TaxTMI 
TaxTMI 
2005 (1) TMI 628
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....3. (C) For that further and in any event and without prejudice to the aforesaid the Director of Income-tax (Exemption) erred in holding that the authorization was an order or was erroneous or prejudicial to the Revenue and in cancelling the same. (D) For that the Director of Income-tax (Exemption) erred in holding that guarantee money was income liable to tax or that tax should have been deducted therefrom. (E) For that the Director of Income-tax (Exemption) erred in holding that the Board's instruction dated May 17, 1996 was merely a correspondence or was withdrawn or was not binding on the Assessing Officer. (F) For that the Director of Income-tax (Exemption) erred in holding that the Double Taxation Avoidance Agreement with Australia did not cover the payment of guarantee money. (G) For that the purported findings of the Director of Income-tax (Exemption) cancelling the authorization of the Assessing Officer are wholly arbitrary, erroneous, perverse and misconceived." 2. Shri P. J. Pardiwala, advocate appearing for the assessee ("the AR" in short) and Shri Rajendra, Commissioner of Income-tax (Departmental Representative) ("the....
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.... : "The matter regarding deduction of tax from guarantee money payable to foreign cricket board has been referred by us to the Central Board of Direct Taxes and the Central Board of Direct Taxes vide their letter dated May 17, 1996, has clarified as under : (A copy of letter dated May 17, 1996 is enclosed herewith.) 1. Guarantee money payable to foreign cricket boards is covered under section 115BBA of the Income-tax Act, 1961. 2. In the case of the countries with whom India has entered into Double Taxation Avoidance Agreements, no liability of tax arises even under section 115BBA of the Income-tax Act, 1961. 3. It is further stated in the said letter that India has entered into Double Taxation Avoidance Agreement with Australia and no liability to tax arises in respect of payment made to the Australian Cricket Board. India has entered into a Double Taxation Avoidance Agreement with Australia and therefore, it is submitted that no tax is deductible from guarantee money payable to the Australian Cricket Board. Under the circumstances, we request your honour to issue a no objection certificate for remittance of Australian dollars ....
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.... be said to be erroneous. Since the authorization issued by the Income-tax Officer was not erroneous, the learned Director, according to him, erred in exercising the jurisdiction under section 263 and hence the order passed by him deserved to be set aside. His third submission was that the authorization issued by the Income-tax Officer was also not prejudicial to the interests of the Revenue inasmuch as the said authorization was issued by the Income-tax Officer after the matter has been considered at the highest level of tax administration and hence the learned Director erred in cancelling the authorization. His fourth submission was that the assessee, acting under the authorization issued by the Income-tax Officer, had already remitted the guarantee money to the Australian Cricket Board much before the impugned order was passed by the learned Director and hence it was no longer possible for the assessee to deduct the tax at source after the remittance of the money to the Australian Cricket Board. Summing up his arguments, he submitted that the impugned order cancelling the authorization issued by the Income-tax Officer was liable to be set aside as the authorization issued by the....
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....abhoy and Co. v. S. P. Jain [1957] 31 ITR 872 (Cal)) to the interests of the Revenue. (vi) Jaipur Udyog Ltd. v. CIT [1985] 155 ITR 476 (Raj) 9. Per contra, the learned Departmental Representative supported the impugned order of the learned Director and submitted that the impugned order was passed by the Director after considering all the aforesaid submissions of the learned Authorised Representative which were urged before the Director also. According to him, the authorization issued by the Income-tax Officer under section 195 was an order within the meaning of section 263 and was also erroneous as well as prejudicial to the interests of the Revenue and hence the learned Director was justified in exercising the revisional jurisdiction conferred upon him under section 263. He, in particular, invited our attention to a decision of the Calcutta Bench of the Tribunal in Pilcom v. ITO [2001] 77 ITD 218 for the proposition that guarantee money paid by the assessee in that case, i.e., a committee formed by the Cricket Control Boards/Associations of Pakistan, India and Sri Lanka (PILCOM) for the purpose of jointly conducting World Cup Cricket, 1996 to cricket associations of th....
