TMI Blog2017 (6) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... t be considered to be part of the sale consideration. The Tribunal further opined that even if it were to be considered as part of the sale consideration, it would be exempt under the DTAA and therefore, either way, the interest received by the assessee company abroad from the non-resident could not be brought to tax in India. Whether applicability of Article 13(4) of the DTAA was raised before the CIT(A) or the Tribunal ? - Held that:- The fact remains that the AO, having initially opined that the inclusive clause in Article 13(4) of the DTAA would be applicable to the transaction thereby making it taxable in India, thereafter accepted the plea of the assessee company that it was not applicable. This acceptance by the AO is explicit from the assessment order. Having agreed with the assessee company on this aspect, the AO held that Article 13(1) of the DTAA would be applicable to the transaction. This finding, which was confirmed in appeal by the CIT(A), is now sought to be discarded by the revenue. The learned senior standing counsel fairly concedes that Article 13(1) was wrongly applied by the authorities to the transaction and contends that it is Article 13(4) which would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2014 relates to I.T.A.No.2118/Hyd/2011, while I.T.T.A.No.71 of 2014 arises out of I.T.A.No.739/Hyd/2011. W.P.No.41469 of 2015 was filed by the assessee company seeking a direction to the revenue to refund the amount of ₹ 49,00,73,615/- along with future interest pursuant to the aforestated common order dated 15.03.2013 and the consequential order dated 28.05.2013 of the Assistant Director of Income Tax (International Taxation)-II, Hyderabad. The assessee company is incorporated in the Kingdom of Netherlands. It has its registered office at Vanenburgerallee, Putten of Netherlands, and is a resident of Netherlands as per Article 4 of the Convention between the Republic of India and the Kingdom of Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (hereinafter, the DTAA ). The assessee company made investments in the equity share capital of an Indian company, Baan IT Park India Pvt Ltd., which was incorporated on 02.04.1997. The assessee company invested, in all, a sum of ₹ 55,95,12,000/- in the said company from 14.08.1997 to 23.03.2000. The Indian company was renamed as Vanenburg IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains was not taxable in India as it was covered by Article 13 of the DTAA, which would override the local law, in terms of Section 90 of the Act. In the alternative, the assessee company claimed that as VITP Limited was registered under Section 10(23G) of the Act, the capital gains arising from transfer of its shares were exempt from taxation under the Act. As regards taxability of the interest paid to it by Ascendas, the assessee company claimed that payment and receipt thereof was in Netherlands and could not therefore be said to have accrued or arisen through or from any property in India or from any asset or source of income in India or through transfer of a capital asset situated in India. By assessment order dated 25.02.2008 under Section 143(3) of the Act, the AO rejected all the three claims of the assessee company. As regards the first claim relating to the exemption claimed under the DTAA, the AO examined Article 13 thereof. Article 13 of the DTAA reads as under: CAPITAL GAINS 1. Gains derived by a resident of one of the States from the alienation of immovable property referred to in Article 6 and situated in the other State may be taxed in that other State. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of shares or jouissance rights in a company, the capital of which is wholly or partly divided into shares and which under the laws of that State is a resident of that State, derived by an individual who is a resident of the other State and has been a resident of the first-mentioned State in the course of the last five years preceding the alienation of the shares or jouissance rights. The claim of the assessee company was that Article 13(4) and Article 13(5) of the DTAA dealt specifically with capital gains arising from transfer of shares and therefore, unless the transaction fell within the inclusive clauses therein, it could not be taxed in India. The assessee company claimed that in the light of the specific provisions made for capital gains arising out of transfer of shares in Articles 13(4) and 13(5), the same would override the general provisions in the other paragraphs of Article 13. While agreeing with this latter proposition, the AO opined that in the present case the issue related to taxability of capital gains arising from alienation of shares, the value of which was principally derived from immovable property used in the business of such company, whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notified under Section 80-IA(4)(iii) of the Act, but industrial parks were included in the ambit of infrastructure facility under Section 80-IA(12)(ca) only in the year 2000, relevant to the assessment year 2000-01. The AO therefore concluded that any investment made in VITP Limited prior to 01.04.2002 would not be eligible for exemption under Section 10(23G) of the Act. She further held that the benefit under Section 10(23G) was for attracting further investment in the infrastructure sector and thereby, any further investments in old projects were entitled to get benefit thereunder. She therefore limited the applicability of the exemption under Section 10(23G) to further investments in the infrastructure sector and not to past investments. Referring to the decision of another Bench of the Tribunal in VBC FERRO ALLOYS LTD. V/s. ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE 3(4), HYDERABAD 1 [2007] 107 ITD 367 (Ahmedabad)the AO stated that the same was not accepted by the revenue as an appeal was pending before the High Court and refused to apply the ratio laid down therein. Similarly, reliance placed by the assessee company on Circular No.772/1998 dated 23.12.1998 was rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds transfer to ₹ 4,09,48,050/-, as expenditure claimed during earlier years had already been debited to the profit loss account of those years. He calculated tax on the interest income at 40%, treating it as income from other sources. He accordingly worked out the capital gains at ₹ 167,95,39,950/- and held the assessee company liable to pay a sum of ₹ 3,37,89,697/-. Aggrieved by the assessment order dated 25.02.2008 under Section 143(3) of the Act, the assessee company filed an appeal in I.T.A.No.0078/AC(IT)-II/CIT(A)-V/2010-11 before the Commissioner of Income Tax (Appeals)-V, Hyderabad (hereinafter, the CIT(A) ). As regards the draft assessment order dated 29.12.2010 under Section 147 of the Act, the assessee company raised objections before the Dispute Resolution Panel (DRP), Hyderabad. The assessee company s appeal was dismissed by the CIT(A) by order dated 25.03.2011. The issues for decision were framed by the CIT(A) as under: (1) Whether the transaction in question, i.e., sale of shares of Indian Subsidiary to the Singapore based company was in principle taxable in India or not? (2) If it is taxable, then does it fall under any of the clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest under Section 234D only on the refund, if any, under Section 143(1) and not on the refund under Section 143(3). The objections of the assessee company were thus partly accepted. Aggrieved by the dismissal of its appeal by the CIT(A) vide the order dated 25.03.2011, the assessee company filed a further appeal in I.T.A.No.739/Hyd/2011 before the Tribunal. It also filed an appeal in I.T.A.No.2118/Hyd/2011 in relation to the reopening of the assessment under Section 147 of the Act and the directions given by the DRP, Hyderabad, upon such reassessment. Both these appeals were disposed of by the common order dated 15.03.2013 passed by the Tribunal. Perusal thereof reflects that, having disposed of I.T.A.No.739/Hyd/2011 on merits, the Tribunal opined that there was no need to consider the issues in I.T.A.No.2118/Hyd/2011 and allowed the said appeal for statistical purposes. Dealing with the substantial appeal in I.T.A.No.739/ Hyd/2011, the Tribunal observed that the finding of the AO, confirmed in appeal, that Article 13(1) of the DTAA would have application to the transaction in question was unsustainable. Considering the scope of Section 269UA(d) of the Act and the definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would be applicable only for further investments . Referring to the objective underlying the introduction of this statutory provision, the Tribunal observed that the provision was an extended benefit for attracting investments in the infrastructure sector and not for attracting further investments in existing old infrastructure projects. The Tribunal observed that the Central Government had formulated the Industrial Park Scheme, 1999, notified under SO No.193(E) dated 30.03.1999 and made operational from 1997 itself, for providing tax exemption under Section 80-IA of the Act for setting up industrial parks for the period beginning from 01.04.1997. Reference was made to the amendment of Section 80-IA(4)(iii) of the Act, including industrial parks notified by the Central Government in accordance with the scheme framed and notified for the period beginning on 01.04.1997 and ending on 31.03.2002, and the Tribunal observed that VITP Limited was granted approval by the Central Government on 16.09.1999 under the said scheme for setting up an industrial park. Investment by the assessee company in VITP Limited was therefore held to qualify for exemption under Section 10(23G). Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become academic in nature. The appeal was accordingly allowed for statistical purposes. It is against the allowing of these two appeals that the present ITTAs were filed by the revenue. In I.T.T.A.No.55 of 2014, the revenue framed the following substantial question of law for consideration: Whether, on the facts and circumstances of the case, the Hon ble ITAT was correct in allowing the appeal for statistical purposes even without considering on merits the grounds so raised ? This appeal is yet to be admitted. I.T.T.A.No.71 of 2014 was admitted on 20.02.2014 for consideration of the following substantial questions of law: 1. Whether on the facts and circumstances of the case, the Hon ble Income Tax Appellate Tribunal was correct in interpreting Article 13(1) and Article 13(4) of India- Netherlands DTAA, as giving rights to Netherlands and not to the source country, India, where the capital gains arise/accrue to the assessee? 