1997 (11) TMI 121 - AT - Income Tax

Tax Tribunal upholds return validity without Audit Report, exempts technical service fees under Double Taxation Agreement

The Tribunal dismissed the departmental appeal, upholding the CIT(A)'s order that the return filed without a Tax Audit Report was valid and that the ... Appealable Orders Issues Involved:1. Appealability of intimation under section 139(9).2. Validity of return filed without a Tax Audit Report under section 44AB.3. Tax exemption status of technical service fees under the Double Taxation Avoidance Agreement (DTAA).Issue-wise Detailed Analysis:1. Appealability of Intimation under Section 139(9)The first issue is whether the CIT(Appeals) was justified in admitting the appeal against the intimation under section 139(9), given that it is not listed as an appealable order under section 246(2).The Department argued that the intimation under section 139(9) was not an appealable matter as it is not covered by the provisions of section 246(2) or section 246(1). The CIT(Appeals) did not provide any reason for the appealability of the order/intimation under section 139(9).The assessee contended that since the income was exempt, it was not liable to file a return under section 139(1). The return was filed under rule 41(2) read with section 237 along with a claim for refund in Form No. 30. The refusal to grant a refund was appealable under rule 30 of the Income-tax Rules, and the appeal was filed under section 246(2)(b) read with sections 246(1)(a) and 246(1)(k).The Tribunal concluded that the CIT(Appeals) was justified in admitting the appeal, as the refusal to process the refund implied a refusal to grant the refund, making it an appealable issue. This view was supported by the decisions in Sardar Bahadur Sardar Indra Singh Trust v. CIT and CIT v. M. Pyngrope.2. Validity of Return Filed Without a Tax Audit Report under Section 44ABThe second issue is whether the CIT(Appeals) was justified in treating the return filed without a Tax Audit Report (TAR) under section 44AB as a valid return.The Department argued that since the total turnover exceeded Rs. 40 lakhs, the assessee was required to submit a TAR along with the return. The return was declared defective under section 139(9) as it was not accompanied by a TAR.The assessee contended that the technical service fees were not taxable and the return was filed to accompany the claim for a refund. Since the return was not filed under section 139(1), there was no need to file a TAR. The CIT(Appeals) treated the return as valid, noting that the assessee did not carry on any business in India and did not maintain a permanent establishment in India, making the provisions of section 44AB inapplicable.The Tribunal upheld the CIT(Appeals)'s decision, stating that the return of 'nil income' did not require a TAR. The Department failed to prove that the assessee carried on business in India, and the provisions of DTAA prevailed over the Income-tax Act, making the return valid without a TAR.3. Tax Exemption Status of Technical Service Fees under DTAAThe third issue is whether the CIT(Appeals) was justified in concluding that technical service fees were tax-exempt in India without giving the Assessing Officer an opportunity to examine the relevant materials.The Department argued that Article II(g) of the DTAA was applicable and that the technical services were practically performed in India. The CIT(Appeals) declared the return valid based on Article VII of the DTAA without allowing the Assessing Officer to examine the materials.The assessee argued that the technical services were rendered entirely in Austria and were not taxable in India under the DTAA. The CIT(Appeals) concluded that the technical service fees were exempt from tax in India, as the services were performed outside India.The Tribunal upheld the CIT(Appeals)'s decision, stating that the provisions of DTAA between India and Austria overrode the Income-tax Act, making the technical service fees exempt from tax in India. The Assessing Officer had examined all relevant materials, and the CIT(Appeals) was justified in his decision.Conclusion:The Tribunal dismissed the departmental appeal, upholding the CIT(Appeals)'s order that the return filed without a TAR was valid and that the technical service fees were exempt from tax in India under the DTAA. The appeal against the intimation under section 139(9) was also justified.