TaxTMI 
TaxTMI 
2019 (6) TMI 932
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.... Rules made thereunder alternatively, to read down Section 271[1][c] of the Income Tax Act, 1961 and hold that the said provision has no application in respect of amounts determined pursuant to convention for avoidance of double taxation between Union of India and other sovereign countries which is enforced in Indian territory by Section 90 of the Income Tax Act, 1961 and the Rules made thereunder inter alia challenging the notice and order dated 18.10.2010 and 22.09.2015 respectively, issued/passed by the Director [Transfer Pricing-II] relating to the assessment year 2006-07, further seeking for a direction to the respondents to refund Rs. 30,89,98,800/- withheld by virtue of order dated 22.09.2015 with interest at 18% per annum from date of payment till the date of refund. In W.P.No.56348/2015, the petitioner has challenged the notice dated 27.10.2015 issued under Section 274 read with Section 271 [1][c] of the Income Tax Act, 1961 relating to the assessment year 2005-06. 2. The facts relating to W.P.No.57865/2015 are as under: The petitioner is engaged in the business of manufacture and trade of passenger cars and multi-utility vehicles and is a subsidiary of Toyo....
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....h the resolution passed by mutual discussions between two sovereign nations under the India - Japan Double Taxation Agreement, as specifically provided under Article 25 of the Treaty, a notice was issued by the Deputy Commissioner of Income Tax (Respondent No.5) affording an opportunity to hear the petitioner in respect of imposing penalty under Section 271[1][c] of the Act which was objected to, by the petitioner. Respondent No.5 rejecting the contentions raised by the petitioners, has passed an order, imposing penalty of Rs. 30,89,98,800/- in respect of the transfer pricing adjustment of Rs. 91,80,00,000/- on the ground that the petitioner has concealed income in respect of the same within the meaning of Explanation 7 to Section 271[1][c] of the Act. 5. Aggrieved by the said imposition of penalty, the petitioner preferred an appeal before the Appellate Authority under Section 246A of the Act challenging the order on merits. In addition to the same, the petitioner has filed the present petition challenging the Constitutional validity of Section 271[1][c] along with Explanation 7 of the Act in so far as the same being applied to mutual agreement between sovereign Nations by virt....
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....by the Government of India to the assessing officer, to give effect to the agreement between the two sovereign states in terms of Rule 44H [4 and 5] of the Rules, 1962, the said Explanation 7 is not applicable. It was contended that the said agreement has not contemplated either levy of penalty or independent determination of the same in collateral proceedings. 7. Learned Senior Counsel Mr.K.P.Kumar representing the petitioner in W.P.No.56348/2015 supported the arguments of the learned Senior Counsel Sri.Naganand. 8. Learned Senior Counsel in support of his contentions, has placed reliance on the following judgments: 1. [2004] 2 SCC 731 K.C.Builders and Another V/s. Assistant Commissioner of Income Tax; 2. [2013] 359 ITR 565 [Karn] Commissioner of Income-tax and Another V/s. Manjunatha Cotton and Ginning Factory and Others; 3. 1992 SCC OnLine Kar 400 Commissioner of Income-Tax V/s. R.M.Muthaiah; 4. [2004] 10 SCC 1 Union of India and Another V/s. Azadi Bachao Andolan and Another; 5. [2013] SCC OnLine Del 4694 Director of Income Tax V/s. Infrasoft Ltd.,; 6. [2011] 1 SCC 1 Brij Lal V/s. Commissioner of Income Tax, Jalandhar; ....
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....ance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic laws of those Contracting States present his case to the competent authority of the Contracting State of which he is a resident or, if h is case comes under paragraph 1 of article 24, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of this Convention. 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the provisions of this Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic laws of the Contracting States. 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of th....
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....hus: "90. Agreement with foreign countries or specified territories.- (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding l....
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.... Rules has been passed by the Assessing Authority pursuant to the determination made by the consent of two Sovereign States under a convention which is in the nature of composition but the said resolution is silent on the aspect of imposition of penalty. 18. In the case of R.M. Muthaiah supra, the Hon'ble Apex Court has observed thus: "9. Section 90(a) of the Income-tax Act also refers to the granting of relief in respect of income on which Income-tax has been paid both under the said Act and under the Income-tax Act of the other country. Similarly, clause (b) also refers to the avoidance of double taxation. We are not concerned with the other clauses of section 90 in the instant case. In other words, the parties to an agreement to avoid double taxation is to grant relief to the assessee in case the law of two countries operates on the same income and the assessee may have to pay tax in both countries. The Revenue's contention in the instant case is entirely based on sections 4 and 5. But these provisions shall have to be read subject to the provisions of the agreement in question. The agreement in question, by necessary implication, takes away the power of the Indian G....
