TaxTMI 
TaxTMI 
2012 (7) TMI 806
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....rder dated 4th June, 2009. 3. The petitioner has raised the following contentions: (A) Section 172 of the Act is a complete code and, therefore, reassessment proceedings under Section 147/148 of the Act cannot be initiated. (B) For the assessment year 2007-08, the respondent had earlier issued 'annual no objection certificate' dated 14th November, 2006. The respondent was satisfied that the petitioner was entitled to benefit under Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and the UAE. The said certificate is binding on the respondent and therefore reassessment proceedings cannot be initiated. (C) The respondent had earlier issued notice under Section 172(4) dated 22nd September, 2008, in respect of assessment year 2007-08 and thereafter questionnaire dated 17th November, 2008 was issued. The petitioner had submitted detailed replies dated 28th November, 2008 and 10th December, 2008. However, the proceedings abated and no order under Section 172(4) was passed. The respondent cannot initiate reassessment proceedings. Reliance is placed on KLM Royal Dutch Airlines vs. ACIT, (2007) 292 ITR 49 (Del) and CIT vs. Ved & Co., (2008) 302 ITR 328(Del) and M....
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....ships at the Indian ports. Under such circumstances, a "No objection certificate" is to be obtained by the master of the ship from the concerned income-tax authority. 3. It has been represented to the Board that in cases where no tax is payable in India, the procedure of obtaining a "No objection certificate" from the income-tax authorities before each voyage, should be done away with. 4. The Board have considered the matter. It has been decided that in such cases, the Assessing Officer shall be competent to issue an annual NOC, valid for a year, in respect of taxation of shipping profits under section 172 of the Income-tax Act, 1961, after carefully verifying the applicability of the relevant provisions concerning taxation of shipping profits in the DTAA with the country of which the owner or the charterer is a resident. 5. While examining the relevant articles of the DTAA, the Assessing Officer should ensure that the non-resident shipping company is engaged in "international traffic", a term which is invariably defined in the DTAA itself. An undertaking from the non-resident company that during the period of the currency of the NOC, no ship belonging to it will be in any ....
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....e petitioner was directed to submit annual consolidated freight tax return for the assessment year 2007-08, within two months, with the respondent as well as authorities having jurisdiction on the concerned port. Failure to file said return, it was observed, would be construed as a breach of conditions imposed for issue of no objection certificate inviting cancellation of the certificate. 7. The petitioner filed annual tax return on 18th June, 2007, disclosing freight earned from all ports in India for the Assessment Year 2007-08. 8. The respondent issued notice and raised queries by letter dated 17th November, 2008. The petitioner responded by letters dated 28th November, 2008 and 10th December, 2008. As per the petitioner, no order under Section 172(4) was passed and the limitation for passing of an order under the said Section came to an end on the expiry of nine months from the end of financial year. In the queries raised and the reply given, the issue was whether the petitioner was entitled to benefit under Article 8 of the DTAA. The specific query raised was that the petitioner was not liable to pay income tax on the income earned in UAE and, therefore, whether the petition....
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....greement is meant only for the benefit of taxpayers, who are liable to pay tax twice on the same income. This agreement will apply to any taxes on income or capital in addition to the taxes mentioned in Paragraph-2 of Article 2 as and when such taxes are imposed. Also the AAR, in the case of Abdul Razack A. Menon In re (2005) 267 ITR 306 has concluded that 'though the payment may not be necessary, but tax should be payable in the other country for getting the relief.' The position regarding eligibility to the tax treaty is clarified by the Notification No. SO 2001(E) dated 28.11.2007, wherein for the purpose of tax treaty in case of UAE, a company, incorporated in UAE and managed and controlled wholly in UAE is treated as resident of UAE." 11. The petitioner filed objections to the assumption of jurisdiction for initiation of the reassessment proceeding on various grounds in terms of the procedure and the ratio of the decision of the Supreme Court in GKN Driveshafts (India) Limited vs. Income Tax Officer, (2003) 259 ITR 19. By the order dated 4th June, 2009, the objections filed by the petitioner to the assumption of jurisdiction for initiation of reassessment proceedings was rej....
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....that where the return under sub-section (3) has been furnished before the 1st day of April, 2007, such order shall be made on or before the 31st day of December, 2008. (5) For the purpose of determining the tax payable under sub-section (4), the Assessing Officer may call for such accounts or documents as he may require. (6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, live-stock, mail or goods shipped at Indian ports during that previous year shal....
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....t of tax. These are special provisions which have been enacted keeping in view the specific need and requirement relating to international shipping and their liability to pay income tax in India. 15. Sub-section (7) to Section 172 elucidates that an order under Section 172(4) is a summary order, which cannot be equated with an order of assessment under Section 143(3) of the Act i.e. the regular assessment. The assessee in question i.e. the non-resident ship owner or the charterer can invoke the said sub-section and call upon the Assessing Officer to pass a regular assessment order. This section, therefore, enables the assessee concerned to ask the Assessing Officer who has passed order under Section 172(4) to proceed and pass a regular assessment order. This provision is required because normally an assessee cannot ask an Assessing Officer to pass a regular assessment order under Section 143(3). In the absence of the said stipulation, the Assessing Officer alone has the option and right to initiate regular assessment proceedings by issue of notice under Section 143(2). The tax paid during the previous year under Section 172(4) on summary assessment is treated and regarded as Advan....
