TMI Blog2003 (4) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... on the remaining net income. The said contention was not accepted by the AO since the assessee was a foreign company as such governed by provisions of s. 115A and also Board s Circular No. 202, dt.5th July, 1976. Accordingly, he held that there was an obvious and apparent mistake inasmuch as income-tax at the rate of 25 per cent has not been charged on gross dividends amounting to Rs. 5,49,975 received by the assessee foreign company. 3. The facts in 1989-90 assessment year are that as against the income declared by the assessee to the extent of Rs. 26,70,343, the AO vide intimation under s. 143(1)(a) determined the same at Rs. 28,70,347. In computing the income under s. 143(1)(a), the assessee was not allowed deduction under s. 80GGA amounting to Rs. 2 lakhs in respect of donations paid to two institutions approved under s. 35(1)(ii) of the IT Act, 1961. The assessee moved an application under s. 154 enclosing the photocopies of donations amounting to Rs. 1 lakh each to Bhartiya Vidya Bhawan,Bombay, and Gujarat Vidya Pith, Ahmedabad. Accordingly, a deduction of Rs. 2 lakhs was required. The said request of the assessee was not accepted by the AO in view of the fact that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. The AO observed that in the year under consideration, the assessee had received income from dividend and interest as well as from capital gains from sale of shares. Taking note of the fact that the assessee had claimed deduction under s. 80GGA on bonus paid to approved institutions amounting to Rs. 22,50,000, the AO did not allow the claim of the assessee. He was of the view that the deductions under Chapter VI-A are not permissible to the assessee-company in view of the fact that it is a foreign company. As such, he held that the assessee was liable to be taxed at the rate of 25 per cent on gross basis on account of dividends, etc. as per s. 115A on the total income of the company which was assessed at Rs. 51,65,245. 6. The assessee aggrieved by the said action of the AO in all these years moved an appeal before the first appellate authority. For 1987-88 and 1989-90 assessment years, passed a consolidated order dt.2nd Dec., 1994, and separate orders were passed for 1990-91 and 1991-92, dt.11th July, 1994and6th March, 1996, respectively. 7. In 1987-88 and 1989-90, the CIT(A) on the challenge posed by the assessee to the rectification made under s. 154, after an analysis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the scheme of the Act and the total income had to be computed in the manner laid down under the Act before the levy of such tax, the CIT(A) was of view that s. 115A provided different rates of tax on different types of income contemplated therein. The moment such different heads of income get coalesced into aggregate income their identity as dividend/interest/royalty/fees for technical services vanishes and thereafter, they are identifiable only as income simpliciter. In view of the fact that the said view would result in making it impossible to apply different rates to different types of income. Thus, he was of the view that for the application of s. 115A, the sanctity of different types of income has to be maintained as sacrosanct. Reliance for the said proposition was placed upon the decision of the Supreme Court in the case of CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC). 9. The CIT(A), further taking into consideration the wordings of provisions of s. 80GGA which began as "in computing the total income of an assessee...", was of the view that the said deduction is available only out of the total income which would be in accordance with the provisions of the Act and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff of short-term capital loss. Accordingly, a prayer on behalf of the assessee is that the deduction of Rs. 2 lakhs be granted to it under s. 80GGA and the AO be directed to determine the total income at Rs. 26,70,000 odd. 15. In 1990-91 assessment year, the grounds raised read as under: "1.1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the contentions of the AO that appellant-company, a non-resident has to be taxed at the flat rate of tax under s. 115A of the Act on its gross income from dividend without granting deduction under s. 80GGA of the Act. 1.2. The learned CIT(A) failed to interpret correctly the provisions of s. 115A of the Act and erred in not appreciating that s. 115A of the Act determines rate of tax inter alia, on dividend income included in total income, computed in the manner laid down under the Act. 1.3 The learned CIT(A), further erred in ignoring the fact that the amendments introduced to s. 115A of the Act by the Finance Act, 1994, are prospective and applicable to the asst. yr. 1995-96 and subsequent assessment years. 1.4 The learned CIT(A), further erred in not appreciating that deduction under s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in s. 115A so as to contend that the legislature in its wisdom has not made any provision to exclude the benefit of deductions under Chapter VI-A of the Act to foreign companies while applying the flat rate of tax on its income by way of dividends, royalty and technical service fees. Accordingly, it was contended that this fact establishes that the flat rate of tax provided in s. 115A has to be applied only after considering the available deductions under Chapter VI-A. Thus, the tax at the flat rate would be borne by the net taxable income. Reliance was also placed on K.M. Sharma vs. ITO (2002) 174 CTR (SC) 210 : (2002) 254 ITR 772 (SC) for the proposition that imposing liability is a substantial provision and, as such, it cannot be retrospective. Referring to S.S. Gadgil vs. Lal Co. (1964) 53 ITR 231 (SC) and S. Subash vs. CIT Anr. (2001) 167 CTR (Mad) 484 : (2001) 248 ITR 512 (Mad), it was contended that amended provisions are not retrospective but are prospective. Reliance was also placed upon Anchor Line Ltd. vs. ITO and Tino Kauin Kaisha Ltd. vs. ITO (1988) 26 ITD 326 (Bom). 