Section 264 revision and DTAA taxability: revised return not mandatory, and treaty claims must be examined before taxing remittances.

Section 264 revision is not barred merely because the assessee did not first file a revised return; the revisional power is wide enough to correct an assessee's own mistaken tax position where the item was not chargeable to tax in law. The Court held that refusal on the sole ground of no revised return was unsustainable. It also held that taxability could not be sustained on domestic law alone when the assessee invoked Article 12 of the India-Australia DTAA, including the "make available" requirement, and that treaty provisions had to be examined before treating the remittance as taxable. The writ petition was allowed, the impugned order was quashed, and the revision was remitted for fresh consideration.

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Issues: (i) Whether a revision application under section 264 of the Income-tax Act, 1961 could be rejected merely because the assessee had not amended its return of income after discovering that the amount was not chargeable to tax. (ii) Whether the impugned order could be sustained when it treated the remittance as chargeable to tax under section 9(1)(vii) without examining the claim under Article 12 of the India-Australia Double Taxation Avoidance Agreement.

Issue (i): Whether a revision application under section 264 of the Income-tax Act, 1961 could be rejected merely because the assessee had not amended its return of income after discovering that the amount was not chargeable to tax.

Analysis: The revisional power under section 264 is wide and is not confined to correcting mistakes of the revenue authorities. It extends to rectifying mistakes committed by an assessee, including a mistaken stand taken in the return, where income or expenditure was offered or disallowed under an erroneous belief that tax was payable. A prior amendment of the return is not an indispensable condition if the assessee establishes that the item was not chargeable to tax in law.

Conclusion: The rejection of the revision application on the ground that the return had not been revised was unsustainable and was against the assessee.

Issue (ii): Whether the impugned order could be sustained when it treated the remittance as chargeable to tax under section 9(1)(vii) without examining the claim under Article 12 of the India-Australia Double Taxation Avoidance Agreement.

Analysis: The impugned order proceeded on domestic law provisions and did not examine the assessee's case under Article 12 of the DTAA or the contention that the "make available" condition was not satisfied. A determination of taxability had to address the treaty position before concluding that tax was deductible or that the payment was chargeable to tax in India.

Conclusion: The finding that the remittance was chargeable to tax could not be sustained and was against the assessee.

Final Conclusion: The writ petition was allowed, the impugned order was quashed, and the revision application was directed to be reconsidered afresh in accordance with law, with all substantive contentions left open.

Ratio Decidendi: Section 264 permits correction of an assessee's own mistaken tax position without requiring a prior revised return, and taxability must be determined after considering the applicable treaty provisions where they are invoked.

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