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....son liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) Where the person responsible for paying any such sum chargeable under this Act (other than interest on securities and salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by General or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable." (emphasis supplied) "263. Revision of orders prejudicial to revenue.-(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order ....
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....hey convey the decision so as to determine or dispose of the matter under issue. Any communication by the Assessing Officer under section 195(2) that disposes of the application made under section 195(1) and determines the liability towards tax to be deducted at source in accordance with the provisions of section 195(2) is, in our humble view, an order not only for the purposes of section 195(2) but also for the purposes of section 263. This is more so when section 195(2) itself declares it to be an order. If it is an order for the purposes of section 195(2), we see no reason as to how it can cease to be an order for the purposes of section 263. 13. We shall now turn to the provisions of section 263 of the Income-tax Act, 1961 which confers jurisdiction upon the Commissioner to call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the....
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....dicial to the interest of the Revenue and meets other conditions of section 263. 14. A perusal of section 195(2) shows that it enables the person responsible for paying any sum chargeable under the Income-tax Act (other than interest on securities and salary) to a non-resident to make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. On a bare reading of section 195(2), it becomes clear that the Assessing Officer is required to act judicially, or, so to say, "quasi-judicially", and dispose of the application made by the concerned person by determining the appropriate proportion of the sum chargeable to tax, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. If the Assessing Officer is required to act judicially under section 195(2), he must necessarily exercise the quasi-judicial power in accordance with the well-settled principles of law. He should act fairly not only towards the app....
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.... to the Australian Cricket Board without deduction of tax at source. The said order does not show that the Assessing Officer has considered or applied his mind to the factual and legal aspects of the case. It is a stereo-typed order which simply accepted what the assessee stated in its application without proper examination of the factual and legal aspects of the case. In Malabar Industrial Co. Ltd. v. CIT [1992] 198 ITR 611 (Ker)-affirmed by the hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, it has been held that non-application of mind will satisfy the requirement of the order being erroneous. An order may be rendered erroneous due to error in approach, error in computation, error in applying the relevant law or facts or error in selecting a principle which would not govern the fact situation. Likewise arbitrary exercise of quasi-judicial power without due consideration of the relevant aspects of the case would also, in our humble view, render the resultant order erroneous within the meaning of section 263. In this view of the matter, we are unable to uphold the submission of the learned Authorised Representative that the order passed by the As....
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....ial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised." (emphasis supplied) 18. In our view, the case before us is covered by the aforesaid principles laid down by the hon'ble jurisdictional High Court. However, the submission of the learned Authorised Representative is that the Assessing Officer has committed no error in passing the order under section 195(2) inasmuch as he has followed the binding instructions issued by the Central Board of Direct Taxes. The learned Director has dealt with this issue in his order under section 263 as under : "The decision of the hon'ble Bombay High Court reported in CIT v. Paul Brothers [1995] 216 ITR 548 is not applicable to the facts of the assessee's case ....
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....rder issued by the Central Board of Direct Taxes within the meaning of section 119. (ii) All circulars, instructions, orders issued by the Central Board of Direct Taxes are serially numbered as also file numbered whereas the letter in question is only file numbered as it is done when an official letter is issued or correspondence is made. (iii) Letter (s) issued in individual cases does/do not constitute circular or order within the meaning of section 119 in view of the proviso to subsection (1) of section 119. (iv) The said letter was issued by way of clarifications. It is also stated in the said letter that the "tax related matters of PILCOM/BCCI may be disposed of in the light of the above clarifications". The use of the word "may" makes it amply clear that it was not a binding instruction but a mere opinion expressed in the internal correspondence of the Board. Besides, there is no direction in the said letter to the Assessing Officer to allow remittance of guarantee money without deduction of tax at source under section 195. 20. The aforesaid facts indicate that the letter issued by the Central Board of Direct Taxes did not have the sanctity and a....