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....onditions of Section 147/148 are satisfied, notice for reassessment can be validly issued. Section 172(4) as noticed above is only a summary procedure and not a detailed regular assessment order. It is somewhat like an order under Section 195/197 of the Act. 18. Further, Section 147 does not refer to an assessment order under Section 143(1) or (3). The requirement is recording of 'reasons to believe' that income chargeable to tax has escaped assessment for any assessment year. The proviso refers to orders under Section 143(3) and when Section 147 can be invoked after expiry of 4 years, where an order under the said Section has been passed. There is no inconsistency or repugnancy between Section 147 of the Act and Section 172. Section 172 does not specifically state that reopening provisions are not applicable. It is difficult to accept that Section 172 by implication negates or contradicts application of Section 147 or the reopening provisions. No doubt Section 172 is a special provision but the provisions of the said Section are not anti-thesis or contradict application of Sections 147 or 148 of the Act. A provision or Section is not to be read or construed in isolation but shoul....
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.... the Income-tax Officer to levy and recover tax in the case of any ship belonging to a non-resident, in a summary manner notwithstanding anything contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the same. Normally, this will be the assessment of the assessee for the year. But, u/s. 172(7) of the Act a right is given to the assessee to claim before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment, according to the provisions of the Act, in a regular manner be made. Thus, a right is given to the assessee to opt for a regular assessment although a "rough and ready" or a "summary assessment" has already been made u/s. 172(4) of the Act. It is a valuable right. If the assessee exercises the right conferred on him u/s. 172(7) of the Act, the Income Tax Officer is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act" and any payment made under th....
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....sessee, then the assessee would be entitled to it and also interest thereon u/s. 214 of the Act." 20. This decision was referred to by the Kerala High Court in Commissioner of Income Tax vs. Taiyo Gyogyo Kabhushiki Kaisha, (2000) 244 ITR 177 (Ker.). The said case pertains to the Companies (Profits) Surtax Act, 1964. On the basis of assessment under Section 172(4) of the Income Tax Act, 1961, the Assessing Officer had computed levy of surtax. The High Court pointed out the difference between an assessment under Section 172(4) of the Act which was classified and regarded as provisional, ad-hoc or for special purpose assessment and observed that this does not preclude the Assessing Officer from resorting to Section 44B of the Act in regular assessment proceedings, which could be resorted to and enforced by the Assessing Officer. It was observed that even when an ad-hoc assessment is made under Section 172(4), the assessee can exercise option under Section 172(7) or the Assessing Officer could have made regular assessment in terms of Section 44B of the Act. We need not examine the legal ratio but what is relevant and material for us is a factum and acceptance of the principle that Sec....
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....sessing Officer should have formed a prima facie belief that income has escaped assessment. 24. 'Reasons to believe' recorded by the Assessing Officer are a result of the subjective satisfaction of the assessing officer, but in a way has to satisfy the test of objectiveness. The belief must be honest and should be based upon some material or basis but not on mere suspicion, gossip or rumour. 'Reasons to believe' do not mean 'reasons to suspect'. The Assessing Officer cannot institute or start a fishing investigation or rowing inquiry. There must be some information or material which is on the file which makes the assessing officer form a tentative or prima facie opinion that income has escaped assessment. This material or information cannot be wholly vague, indefinite or farfetched. It must have nexus or live link with the formation of belief. The test is whether a reasonable person would have formed the requisite belief on the basis of information or material as stated/recorded by the Assessing Officer that income has possibly escaped assessment. Mere ipse dixit or a hunch does not amount to reason to believe. Inspite of the wide power, the exercise of power must meet this....
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....ius and whether the circular issued by CBDT No. 789 dated 13th April, 2000, reported in (2000) 243 ITR (St.) 57 was valid or ultra vires to Section 90 and other provisions of the Act. The circular was upheld after drawing a distinction between "liability to pay tax" and "actual or de facto payment of tax". Phrase 'liable to taxation' it has been held is not the same as 'payment of tax'. The test for liability for taxation is not determined on the basis of an exemption granted in respect of any particular source of income but by taking into consideration the totality of provisions of income tax law [refer Ramanathan Chettiar (K.V.Al.M.) v. Commissioner of Income-tax (1973) 88 ITR 169 (SC)]. Merely because at the given time there is an exemption from income tax in respect of any particular head, it cannot be contended or held that the assessee is not liable to tax. The Supreme Court referred to the concept of "fiscal residence of a company" after making reference to OECD and UNO Model Conventions and interpretations placed by Courts in different countries and manuals of international taxation. It was observed that "liable to taxation" does not refer to current but also potential doub....