20. The learned Departmental Representative, on the other hand, placed heavy reliance on the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the material on record. The decisions relied upon have also been taken into consideration. We are of the view that it would be appropriate to decide the appeals pertaining to 1990-91 and 1991-92 assessment years first. 22. Before we consider the arguments made and the decisions relied upon, it may be pertinent to first discuss the legislative background history of the provision. The s. 115A was inserted by the Finance Act, 1976 w.e.f.1st June, 1976, and, as such, is effective from asst. yr. 1977-78. At the time of insertion, s. 115A(1) read as under: "(1) Subject to the provisions of sub-s. (2), where the total income of an assessee, being a foreign company, includes any income by way of (a) dividends; or (b) royalty or fees for technical services received from an Indian concern in pursuance of an agreement made by the foreign company with the Indian concern after the 31st day of March, 1976, and approved by the Central Government, the income-tax payable shall be the aggregate of: (i) the amount of income-tax calculated on the amount of income by way of dividends, if any, included in the total income, at the rate of twenty five per cent; (ii) the amount of income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency; or (iii) income received in respect of units, purchase in foreign currency, of a mutual fund specified under cl. (23D) of s. 10 or of the Unit Trust of India, the income-tax payable shall be aggregate of: (A) the amount of income-tax calculated on the amount of income by way of dividends (other than dividends referred to in s. 115-O), if any, included in the total income, at the rate of twenty per cent; (B) the amount of income-tax calculated on the amount of income by way of interest referred to in sub-cl. (ii), if any, included in the total income, at the rate of twenty per cent; (C) the amount of income-tax calculated on the income in respect of units referred to in sub-cl. (iii), if any, included in the total income, at the rate of twenty per cent; and (D) the amount of income-tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in sub-cl. (i), sub-cl. (ii) and sub-cl. (iii); (b) xxxx (A) xxxx (B) xxxx (C) xxxx Explanation. xxxxx (1A) xxxx Provided xxxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in nature. To give any other meaning to the provision at the relevant point of time would make the provisions unworkable which could never have been the intention of the legislature. 30. Thus, in view of the aforementioned reasons, as far as the section at the relevant point of time is concerned in the background of the Board s circular and the amendment in the Act, the action of the tax authorities was fully justified. 31. The decisions relied upon on the aspect of interpretation of statutes so as to contend that the amendment comes into effect only from1st April, 1995, are not applicable in view of the fact that we are of the opinion that the amendment is clarificatory in nature and merely reiterates the position as it was. The judgment by the apex Court in K.M. Sharma s case is entirely in a different context and pertains to limitation where the issue pertains to the rule of strict interpretation of a taxing statute with regard to limitation. In fact, the decision of the Supreme Court in the Escorts Ltd. vs. Union of India Ors. is fully applicable as the amendment has effected no change in the provision in the background of Board s Circular No. 202 and has merely set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in the case of T.S. Balram vs. Volkart Bros. Ors. apart from other decisions relied upon have been taken into consideration. Being satisfied by the reasons recorded in the impugned order, we are not inclined to interfere with the same. Accordingly, the grounds raised in ITA Nos. 1188 and 1189 are also rejected. 33. Before parting, it would be appropriate to briefly discuss the decisions relied upon by both the sides before us. The decisions relied upon before the authorities below are not being separately discussed in view of the fact that we are in agreement with the findings of the tax authorities. 34. A perusal of K.M. Sharma vs. ITO shows that the ratio laid down by the apex Court revolves on the peculiar facts before their Lordships and does not render any help in the case at hand. We have already discussed the inapplicability of the said judgment in the earlier part of this order. 35. A perusal of the judgment of Madras High Court in the case of S. Subash vs. CIT Anr. similarly lays down the ratio in the peculiar facts before their Lordships and does not advance the case of the assessee. The decision of the Delhi High Court in the case of CIT vs. National ..... X X X X Extracts X X X X X X X X Extracts X X X X
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