Concessional tax rate on renewed deposits upheld; revisionary jurisdiction under section 263 was not justified.

Renewed bank and housing finance deposits executed on fresh applications under the deposit scheme were treated as fresh contracts, so the interest qualified for the concessional 15% rate under Article 12(2) of the relevant double taxation convention. On that basis, the assessment order was not erroneous or prejudicial to the revenue, and the Commissioner's invocation of revisionary jurisdiction under section 263 was not justified. The revisional order was therefore liable to be annulled in favour of the assessee.

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Issues: Whether the Commissioner was justified in exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961, on the footing that interest on renewed bank and housing finance deposits was not entitled to the concessional rate under Article 12(2) of the double taxation convention.

Analysis: Article 12(2) limited the tax rate to 15% where the interest was paid in respect of a loan or debt first created after the convention came into force. The deposits in question were renewed on the basis of fresh applications under the deposit scheme, and renewal under those terms brought a fresh contract into existence. On that footing, the renewed deposits were to be treated as loans first created after the relevant date, so the concessional rate applied. The assessment order therefore did not suffer from any error causing prejudice to the revenue.

Conclusion: The Commissioner was not justified in invoking section 263, and the revisional order was liable to be annulled in favour of the assessee.

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