Treaty-protected foreign government pension escaped Indian tax; challenge to intimation-based assessment was maintainable.

A challenge to taxability on legal grounds can amount to a denial of liability to be assessed, so an appeal against an intimation under section 143(1) was maintainable. The appellate remedy was therefore available even though returns had been filed and returned income accepted. On merits, pension paid by the Government of the United Kingdom for services rendered was taxable only in that State under article 19(3) of the India-UK treaty, so it was not taxable in India. The assessments were set aside and any tax collected for the relevant years was directed to be refunded.

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Issues: (i) Whether the assessee's appeals against intimation-based assessments under section 143(1) of the Income-tax Act, 1961 were maintainable when the assessee denied liability to be assessed; (ii) Whether pension received from the Government of the United Kingdom was taxable in India in view of article 19(3) of the Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion.

Issue (i): Whether the assessee's appeals against intimation-based assessments under section 143(1) of the Income-tax Act, 1961 were maintainable when the assessee denied liability to be assessed.

Analysis: The expression denying liability to be assessed under the Act was held to be wide enough to cover an order creating liability under the Act, including an order made under section 143(1). The fact that the assessee had filed returns and the assessments had accepted the returned income did not prevent the assessee from challenging the very liability to tax. The appellate remedy was therefore available where the assessee disputed taxability on a legal ground.

Conclusion: The appeals were maintainable under section 246(1)(c) of the Income-tax Act, 1961.

Issue (ii): Whether pension received from the Government of the United Kingdom was taxable in India in view of article 19(3) of the Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion.

Analysis: The Convention between India and Great Britain provided that a pension paid by a Contracting State to an individual for services rendered to that Government is taxable only in that Contracting State. On that basis, the assessee's pension income was outside Indian taxability for the relevant years, and the assessments could not stand.

Conclusion: The pension was not taxable in India, and the assessments were liable to be set aside.

Final Conclusion: The assessee succeeded on both maintainability and merits, and the tax collected for the relevant years was directed to be refunded if collected.

Ratio Decidendi: A denial of liability to be assessed under the Income-tax Act is broad enough to include a challenge to the taxability of income under a tax treaty, and such a challenge remains appealable even where the assessment is made under section 143(1).

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