2. Whether on the facts and circumstances of the case, the Hon ble Income Tax Appellate Tribunal was correct in interpreting the conditions laid out in Section 10(23G) of the Income Tax Act, 1961, by stating that approval from Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in which the property is situated gains ascendance. The exclusionary clause however states that in the event value of such shares is derived principally from immovable property in which the business of the company is carried on, the capital gains arising from the sale thereof would not be taxed in the State where the property is situated. Significantly, under show-cause notice dated 23.04.2007, while calling upon the assessee company to furnish its reply as regards the exemption claimed by it under the DTAA, the AO stated as under: VITP is engaged in the business of providing infrastructure facilities for software development companies under STP scheme and as part of pursuit of this object VITP has established and the value of the shares of the VITP is derived principally from the said infrastructure facilities of the Software Park which are leased out to and used by the 100% EOU software companies and thus the same cannot be said to be the property in which the business of VITP is carried on , though the said Software Park is a business asset of VITP. And since the capital gains in question arise from the sale of shares of VITP, the principal value of which is der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shanth Thakkar, learned counsel, would contend that once the said changed view was confirmed in appeal by the CIT(A), it was not open to the Director of Income-tax, (International Taxation), Hyderabad, the appellant in this appeal, to urge an argument which would result in varying the said finding in the assessment order which was confirmed in appeal. Learned counsel would contend that permitting him to do so at this stage would be nothing short of allowing him to exercise revisionary jurisdiction under Section 263 of the Act. Learned counsel would point out that the same is barred by the law of limitation as the provision itself indicates that such power could be exercised only within two years from the end of the financial year in which the order was passed. Learned counsel would state that the statutory provisions which permit varying the findings in an assessment order are: (i) Section 147, (ii) Section 154 and (iii) Section 251. As the AO had taken a conscious decision that Article 13(4) had no application to the present case, reversing her initial interpretation of Article 13(4) as set out in the notice dated 23.04.2007, learned counsel would assert that neither Section 147 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard was ever advanced by the departmental representative on behalf of the revenue before the Tribunal. In that view of the matter, the submission of Sri Nishanth Thakkar, learned counsel, that permitting the revenue to argue at this stage that capital gains arising from the transaction in question are taxable under Section 13(4) of the DTAA would amount to circumventing restrictions built into the statute to secure finality to the assessment order, merits serious consideration. An abundance of case law was cited by Sri Nishanth Thakkar, learned counsel, in support of his contention: In ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), MUMBAI V/s. PRAKASH L.SHAH [2008] 115 ITD 167 (Mumbai), the Mumbai Bench of the Income Tax Appellate Tribunal observed that the power to modify the assessment order to the advantage of the revenue, apart from suo motu action by the Assessing Officer under Sections 147 or 154, lies only with the CIT under Section 263, which cannot be usurped by the departmental representative while arguing the appeal. Scope of arguments of the departmental representative is restricted to support the view taken by the Assessing Officer and he can strengthen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new contention de hors the view taken by the Assessing Officer would mean that the departmental representative was stepping into the shoes of the CIT exercising jurisdiction under Section 263. In appeal, the Bombay High Court in DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) V/s. MAHINDRA MAHINDRA LTD. [2014] 365 ITR 560 (Bombay) confirmed this judgment. Significantly, the only issue raised before the High Court was with regard to the limitation aspect and not with regard to the power of the revenue to raise a ground in appeal contrary to the assessment order. In ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 6(3) V/s. MAERSK GLOBAL SERVICE CENTRE (INDIA) (P.) LTD. [2011] 133 ITD 543 (Mumbai), the Mumbai Bench of the Income Tax Appellate Tribunal observed that the departmental representative has a duty to defend the order of the Assessing Officer while arguing the appeal filed by the revenue and is fully competent and free to support the reasoning of the Assessing Officer from any other angle so as to put forward a strong case for the revenue. The Bench however pointed out that there is a marked distinction between supporting the order of the Assessing Officer on the one hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come chargeable to tax has escaped assessment. The Supreme Court further observed that one needs to give a schematic interpretation to the words reason to believe , failing which, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of a mere change of opinion, which cannot be, per se, a reason to reopen. The Supreme Court pointed out that one must keep in mind the conceptual difference between power to review and power to reassess, and as the Assessing Officer has no power of review but only has the power to reassess, it must be based on fulfillment of certain preconditions and in the garb of reopening the assessment, a review cannot be permitted to take place. This judgment was cited in the context of the Assessing Officer himself being bound by his finding that Article 13(4) had no application and, therefore, what could not be done by him could not be achieved indirectly in the