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2013 (9) TMI 526 - AT - Income TaxExemption u/s 10(15)(iv)(f) - interest income - Withdrawal of exemption by Central Government - Utilization of ECB - foreign currency loans - Interest income being exempt in the hands of non-resident investors - Withholding tax u/s 195 - Held That:- by imposing a condition by Dy. Director (ECB) during the progress of the scheme was like changing the rules of the game in mid-way and the change of the rule was in respect of a game already played to alter its outcome. A retrospective or ex post facto change in such a manner is an arbitrary approach having no legal sanctity. Decision in the case of Reliance Industries Ltd V/s Dy. Director of Income Tax (IT) [2005 (2) TMI 445 - ITAT BOMBAY-I] Disallowance of Interest u/s 10(15)(iv)(f) - It was catastrophic to withdraw the exemption already granted u/s.10(15)(iv)(f) - Due to the withdrawal of the exemption the impugned order u/s.195 (2), now under dispute was passed directing to deduct withholding tax @ 20% - Held that:- conditions of the scheme, evidences of utility of the funds and the legal matrix of the case, the withdrawal of exemption was unwarranted - the appellant company was not liable to deduct withholding tax in respect of the interest payment. So the basic question was that once because of the letter or notification the provisions of the statute have been negated or diminished by an executive order then what was the course left to a tax payer - Naturally the answer was that a tax payer had no option but to knock the door of the judiciary - In a plethora of decisions it was unequivocally held that the full effect of the provision had to be given in preference to supporting legislature such as rules, notifications, approvals etc. The Tribunal does have the power to deal with the validity of such rules or notification and by applying the doctrine of “reading down” can strike down such rules if held to be in contradiction with the provisions of the statute itself - the rules were made only for the purpose of carrying out the provisions of the Act which cannot be taken away or whittle down the effect conferred by the statute - ITAT had both the power and duty to deal with such rules or notification and decide whether the same were in agreement with the main provisions of the statute - The provision of the statute provides in an unambiguous terms to grant exemption in respect of interest payable to an international investor who has lent money to industrial undertaking in India under a loan agreement as approved by the Central Government - The Government of India had properly regarded the need for industrial development only thereafter issued the notification and floated this scheme of ECB. Relying upon Radhasoami Satsang V/s CIT [1991 (11) TMI 2 - SUPREME Court] - Strictly speaking, res judicata does not apply to income-tax proceedings - Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years had been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year - in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. Decided in favor of assessee.
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