TaxTMI 
TaxTMI 
2026 (3) TMI 62
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....reon. 2. Ground No. 2 Taxing the income under wrong head of income and non-consideration of the beneficial provision of India-Germany Double Taxation Avoidance Agreement ('the Treaty') On the facts and in the circumstances of the case and in law, the Ld. AO has erred in not considering the submission of the Appellant to tax the income of INR 1,26,59,423 under the head "Fees for Technical Services" (FTS) under Article 12 instead of income inadvertently reported under the head of "Profits and Gains from Business or Profession" in the Income-tax return. Accordingly. Ld. CIT(A) has erred in upholding the order passed by Ld. AO 3. Ground No. 3-Non grant of the beneficial provisions of the Treaty Without prejudice the Ground No.2, the Ld. AO has erred in not appreciating the fact that the Appellant, being a tax resident of Germany, having no Permanent Establishment (PE) in India, is eligible to claim the beneficial tax provision under the Treaty. Thus, Ld. AO has erred in taxing the income under the provisions of the Act. Accordingly, Ld. CIT(A) has erred in upholding the order passed by Ld. AO. 4. Ground No. 4-Incorrect calculation of....
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....without appreciating that the reporting error in the ITR was inadvertent and disclosed voluntarily by the Appellant. In the view of the above, the initiation of penalty proceedings is unjustified and liable to be quashed/dropped." 2. Since common issues are involved, both these appeals were taken up for hearing together and are being disposed-off by way of this consolidated order. With the consent of both the parties, the appeal in ITA No. 6029/Mum/2025 for Assessment Year 2017-18 is taken as a lead case for the purposes of discussion. 3. Briefly stated, facts of the case are that the assessee-company, incorporated under the laws of Germany, filed its return of income for the AY. 2017-18 on 29-03-2018, declaring total income of Rs. 1,26,59,423/- under the head "income from business and profession" in terms of provisions of the Act and tax was computed @30% plus surcharge and cess and tax liability was determined at Rs. 41,85,584/- and after claiming relief u/s. 91 amounting to Rs. 29,19,641/-, net tax liability was determined at Rs. 12,65,943/- and after claiming credit for TDS amounting to Rs 12,65,943, final tax liability was determined at Nil. 4. The return was selected....
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.... revenues under Article 12(2) of the India-German Tax Treaty. It was submitted that during the assessment proceedings, the assessee-company raised this claim before the AO. However, the AO passed the assessment order, denying the treaty benefit to the assessee-company and tax liability was computed @40% plus surcharge and cess. At the same time, the AO has erroneously allowing notional tax relief of Rs. 29,19,641/- u/s 91 of the Act. 7. It was further submitted that the assessee raised the said contentions before the Ld.CIT(A) as well, however, the same did not find favour with the Ld.CIT(A) and he has upheld the order so passed by the AO. In support of his contentions, reliance was placed by the ld AR on the CBDT Circular No. 14, dt. 11-04-1955, wherein the Board has clarified that "officers of the Department must not take advantage of the ignorance of an assessee as to his rights and the officer should draw the attention of the assessee to any refunds or relief to which they appear to be clearly entitled but which they have omitted to claim for some reason or other." Further, reliance was placed on the following decisions for the proposition that any mistake in ITR can be corr....
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....", it has submitted that its income should have been assessed by the AO as FTS as per the DTAA and has claimed that it does not have any PE in India. 6.1.2 In this regard, on perusal of the impugned assessment order, it is noted that in para 3 of the impugned assessment order, the AO states that the assessee is a resident of Germany and provides professional consultancy from Germany only as and when required by Indian clients. During the year under consideration, the assessee derived income under the head 'Income from Business and Profession' and the appellant submitted copies of computation of total income with relevant annexures etc., which were verified by the AO and the total income filed by the appellant was accepted. On perusal of the ITR filed by the appellant, it is noted that it is the appellant itself who in its ITR has offered income under the head "profits and gains from business and profession" in the relevant column of its ITR, and thus, there is no mistake on the part of the AO in treating the said income under the same head as declared by the appellant itself, i.e. under the head "business and profession". In this regard, the appellant has claimed i....
