2010 (9) TMI 1177 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income as "Capital Gains" vs. "Business Income."
2. Applicability of penalty u/s 271(1)(c) for filing a revised return.

Summary:

1. Classification of Income:
The assessee, a Canadian trust and tax resident, initially filed its return declaring income of Rs. 9,28,49,984/- as "Capital Gains" from the sale of securities in India and paid tax accordingly. Subsequently, relying on AAR rulings in the cases of XYZ/ABC Equity Fund and Fidelity Advisors Series VIII, the assessee filed a revised return claiming the income as "Business Income" and sought a refund, arguing that it had no Permanent Establishment (PE) in India and thus, under Article 7 read with Article 5 of the DTAA, its income was not taxable in India. The Assessing Officer, however, assessed the income as "Capital Gains" and initiated penalty proceedings u/s 271(1)(c) for making a false claim in the revised return.

2. Applicability of Penalty u/s 271(1)(c):
The CIT(A) allowed the assessee's claim, noting that the revised return was filed based on judicial rulings and there was no concealment or furnishing of inaccurate particulars. The CIT(A) observed that the assessee had made full disclosure in the original and revised returns and during assessment proceedings. The CIT(A) concluded that the assessment was based on a difference of opinion and not on any concealment of facts. The CIT(A) relied on various judicial precedents, including the Hon'ble Supreme Court's decision in K.C. Builders and the ITAT Mumbai's decision in Variable Products Funds, to hold that no penalty u/s 271(1)(c) was leviable.

Conclusion:
The ITAT upheld the CIT(A)'s order, noting that the assessee had disclosed all relevant facts and had a bonafide belief based on judicial rulings that its income could be considered as "Business Income." The ITAT referred to the Apex Court's decision in CIT vs. Reliance Petro Products (P) Ltd., which held that merely claiming a deduction not accepted by the department does not attract penalty u/s 271(1)(c). Consequently, the ITAT dismissed the Revenue's appeal and upheld the deletion of the penalty of Rs. 3,06,40,490/-.

Order:
The appeal of the Revenue is dismissed. Order pronounced on 30th September 2010.