TMI Blog2009 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... it in the form of profits of business earned in USSR which were entirely attributable to the PE in that country. The appeal of the Revenue is dismissed. - Member(s) : GEORGE MATHAN., P. M. JAGTAP. ORDER-P.M. JAGTAP, A.M.: This appeal is preferred by the Revenue against the order of learned CIT(A)-XIII, New Delhi, dt. 30th Nov., 2006 and in the solitary ground raised therein, the Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs. 20,14,06,921 made by the AO on account of income earned by the assessee company outside India i.e., in USSR. 2. The assessee in the present case is a company resident in India. It filed its return of income for the year under consideration on 29th March, 2000 declaring a loss of Rs. 18,65,98,968. From the perusal of the annual report filed by the assessee company along with the said return, it was noticed by the AO that the assessee company had earned a profit from its foreign operation to the tune of Rs. 20,14,06,921 during the year under consideration. Relying on the assessment order passed in assessee's own case for asst. yr. 1997-98 wherein a similar income earned by the assessee from the foreign o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court by their judgment reported at CIT vs. P.V.A.L. Kulandagan Chettiar (Dead) Through LRs (2004) 189 CTR (SC) 193 : (2004) 267 ITR 654 (SC). He, therefore, followed the decision of the Tribunal in assessee's own case for asst. yrs. 1991-92, 1992-93 and 1993 rendered on a similar issue and deleted the addition of Rs. 20,14,06,921 made by the AO on account of income earned by the assessee company from foreign operation. Aggrieved by this relief allowed by the learned CIT(A) to the assessee company, the Revenue has preferred this appeal before the Tribunal. 5. The learned Departmental Representative submitted before us that while deciding a similar issue in favour of the assessee for asst. yrs. 1991-92, 1992-93 and 1993-94, the Tribunal applied the treaty with Russian Federation which was notified on 21st Aug., 1998 and entered into on 11th April, 1998. He contended that the said treaty had become applicable only from the first day of April next following the calendar year in which the agreement was entered into and the same, therefore, was applicable only from asst. yr. 2000-01. He contended that the decision rendered by the Tribunal in assessee's own case for asst. yrs. 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of global income. He contended that there is, however, no provision for excluding the income earned in the country of source from the global income. He contended that as per art. 22 of the Indo-Russian DTAA, the income earned by the assessee company in USSR through a PE shall be included in its global income being a resident in India and it will be entitled only to claim the credit for taxes paid in USSR. He contended that the income of the USSR branch office of the assessee company thus is liable to be included in its global income and only the credit for the tax paid in the USSR can be allowed to it in terms of para 2(a) of art. 22 of the Indo-USSR treaty. 7. As regards the decision of Special Bench of Tribunal in the case of P. V.A.L. Kulandagan Chettiar which stands affirmed by the Hon'ble Supreme Court in (2004) 189 CTR (SC) 193 : (2004) 267 ITR 654 (SC) relied upon by the Tribunal while deciding the issue in favour of the assessee for asst. yrs. 1991-92, 1992-93 and 1993-94, the learned Departmental Representative submitted that Hon'ble Supreme Court as well as the Special Bench of Tribunal in that case have dealt with the issue of income from "immovable property" which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asst. yr. 1998-99. As regards the reliance placed by the learned Departmental Representative on art. 22 of the said treaty to contend that the assessee was entitled to claim only the credit for tax paid in USSR and not for the exemption of income earned in USSR, he contended that the said article comes in force only when the income earned by the assessee in USSR is held to be taxable in India. According to the learned counsel for the assessee, when the income earned by the assessee company in USSR was taxable in USSR as a result of there being a PE in that country in terms of art. 7, art. 22 cannot be applied in its case and the reliance of the learned Departmental Representative on the said article is completely misplaced. He further submitted that the decision of Special Bench of Tribunal in the case of P.V.A.L. Kulandagan Chettiar even though has been affirmed by the Hon'ble Supreme Court for the reasons different from the ones given by the Special Bench of Tribunal, there is nothing in the judgment of the Hon'ble Supreme Court to show that the reasons given by the Special Bench of Tribunal were held to be improper or incorrect by the Hon'ble apex Court. He contended that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a PE situated therein. If the resident carries on business as aforesaid, the profits of the resident may be taxed in the other State but only so much of them as is directly or indirectly attributable to that PE." 10. The relevant art. 7(1) of the treaty between India and USSR which is stated to be relied upon by the Tribunal while deciding the similar issue in assessee's own case for asst. yrs. 1991-92, 1992-93 and 1993-94 and which is claimed to be applicable only from 2000-01 by the learned Departmental Representative reads as under: "7(1) The profits derived in a Contracting State by an enterprise of the other Contracting State may be taxed in the first-mentioned State only if it is derived through a PE situated therein and only so much of them as is attributable to the activity of such PE." 11. A comparative reading of the provisions of art. 7(1) as contained in both the treaties shows that there is no material change in the position insofar as the present context is concerned. The provisions of both the articles are similar in this regard inasmuch as the profit derived from the business carried on through a PE in a Contracting State by a resident or an enterprise of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earned in Malaysia was taken away because of the PE situated in Malaysia. It was held that the business profits earned in Malaysia by an Indian enterprise thus were taxable only in Malaysia and the power of India to tax the said income was taken away in view of the clear provisions of art. 7(1). 14. The learned Departmental Representative has also relied on art. 22 of the Indo-Russian DTAA to contend that the assessee company was entitled only for a deduction from tax on the income of the Indian resident of an amount equal to the income-tax paid in the USSR. According to him, this article clearly shows that the income earned by the assessee being resident of India in USSR was liable to be included in its total income as computed under the domestic law and it was entitled only for deduction of the income-tax paid in the USSR, if any, from the tax payable on its total income as computed under the domestic law. We find it difficult to accept this contention of the learned Departmental Representative. Article 22 as its heading itself suggests deals with elimination of double taxation. It is thus applicable only where despite all the provisions contained in the relevant DTAA to avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee relying on the decision of Special Bench of Tribunal at Madras in the case of P.V.A.L. Kulandagan Chettiar which has been subsequently affirmed by the Hon'ble Supreme Court. In this regard, the learned Departmental Representative has contended that the issue involved before the Special Bench in that case was relating to the income from immovable property which is covered under art. 6 of the DTAA whereas the issue involved in the present case is relating to the business income which is covered under art. 7 of the DTAA. A perusal of the order passed by the Special Bench of Tribunal in the case of P.V.A.L. Kulandagan Chettiar, however, shows that the issue involved in the said case before the Special Bench was relating to the income derived from properties by the assessee in Malaysia as well as from business carried on by it in Malaysia and as already discussed, the issue relating to taxability of business profit was decided by the Tribunal with reference to art. 7 of the DTAA holding that such business profit was taxable in Malaysia only under art. 7 since it was undisputedly derived from business carried on in Malaysia through a PE situated in that country and no porti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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