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.... rate considered by the appellant of 33.063% without claiming the benefit of lower tax rate while filing the Return of income, it is the duty of the AO to collect legitimate tax and apply the correct income-tax rate applicable to the appellant. 6.1.3 It is noted in the subsequent AY 2018-19, the similar claim of the appellant was examined by the AO that the company had offered its entire income to tax under the head "profits & gains from business or profession" so as to avoid the cess and surcharge liability computed on special income. It was further clarified by the appellant that since the income was reported under the head 'PGBP, tax was calculated at a higher rate of 40%, therefore, to avoid further tax liability, company claimed relief u/s. 90/91. The appellant had claimed that the said income was not taxable as per business income as per relevant Article of the tax treaty in absence of PE, and that it is taxable as per the specific articles in the treaty as FTS and interest. The appellant claimed that the assessee had inadvertently offered its FTS and interest income under the head "profits & gains from business or profession" and had inadvertently claimed relief....
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.... that its own ITR should be allowed to be modified without resorting to filing of a revised Return or filing a revised Return u/s. 119(2)(b) of the Act and it has been further claimed that the onus lies on the AO in this regard. These claims are not at all valid, and it is noted that the case laws cited by the appellant have totally different facts than that of the instant case and hence not found applicable. These claims of the appellant are not justifiable and no bonafide could be established by the appellant in this regard. In any case, the AO was prevented by provisions of the term 'limited scrutiny' to examine any other issue other than double taxation relief claimed by the appellant and no dispute has been raised by the appellant regarding denial of "double taxation relief by the AO. Hence no error could be attributed to the AO in calculating the tax on the amount of income under the head "profits and gains from business and profession" instead of taxing the same u/s. 115A of the Act as is being claimed by the appellant. The powers of the Ld.CIT (Appeals) to entertain such claim and examine the existence or non-existence of a PE, applicability of section 44DA etc. ste....
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....vely determining its tax liability at Rs 12,65,942/-, being 10% of gross revenues under Article 12(2) of the India-German Tax Treaty. The Assessing officer considered the submissions so filed by the assessee and passed the assessment order u/s 143(3) dated 21/11/2019 wherein the AO has recorded his findings stating that the assessee is a resident of Germany and provides all professional consultancy from Germany only as and when required by Indian clients and it derives its income under the head 'Income from business and profession' and after verification of details submitted by the assessee, the income was computed at Rs 1,26,59,423/- and while computing the tax liability, the AO determined the tax payable @40% (plus applicable surcharge and cess) and total tax liability was determined at Rs. 53,19,994/- and after allowing relief u/s. 91 of the Act amounting to Rs. 29,19,641/-, net tax liability was determined at Rs. 24,00,353/-. 10. We, therefore, have a situation where subject matter of limited scrutiny i.e, claim of relief u/s 90/91 and the explanation so tendered by the assessee has not been examined by the AO. The assessee has explained that for the purposes of work....
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.... the beneficial tax rate of 10% as per Article 12 of India-German tax treaty and copy of tax residency certificate was also furnished. The AO has also recorded his findings stating that the assessee is a resident of Germany and provides all professional consultancy from Germany only as and when required by Indian clients, however, the tax liability has been determined @ 40% under the Act as against 10% claimed by the assessee under Article 12 of India-German tax treaty. The said claim was thereafter reiterated before the ld CIT(A) and the Ld.CIT(A) has held that his powers stems from the original powers available with the AO (in the context of limited scrutiny) and therefore, the issue is not within his purview of examination and he declined to entertain such a claim. 14. As we have held above, the explanation of the assessee in context of notional claim of relief u/s 91, which was well within the scope of limited scrutiny, has to be seen and examined in context of its claim of beneficial tax rate under the tax treaty which has not happened in the instant case. In any case, where a legitimate claim is made in respect of which all material is available on record, the same deserve....
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....r, there is no bar to scrutinize the case on the request or claim of the assessee as the AO has to make correct assessment as it is trite to say that the AO has to make correct assessment u/s 143(3) and he is obliged to entertain the claim made during the proceedings and the tax cannot be levied on ignorance of law but income has to be computed in accordance with the provisions of law. Further, as it was argued that the department can not take advantage of ignorance of assessee to collect more tax than what legitimately due in view of the CBDT Circular No.14 dated 11.04.1955. On the aforesaid consideration and analyzation, we are of the view that correct income has to be assessed and there is no bar for not entertaining the claim/issue raised by the assessee in limited scrutiny proceedings, if the same has been raised by the assessee, we clarify that according to the CBDT Instruction No.7/2017 certainly there is bar on the jurisdiction of the Assessing Officer to go beyond the subjected issue(s) under limited scrutiny cases, however, he is not restrained to adjudicate the issue(s) raised by the assessee. Hence, In view of the above, the case is remanded to the file of the ....