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....hief Commissioner of Income Tax, Calcutta, on the matter of taxability of BCCI and PILCOM and other tax related matters with regard to World Cup, 1996. The Department contends that the said letter was later on withdrawn by a subsequent letter of the Central Board of Direct Taxes dated November 8, 1996 in F. No. 484/1/96-FTD. It is the assessee's contention that on the same date, i.e., May 17, 1996, the Central Board of Direct Taxes also addressed a letter to the Director of Income Tax (Exemption), Mumbai, in which a different version was taken by the Central Board of Direct Taxes. In this connection, we have got to state that firstly the abovementioned letter is not of the nature of a circular issued by the Central Board of Direct Taxes in a general manner and hence, this letter does not have any sanctity, secondly that the said letter was actually withdrawn by the Central Board of Direct Taxes later on and lastly that even the letter under consideration does not at all say that there would be no need to deduct tax at source from the payments made by PILCOM. On the other hand, it was stated in the said letter that PILCOM would be subjected to the provisions of section 194C rela....
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....ed Authorised Representative would have merited consideration if the Assessing Officer had taken a view after due examination and consideration of the relevant factual and legal aspects of the case. Taking a view pre-supposes a conscious consideration of all the relevant materials as also the provisions of law before forming the view. A view cannot be formed in a vacuum. A judicial view has to be a well-informed view based on proper evaluation of facts and legal provisions applicable to those facts. Here is a case where the Assessing Officer passed a stereo-typed order in one day accepting what the assessee had stated in the application without due judicial examination of the relevant aspects of the case and application of judicial mind. Had the Assessing Officer examined all the relevant aspects of the case in the light of the provisions of section 195(2) and taken a view thereafter, the situation could have been different. But that is not the case here. The Director exercised his revisional jurisdiction as he found that the Assessing Officer had exercised his power mechanically without due examination of all the relevant aspects of the case. 24. The assessee has challenged, vi....
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....e valid in respect of the payment to each such country in the above manner. 21. The third objection is being raised by the assessee in a limited manner. It is contended that, inasmuch as, the Double Taxation Avoidance Agreements (DTAA) exist between India on the one hand and Australia, England, New Zealand, Sri Lanka and Kenya on the other, no income would generate in the hands of cricket associations of these countries on account of the payments made by PILCOM to them. There is no doubt about the fact that where there is a conflict between the provisions of the Double Taxation Avoidance Agreement and those of the Indian Income-tax Act with regard to some particular issues, the provisions of the Double Taxation Avoidance Agreement would prevail over those of the Indian Income-tax Act. However, where there is no such conflict and in respect of matters where the Double Taxation Avoidance Agreement is totally silent, the provisions of Indian Income-tax Act would certainly be applicable. As a test case, learned counsel for the assessee has filed on our record, a copy of the Double Taxation Avoidance Agreement between India and Australia dated July 25, 1991. Reliance has been t....
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....sed in India. Therefore, we feel that the issue under consideration should be guided by article 17 of the Double Taxation Avoidance Agreement and not by article 22 as tried to be relied upon by the assessee. Therefore, the objection raised by the assessee with regard to the existence of Double Taxation Avoidance Agreement with some of the countries will not hold good." 25. Respectfully following the aforesaid decision of the hon'ble Calcutta Bench of the Tribunal, ground Nos. D and F are decided against the assessee. 26. It was next argued by the learned Authorised Representative that the assessee, acting on the order of the Assessing Officer passed under section 195(2), had already remitted the guarantee money to the Australian Cricket Board without deduction of tax at source. The learned Authorised Representative has filed a copy of the slip dated December 3, 1996 of the Bank of Madura Ltd., Bowanipur which, inter alia, shows transfer of US $ 1,60,548 (Rs. 46,91,213) through lts CA 1869. In the explanatory sheet of paper filed by the assessee before us, it is explained that the said amount of Rs. 46,91,213/- was remitted to the Australian Cricket Board without deduction....