present appeal. In MORGAN SECURITIES AND CREDITS PVT. LTD. V/s. MOREPEN LABORATORIES LTD. 2006 (3) ARBLR 159 (Delhi) , a learned Judge of the Delhi High Court observed that allowing a judgment-debtor to raise objections to an Award despite failing to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SIONER OF INCOME-TAX V/s. TATA CHEMICALS LTD. [2002] 256 ITR 395 (Bombay), a Division Bench of the Bombay High Court was dealing with the contention that though a question was not raised before the Income Tax Appellate Tribunal, Section 260A(6)(a) of the Act empowered the High Court to determine any issue which was not determined by such Tribunal. The Division Bench observed that a careful reading of the section would show that the High Court can decide only that question which was raised but not determined by such Tribunal and therefore, it is necessary that the question sought to be raised ought to have been raised before such Tribunal and then, if it has not determined it, one can say that it has not been determined by such Tribunal and the High Court should look into it. On facts, the Bench found that the issue was not raised before the Income Tax Appellate Tribunal and therefore did not choose to dwell on the same. In C C CONSTRUCTION (P.) LTD. V/s. COMMISSIONER OF INCOME-TAX [2012] 204 Taxman 363 (Delhi), a Division Bench of the Delhi High Court was dealing with the issue as to whether a contention which was not raised before the Income Tax Appellate Tribunal could be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new contention urged by the revenue on the ground that no such plea had been taken before the Income Tax Appellate Tribunal and the entire case was argued on a different basis. The Bench observed that even before the Commissioner (Appeals), the matter proceeded on the same basis and once no such plea, as was being advanced before it, was taken by the department before the Commissioner (Appeals) or before the Income Tax Appellate Tribunal, it could not be raised for the first time in the appeal filed under Section 260A of the Act. In COMMISSIONER OF INCOME-TAX V/s. JAYSHREE GEMS JEWELLERY [2015] 362 ITR 272 (Delhi), a Division Bench of the Delhi High Court was dealing with disallowance of certain expenses by the Assessing Officer. The claim for allowing such expenses was upheld by the Income Tax Appellate Tribunal. The Bench observed that the grounds of appeal urged before the said Tribunal did not disclose that the revenue had ever argued that the claim for reduction of these amounts itself evidenced that the appellant did not carry on any manufacturing activity. The Bench therefore concluded that the revenue could not be permitted to urge this new aspect for the first time u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GLOBAL (P.) LTD. V/s. COMMISSIONER OF INCOME-TAX, GHAZIABAD [2009] 309 ITR 434 (SC), the Supreme Court, relying on HUKUMCHAND MILLS LTD. V/s. CIT [1967] 63 ITR 232 (SC), reiterated that the Income Tax Appellate Tribunal is not authorized to take back the benefit granted to an assessee by the Assessing Officer and that it has no power to enhance the assessment. In ESTER INDUSTRIES LTD. V/s. COMMISSIONER OF INCOME-TAX [2013] 219 Taxman 19 (Delhi), a Division Bench of the Delhi High Court observed that the assessee therein, in fourth appeal maintainable only on the ground of a substantial question of law under Section 260A of the Act, could not be allowed to raise a contention afresh so as to set the ball rolling back once again to the Assessing Officer after a lapse of several years. In VAN OORD ACZ INDIA (P.) LTD. V/s. COMMISSIONER OF INCOME-TAX [2010] 323 ITR 130 (Delhi), a Division Bench of the Delhi High Court was concerned with the plea of the assessee that it was not liable to pay any tax in India, a plea which had been accepted by the income- tax authorities. The return filed by the assessee was processed under Section 143(a)(i) of the Act. But it was sought to be conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee company before the CIT(A) specifically raised this issue, as is evident from paragraph 3 of the order dated 25.03.2011 passed by the CIT(A). She would also point out that the Tribunal took note of the contention of the AO that the subject capital gains were taxable in India under Article 13(1) whereas the assessee claimed exemption by virtue of Article 13(4) and (5) of the DTAA and contend that it is not open to the assessee company to now state that Article 13(4) was never in issue. In response to the aforestated contentions of the learned senior standing counsel, Sri Nishanth Thakkar, learned counsel, would contend that the grounds of appeal filed by the assessee company merely asserted that the AO erred in law and on facts in applying Article 13(1) of the DTAA as the provisions of Article 13(4) and Article 13(5) were specifically applicable to the case, as they dealt with capital gains arising from alienation of shares. Having considered the rival submissions in the light of the case law cited, we are of the opinion that the question as to whether applicability of Article 13(4) of the DTAA was raised before the CIT(A) or the Tribunal is only one facet of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not agree, it could not be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Assessing Officer was unsustainable in law. This view was reiterated in COMMISSIONER OF INCOME TAX V/s. MAX INDIA LIMITED (2007) 15 SCC 401. It is therefore clear that in the event the order of the Assessing Officer is erroneous, being unsustainable in law, it can be revised in exercise of power under Section 263 