High Court upholds tax deduction order on income from securities sales. No substantial question of law raised.

Director of Income Tax (International Taxation) Versus ICICI Bank Ltd.

The High Court dismissed the appeals challenging the order to deduct tax on income from the sale of securities. It was held that no substantial question ... Liability to deduct TDS on income from sale of securities – Held that:- The Tribunal has rightly came to the conclusion that there is no tax liability on the income by way of gains from sale proceeds of government securities in India in UAE - If the gains accrued to the residents of UAE and that was not subject to or liable to any tax in UAE, then, it could not be held that the Tribunal or the CIT(A) committed any perversity in taking note of the treaty obligations or its clauses - the concurrent finding is recorded that once there is no liability to tax the capital gains arising to the individual constituents/investors on the transaction in government Treasury bills undertaken through the bank, the bank was not obliged to deduct the tax at source - The income is not liable to tax and, therefore, tax deduction at source on such income was not permissible and in the given facts and circumstances – Decided against Revenue. Issues:Challenge to order passed by Commissioner and Tribunal regarding tax deduction on income from sale of securities.Analysis:The appeal challenges the order passed by the Commissioner and Tribunal, focusing on the liability to deduct tax at the source on income derived from the sale of securities. The appellant argues that the Double Taxation Avoidance Agreement does not exempt the source of income from being taxed under Indian Law, even if the capital gains are not taxed in the country where the account holder resides. The Assessing Officer concluded that the bank was liable to deduct tax at source, a decision reversed by the Commissioner and Tribunal. The appellant contends that the foundation for setting aside the Assessing Officer's order is erroneous.The respondent asserts that none of the questions raised by the revenue qualify as substantial questions of law. Relying on the Double Taxation Avoidance Agreement, the respondent explains that the income derived from the sale of securities by the account holder in India is not taxable in the UAE, where the account holder resides. The respondent cites relevant legal provisions, court judgments, and government notifications to support their position. They argue that the decisions of the Tribunal and Commissioner are consistent with legal principles and factual evidence, as demonstrated in previous court rulings.Upon reviewing the memo of appeal and orders by the tax authorities, it is noted that the remittances were made to foreign nationals based on Chartered Accountants Certificates and RBI circulars. The Assessing Officer disputed the exemption claimed under the Double Taxation Avoidance Agreement and analyzed the treaty clauses to reach a different conclusion. The Tribunal and Commissioner, guided by legal precedents and treaty obligations, found no tax liability on the income from the sale of government securities for UAE residents, leading to the decision that the bank was not required to deduct tax at the source. The Tribunal's decision was upheld as not being perverse or erroneous on the face of the record.In conclusion, the High Court dismissed the appeals, stating that no substantial question of law was raised based on the admitted facts. The Court agreed with the respondent's and Tribunal's interpretation of the transactions, tax liabilities, and treaty obligations, finding no need to address broader issues. The concurrent view of the Commissioner and Tribunal was deemed appropriate, resulting in the dismissal of the appeals without costs.