Limited scrutiny assessments resist section 263 revision beyond assigned issues; treaty shipping receipts were not royalty.

An assessment completed under limited scrutiny cannot be revised under section 263 on matters outside the specific issues assigned for examination, and revision is unsustainable where the Assessing Officer has applied the prescribed scrutiny and enquiry to those limited issues. The article also notes that a valid Tax Residency Certificate supported treaty protection under the India-Singapore DTAA, and the assessee's shipping receipts were transportation income, not royalty, because they were not consideration for the use of vessels as equipment. On these facts, the revisional authority's contrary view lacked evidentiary support and the original assessment was restored.

---

---

Issues: (i) Whether the revisionary order under section 263 was sustainable where the assessment had been completed in a limited scrutiny matter confined to specified issues; (ii) whether the assessee was entitled to treaty protection under the India-Singapore DTAA and whether the shipping receipts could be characterised as royalty.

Issue (i): Whether the revisionary order under section 263 was sustainable where the assessment had been completed in a limited scrutiny matter confined to specified issues.

Analysis: The assessment was selected for limited scrutiny to examine the correctness of reporting of international transactions in Form 3CEB and the return. The Assessing Officer issued notices, examined the prescribed limited issues, made a reference to the TPO, and completed the assessment after the TPO accepted the international transactions at arm's length. The revisional authority sought to enlarge the enquiry by raising issues that were outside the scope of the limited scrutiny mandate. The order under revision did not demonstrate that the Assessing Officer had failed to make enquiry on the limited scrutiny issue actually assigned to him. A revisional power cannot be used to do indirectly what could not have been done directly in the assessment proceedings.

Conclusion: The revision under section 263 was not justified and was unsustainable in favour of the assessee.

Issue (ii): Whether the assessee was entitled to treaty protection under the India-Singapore DTAA and whether the shipping receipts could be characterised as royalty.

Analysis: The assessee held a valid Tax Residency Certificate and carried on shipping operations in international traffic. The revisional findings that the assessee was only a conduit, lacked commercial rationale, or was not a Singapore resident were not supported by corroborative material. The treaty claim was at least a possible view on the facts, and the question of residency and treaty entitlement was debatable. The receipts were for transportation of goods and not for the use of vessels as equipment, so the characterisation of the income as royalty was not borne out by the record. The direction to tax only inward freight as royalty was also internally inconsistent with the treatment accorded to other shipping receipts.

Conclusion: The assessee remained entitled to treaty benefit, and the shipping receipts could not be treated as royalty in favour of the assessee.

Final Conclusion: The revisional order was set aside and the original assessment was restored.

Ratio Decidendi: An assessment completed within the confines of limited scrutiny cannot be revised under section 263 on issues beyond that mandate, and a valid treaty claim supported by a Tax Residency Certificate cannot be displaced on conjecture or recharacterised as royalty without evidentiary basis.

---