2025 (4) TMI 273 - AT - Income Tax

Assessee gets fresh opportunity to claim 5% tax rate under Section 115A instead of 10% treaty rate

Axalta Coating Systems Dutch Holding BBV Versus ACIT, Circle Intl. Taxation 1 (1) (1), New Delhi

ITAT Delhi allowed the appeal and remanded the case to the AO for fresh adjudication. The assessee claimed a lower interest rate of 5% under Section 115A ... Applicability of lower rate of 5% on the subject interest income in accordance with provisions of Section 115A read with Section 194LC - intimation issued by CPC taxing the interest income @ 10% as per Article 11 of the India-Netherlands Tax Treaty. HELD THAT:- We note during the course of hearing that both the learned lower authorities have predominantly gone by assessee’s declared/returned interest rate @ 10% than that sought to be rectified @ 8%, representing interest u/s 115A r.w.s.194LC. Revenue could hardly dispute that the CIT(A) herein has raised all technical issues of the assessee’s return as well as its alleged application filed before the Authority for Advance Ruling (AAR) and lack of a revised return claiming reduced interest rate @ 5%; respectively to decline its claim than having adjudicated the issue on merits, as contemplated u/s 250(6) of the Act. We make it clear in other words that so far as the assessee’s liability to claim a revised return before the assessing authority is concerned, the hon’ble apex court in Goetze India Ltd [2006 (3) TMI 75 - SUPREME COURT] has settled the issue long-back that the same nowhere impinges upon an appellate authority’s jurisdiction to entertain a new ground for the first time. This is indeed coupled with the fact that instant claim has not been rejected on merits in any other proceedings. We deem it appropriate in the larger interest of justice to restore the assessee’s case back to AO's for his afresh appropriate adjudication, as per law, subject to a rider that it shall plead and prove this case within three effective opportunities, at his own risk and responsibility, in consequential proceedings. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the assessee was entitled to a lower tax rate of 5% on interest income under Section 115A read with Section 194LC of the Income Tax Act, 1961, instead of the 10% rate applied under the India-Netherlands Tax Treaty.Whether the Commissioner of Income Tax (Appeals) erred in upholding the Central Processing Centre's (CPC) decision to reject the rectification application under Section 154 of the Act.Whether the assessee's failure to file a revised return or proper rectification application impacts the entitlement to the lower tax rate.Whether the pendency of the application for advance ruling affects the assessee's claim for a lower tax rate.Whether the procedural aspects of filing rectification applications or revised returns were correctly interpreted and applied by the lower authorities.ISSUE-WISE DETAILED ANALYSIS1. Entitlement to Lower Tax Rate under Section 115A and Section 194LCRelevant Legal Framework and Precedents: Section 115A provides for a lower tax rate on certain interest incomes, subject to conditions. Section 194LC specifies conditions under which interest income is taxed at a reduced rate. The India-Netherlands Tax Treaty provides a 10% tax rate on interest income.Court's Interpretation and Reasoning: The Tribunal noted that the assessee claimed eligibility for a 5% tax rate, arguing compliance with conditions under Sections 115A and 194LC. However, the CIT(A) and CPC had taxed the income at 10%, aligning with the treaty rate.Key Evidence and Findings: The assessee provided evidence of satisfying the conditions for a 5% rate, including loan agreements and RBI approvals. The CIT(A) dismissed these claims, citing the lack of a revised return and pending advance ruling.Application of Law to Facts: The Tribunal found that the lower authorities did not adjudicate the merits of the claim and focused instead on procedural aspects.Treatment of Competing Arguments: The Tribunal acknowledged the procedural issues but emphasized the need to address the substantive claim on its merits.Conclusions: The Tribunal remanded the case for fresh adjudication, instructing the Assessing Officer to consider the merits of the claim.2. Procedural Aspects of Rectification and Revised ReturnsRelevant Legal Framework and Precedents: Section 154 allows for rectification of mistakes apparent from the record. The Supreme Court in Goetze India Ltd. v. CIT clarified the limitations on filing revised claims without a revised return.Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) focused on procedural defaults, such as the lack of a revised return and improper rectification application, rather than the substantive claim.Key Evidence and Findings: The assessee argued that the online portal's limitations prevented proper rectification filing. The CIT(A) held that the procedural defaults precluded the lower tax rate claim.Application of Law to Facts: The Tribunal emphasized that appellate authorities could entertain new grounds not raised before the assessing authority, as established in Goetze India Ltd.Treatment of Competing Arguments: The Tribunal found that the procedural issues raised by the CIT(A) should not preclude consideration of the substantive claim.Conclusions: The Tribunal directed the Assessing Officer to adjudicate the case on its merits, allowing the assessee to present its claim.3. Impact of Pending Advance Ruling ApplicationRelevant Legal Framework and Precedents: Section 245R(6) mandates that advance rulings be pronounced within six months. The CIT(A) noted the pending application as a factor against the assessee's claim.Court's Interpretation and Reasoning: The Tribunal found that the pendency of the advance ruling should not affect the substantive claim for a lower tax rate.Key Evidence and Findings: The assessee's application for an advance ruling had been pending for an extended period, beyond the statutory timeframe.Application of Law to Facts: The Tribunal determined that the delay in the advance ruling process should not disadvantage the assessee.Treatment of Competing Arguments: The Tribunal rejected the CIT(A)'s reliance on the pending application to deny the lower tax rate claim.Conclusions: The Tribunal instructed the Assessing Officer to consider the claim on its merits, irrespective of the pending advance ruling.SIGNIFICANT HOLDINGSThe Tribunal held that the procedural issues raised by the CIT(A) should not preclude consideration of the substantive claim for a lower tax rate.It emphasized that appellate authorities have the jurisdiction to entertain new grounds not raised before the assessing authority, as per the Supreme Court's ruling in Goetze India Ltd.The Tribunal concluded that the pendency of the advance ruling application should not affect the assessee's entitlement to a lower tax rate.The case was remanded to the Assessing Officer for fresh adjudication on the merits, with instructions to allow the assessee to present its claim within three effective opportunities.The Tribunal's decision underscores the importance of addressing substantive claims on their merits, rather than focusing solely on procedural defaults.