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.... Income-tax Act and the corresponding law in force in that country, had been paid. The Central Government could make such provisions as necessary for implementing the agreement by notification in the Official Gazette. When the Income-tax Act, 1961 was introduced, section 90 contained therein initially was a reproduction of section 49A of 1922 Act. The Finance Act, 1972 (Act 16 of 1972) modified section 90 and brought it into force with effect from 1.4.1972. The object and scope of the substitution was explained by a circular of the Central Board of Taxes (No.108 dated 20.3.1973) as to empower the Central Government to enter into agreements with foreign countries, not only for the purpose of avoidance of double taxation of income, but also for enabling the tax authorities to exchange information for the prevention of evasion or avoidance of taxes on income or for investigation of cases involving tax evasion or avoidance or for recovery of taxes in foreign countries on a reciprocal basis. In 1991, the existing section 90 was renumbered as sub-section(1) and subsection( 2) was inserted by Finance Act, 1991 with retrospective effect from April 1, 1972. CBDT Circular No. 621 dated 19.12....
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....referred to in certain Articles of the Agreement. The High Court summed up the situation by observing (at p.512-513): "The effect of an "agreement" entered into by virtue of section 90 of the Act would be : (1) If no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by this Act; (ii) if a tax liability is imposed by this Act, the agreement may be resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the appellate authorities and the court." 27. In Arabian Express Line Ltd. of United Kingdom and Others v. Union of India [1995] 212 ITR 31 [Guj], the Gujarat High Court, interpreting section 90, in the light of circular No.333 dated April 2, 1982 issued by the CBDT, held that the procedure of assessing the income of a NRI because of his occasional activities in establishing business in India would not be applicable in a case wh....
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....e and effect of the comprehensive Double Taxation Avoidance Agreement with various countries vis-à-vis Section 90 of the Act observed thus: "34. Section 90 of the Act gives relief to the taxpayer who have paid the tax to a country with which India has signed the double taxation avoidance agreement. Section 90 confers the power on the Central government to enter into any agreement with the government of another country for granting relief to an Assessee who has paid income tax under this Act and also income tax in that other country and also in respect of income tax which is chargeable under this Act and under the corresponding law of that country. This has been done with a view to promote mutual economic relations, trade and investment and for avoidance of double taxation of income under this Act as well as the act of the said contracting country. Section 90 (2) lays down that where the Central Government has entered into an agreement with the government of any other country for granting relief of tax or for avoidance of double taxation, then the provisions of this Act shall apply to the Assessee only to the extent that they are more beneficial to the said Assessee.....
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....e any straight jacket formula to levy and determine the penalty. A speaking order requires to be passed for levying the penalty under section 271[1][c] of the Act which is a self-contained code. 24. It is desirable to quote paragraphs 60 and 61 of Manjunatha Cotton and Ginning supra, which reads as under: "60. The penalty proceedings are distinct from assessment proceedings, and independent therefrom. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceeding. Separate provision is made for the imposition of penalty and separate notices of demand are made for recovery of tax and amount of penalty. Also separate appeal is provided against order of imposition of penalty. Above all, normally, assessment proceedings must precede penalty proceedings. Assessee is entitled to submit fresh evidence in the course of penalty proceedings. It is because penalty proceedings are independent proceedings. The assessee cannot question the assessment jurisdiction in penalty proceedings. Jurisdiction under penalty proceedings can only be limited to the i....
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.... said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(1)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing offic....
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.... and others supra, in the context of conclusion arrived by the Settlement Commission invoking the special procedure for computation of total income by, under Sections 245C and 245D in Chapter xix-A of the Act, the Hon'ble Apex Court has observed thus: "23. Descriptively, it can be stated that assessment in law is different from assessment by way of settlement. If one reads section 245D(6) with section 245I, it becomes clear that every order of settlement passed under section 245D(4) shall be final and conclusive as to the matters contained therein and that the same shall not be reopened except in the case of fraud and misrepresentation. Under section 245F(1), in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it shall also have all the powers which are vested in the income tax authority under the Act. In this connection, however, we need to keep in mind the difference between "procedure for assessment" under Chapter XIV and "procedure for settlement" under Chapter XIX-A (see section 245D). Under section 245F(4), it is clarified that nothing in Chapter XIX-A shall affect the operation of any other provision of the Act requiring the applica....
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.... penalty proceedings and issued notice to the assessee to show cause why penalty should not be imposed. The said procedure not being followed and, therefore, though for different reasons, the First Appellate Authority has set aside the order levying penalty, the Tribunal correctly appreciated the facts in a proper perspective and was justified in not interfering with the order of the appellate authority in setting aside the penalty order. 29. Thus, it is clear that unless a specific provision is made in the Double Taxation Avoidance Agreement in as much as penalty is concerned, the provisions of Section 271[1][c] of the Act shall continue to apply or in other words, where a specific provision is made in the DTA Agreement, waiving of penalty, the same shall prevail over the penalty provisions of the Income Tax Act are concerned. Only in such circumstances, Section 271 [1] [c] of the Act cannot be invoked. Merely for the reason that Article 253 of the Constitution of India provides for enacting any law for implementing any agreement, treating or convention with foreign countries and Section 90 is engrafted to avoid Double Taxation it cannot be held that Section 271[[1][c] of the A....