of the Act. In the present case, it is fairly conceded by the learned senior standing counsel that the finding of the AO, which was confirmed thereafter in appeal, that Article 13(1) of the DTAA would apply to the alienation of shares by the assessee company treating the same as sale of immovable property, was erroneous being contrary to the settled legal position, both as regards application of the definition of immovable property in the Act, as well as the legal status of a corporate entity when juxtaposed to its shareholders. That being so, it was well within the power of the Commissioner to exercise jurisdiction under Section 263 of the Act at the right time so as to set right this misconceived notion of the AO. However, no such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in which the business of the company was carried on or not is a question of fact. As rightly pointed out by Sri Nishanth Thakkar, learned counsel, this aspect of the matter was never put in issue, be it before the CIT(A) or before the Tribunal. The assessee company was therefore never put on notice that it had to tender evidence on this aspect. Without a factual finding as to whether the immovable property of VITP Limited was property in which its business was carried on, the question of applying one or the other parts of Article 13(4) at this stage would not arise. In consequence, the contention of the learned senior standing counsel that interpretation of Article 13(4) of the DTAA is purely a question of law does not merit acceptance. Therefore, the issue of applicability of Article 13(4) of the DTAA to the subject transaction, so as to make it taxable in India, cannot be permitted to be raised at this late stage. Thus, the appeal would necessarily have to be restricted to the finding of the Tribunal that Article 13(1) of the DTAA had no application to the transaction. As already pointed out, the learned senior standing counsel concedes this position and accepts th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (23G) of the Act. The arguments advanced in this regard as well as the case law cited are accordingly eschewed from further consideration. The last issue is as to whether the interest paid to the assessee company by Ascendas is taxable in India. The finding of the AO, as confirmed by the CIT(A), was that the same was liable to be taxed in India by virtue of Section 9(1)(v) of the Act. However, as rightly pointed out by the Tribunal, the provisions of the aforestated section cannot be stretched beyond what has been spelt out therein in clear terms. The relevant part of the section merely states that income by way of interest payable by a person who is a non-resident, where such interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India, would be deemed to be income accruing or arising in India. On the face of it, Section 9(1)(v) has no applicability whatsoever to the interest paid to the assessee company by Ascendas as there is no evidence of a debt being incurred or monies being borrowed for any business purposes in the present case. While so, it is contended by Ms. K.Mamata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said Article. Sri Nishanth Thakkar, learned counsel, would contend that as both the parties to the sale of shares had mutually agreed to defer the closing date and Ascendas voluntarily undertook to pay interest for such late payment of the sale consideration, the same does not partake the character of penalty charges. We find merit in this contention. It is significant to note that the AO opined that the interest arose through a transaction involving sale of a capital asset situated in India and would therefore be deemed to have accrued or arisen in India. But the CIT(A) found in appeal that this interest was inextricably linked to the original transaction of sale of shares and therefore, payment of interest arose as a part of the said transaction. He therefore concluded that the payment for the sale of shares of VITP Limited involved two components, i.e., the original payment and the penal payment on account of delay, and therefore the interest payment could not be divorced from the original payment, as both pertained to the same transaction. In effect, the CIT(A) held it to be part of the sale consideration itself. The Tribunal, on the other hand, held that Section 9(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in India under the DTAA. The finding of the Tribunal to this effect therefore does not warrant interference. The questions of law arising in this appeal are answered accordingly. In consequence, I.T.T.A.No.71 of 2014 is dismissed. As we have upheld the order of the Tribunal holding that the capital gains arising out of the sale of shares by the assessee company of VITP Limited to Ascendas stood exempted from taxation in India under Article 13(5) of the DTAA, we agree with the Tribunal that the directions for reassessment by the DRP, the subject matter of I.T.T.A.No.55 of 2014, are rendered purely academic and do not warrant further consideration on merits. In consequence, the said appeal shall also stand dismissed as no question of law, much less a substantial one, is raised therein. W.P.No.41469 of 2015 was filed by the assessee company contending that, pursuant to the common order dated 15.03.2013 passed by the Tribunal, the Assistant Director of Income-tax (International Taxation)-II, Hyderabad, issued order dated 28.05.2013, quantifying the amount refundable to it at ₹ 49,00,73,615/-, but despite the same, the Deputy Commissioner of Income Tax-2, Internationa ..... 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