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....its tax laws, but, this interpretation was not accepted. It was observed that there was good logic and reason why this interpretation should not be accepted. Reference was made to the income tax law applicable in Dubai. It was accordingly observed in Mohsinally Alimohammed Rafik In re (supra):- "While, ex facie, the above seems to be a simple way of reading the DTAA, a more liberal interpretation is suggested by other circumstances. The most crucial circumstance to be taken note of is that there is no income-tax or wealth-tax on individuals in any of the Emirates. There was no such tax there when the earlier limited agreement of 1989 was entered into which provided the occasion for discussion on a more comprehensive tax treaty and there can be no doubt that both the States were fully aware of this position. The fact that such a comprehensive DTAA was considered necessary in spite of a clear knowledge that there was no such tax in the U.A.E. can only mean that the DTAA was intended to encourage the inflow of funds from Dubai to India for investment. In this context, it is necessary to remember that U. A. E. provides one of the largest export markets for India in West Asia. T....
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.... to tax and hence will be residents of U. A. E. entitled to avail of the benefits of the agreement. Individuals, not being now liable to tax, cannot claim to be residents but, if at a future date, income-tax is levied on individuals too in U. A. E., they will become entitled to invoke the terms of the DTAA. Though this argument may be consistent with the narrow interpretation of article 4 earlier set out, there are difficulties in accepting this construction of the DTAA. It is too artificial and far-fetched to say that India, with the full knowledge of the absence of any income tax in Dubai in respect of individuals, proceeded to enter into a DTAA on the off chance, or to provide against a future contingency, of the U. A. E. imposing an income-tax on individuals also at a future date. In the first place, there was no urgency for a DTAA in anticipation of future possibilities. There was no reason to expect that Dubai, where there is no organised tax system at present, would be able to draw up a comprehensive tax law in the near future. Secondly, the presence of a number of articles in the agreement solely concerning themselves with individuals (see, in particular, articles 14 to 21)....
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....g inserted in the agreement merely to meet a situation which does not arise on the date of the agreement but may possibly arise in future. These provisions are consistent only with the interpretation that certain benefits qua Indian tax are intended to be conferred on individuals resident in the U. A. E. even though they are not liable to tax in their State. Thirdly, if one accepts the stricter interpretation, all corporate bodies will be residents entitled to the benefits of the agreement, they being liable to tax under the Dubai Ordinance although as pointed out earlier those provisions are not actually enforced against several categories of companies. In other words, even companies which are not called upon to pay any tax in Dubai will be entitled to claim benefits under the agreement. If this be so, logically, there is no reason why individuals should not also be permitted to avail of the benefits of the agreement for the reason that they are not actually subject to tax in Dubai. Fourthly, the structure of the agreement also indicates that it is more a tax avoidance agreement than a tax relief agreement. Many of the articles are so structured as to ensure that the income arisin....
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....article 4.1 of the Model Convention has raised a number of issues, and observes : "It seems clear that a person does not have to be actually paying tax to be 'liable to tax'-otherwise a person who had deductible losses or allow- ances, which reduced his tax bill to zero would find himself unable to enjoy the benefits of the convention. It also seems clear that a person who would otherwise be subject to comprehensive taxing but who enjoys a specific exemption from tax is nevertheless liable to tax, if the exemption were repealed, or the person no longer qualified for the exemption, the person would be liable to comprehensive taxation." Interestingly, Baker refers to the decision of the Indian Authority for Advance Ruling in Mohsinally Alimohammed Rafik, In re [1995] 213 ITR 317(AAR). An assessee, who resided in Dubai claimed the benefits of the UAE- India Convention of April 29, 1992, even though there was no personal income-tax in Dubai to which he might be liable. The Authority concluded that he was entitled to the benefits of the convention. The Authority subsequently reversed this position in the case of Cyril Eugene Pereira, In re [1999] 239 ITR 650 (AAR) where a contrary view ....
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.... its order dated24th September 2010 confirming the aforesaid view of CIT(A) and dismissing the appeal of the revenue. Challenging that order, the present appeal is preferred. The only contention raised by the revenue in this appeal (which was based on the assessment order passed by the Assessing Officer) is that in absence of any tax laws in UAE and as the respondent is not liable to pay the tax on the aforesaid short term capital gain in UAE, the provisions of DTAA would not be applicable as there is no question of avoiding payment of double tax in the said case. Howsoever attracted this proposition may be, we are not in a position to accept the same inasmuch as this very contention was negated by the Supreme Court in Azadi Bachao Andolan (supra). Interestingly, that was a case where Azadi Bachao Andolan had filed a Public Interest Litigation raising this contention which was accepted by the High Court. However, against that order, the appeal filed by none else than the Union of India itself and had argued that even if tax revenue actually paid by a non-resident in other country with which India has entered into such a treaty, that would be of no consequence and that contention wa....