TMI Blog2011 (4) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... Malathi Shridharan for the Appellant. M.P. Lohia for the Respondent. ORDER N.V. Vasudevan, Judicial Member ‑ These are appeals by the revenue against four orders all dated 23-12-2009 of CIT(A) X, Mumbai relating to assessment year 2004-05. In these appeals the revenue has challenged the orders of the CIT(A), whereby the CIT(A) has cancelled the order of the AO imposing penalty on the assessees' under section 271(1)(c) of the Income-tax Act,1961 (the Act). 2. The facts and circumstances under which the penalty under section 271(1)(c) of the Act was imposed by the AO on the assessees' are as follows. All the assessees' above named are Non-residents and are Funds registered as Foreign Institutional Investor (FII) with Securities and Exchange Board of India (SEBI). The assessees' in all these cases filed returns of income wherein they declared the gain/loss arising on sale of securities in India under the head "capital gain". All the assessees' filed a revised return of income reporting nil income and claiming refund of the taxes paid. The details in this regard are as follows: Appeal No. 1617/M/10 1618/M/10 1619/M/10 1620/M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares and securities is also evident from the object of the Fund as seen from its charter documents, the registration with Securities Exchange Board of India ('SEBI') as a Foreign Institutional Investor and the enormity and frequency of transactions of purchase and sale of shares and securities by the Fund. Further, in view of the provisions of the Double Taxation Avoidance Agreement ('DTAA') between India and USA, the business profits could be taxed in India only if there is a Permanent Establishment ('PE') in India. As the fund does not have an office, a place of business or a dependent agent in India, it does not have a PE in India and therefore, the business income on sale of securities would not be taxable in India. With regard to our claim that the income earned by the Funds is in the nature of business income we would like to place reliance on a recent ruling delivered by the Authority for Advance Rulings ('AAR') in respect of one of our sister funds, namely Fidelity Advisor Series VIII [2004] 271 ITR 1(AAR), the facts of which are similar to our case. The ruling delivered by the AAR is enclosed herewith as Annexure b. In this case, the AAR, after perusing certain paramet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Against the order of the AO in the quantum proceedings the assessees' field appeals before the CIT(A). In the meantime the assessees' approached the AAR on the question whether the income in question could be said to be income from business. The AAR in Fidelity Northstar Fund, In re, [2007] 288 ITR 641/158 Taxman 372 (AAR) by its ruling dated 8-1-2007 held that the FIIs can invest in securities in India to receive income from them so long they hold the same and can realize capital gains on their transfer. The authority further ruled that the applicants did not maintain accounts to show the manner of valuation of stock-in-trade at the end of the financial year. There was nothing to show that investments were held as capital assets. The returns were field declaring capital gains. In those circumstances the AAR held that the transactions were only in the nature of investment and the profits arising there from cannot be treated as business income. The assessees', therefore, withdrew their appeals before the CIT(A). It is in the above background of facts that the question as to whether the assessees's can be said to be guilty of furnishing inaccurate particulars of income has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial to the computation of income was either not disclosed or was found to be wrong. The assessment has been made on the basis of facts disclosed by the Appellant in the return of income and also during the course of assessment proceedings as and when demanded by the AO. Assessment has been made by the AO having a different opinion from the point of view of the Appellant. Thus there is no question of concealing any facts. The revised claim was based on legal ruling. Thus there was no concealment whatsoever, nor has the assessee has committed an act of furnishing inaccurate particulars of income. The entire facts and claim has been explained in the letter while filing the revised return of income and same was based on judicial ruling. A perusal of the penalty order reveals that the AO has rejected the contentions on the basis that ignorance of law does not extinguish the liability to obey the law. The AO observed that assessee has tried his luck to be in two boats at the same time with guilty mind, but at the same time claiming his assertion to be contention arisen out of bona fide belief, which does not hold water. This view of learned AO manifests that there was bona fide belief o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that in the case of a trust, the term "resident" of the USA in the USA law would apply only to the extent that income derived by such trust was subject to tax in the USA as the income of a resident either in its hands or in the hands of the beneficiaries. That, it being an admitted fact in that case that the applicant enjoyed exemption from payment of USA tax and nothing having been brought on record to show that the income from securities of Indian companies was being taxed in the USA in the hands of the beneficiaries of the trust, the applicant was not a resident of the Contracting State (USA) and, therefore, could not avail of the benefit of the terms of the Agreement for Avoidance of Double Taxation between India and USA. 14. Her next submission was that Section 115AD of the Act was a code by itself for computation of capital gain by FII's and the assessees' being an FII could not have made a claim that the capital gain it earned was business income. In this regard our attention was drawn to the decision of the AAR in the case of Universities Superannuation Scheme Ltd., In re [2005] 275 ITR 434/145 Taxman 141 (AAR) (New Delhi) wherein it was held that (i) That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the order of the Tribunal in the case of ADIT v. Variable Insurance Products Fund III Balanced Portfolio (VIPAG) in IT Appeal 1126/M/2010 for A.Y. 2006-07 wherein on identical facts this Tribunal had confirmed the order of the CIT(A) cancelling penalty imposed by the AO. The ld. Counsel for the assessees' narrated the circumstances under which the revised return was field and the reasons why the appeals before the CIT(A) were withdrawn in the quantum proceedings. The ld. Counsel for the assessees' placed strong reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322, wherein it was held that making incorrect claim does not amount to concealment of particulars. 17. We have considered the rival submissions. We find that the revised return was field by the assessees' in all these cases making the claim that the income from sale of securities was business income based on the decision of AAR in the case of one of the sister company namely Fidelity Advisors Series VIII, In re, [2004] 271 ITR 1/[2005] 142 Taxman 111 (AAR - New Delhi). In the said decision AAR expressed the following view. " The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning FII licence and the enormity and frequency of purchases and sales, the applicant held the shares and securities as business profits, and, therefore, the business profits of the applicant could be taxed in India in view of article 7 of the Double Taxation Avoidance Agreement." 18. The ruling of the AAR was rendered on 27-9-2004. Prior to this day the assessees' had filed the returns of income i.e. on 17-8-2004 for A.Y 2004-05. The revised return of income was filed by the assessees' on 25-3-2005. The assessees' made it clear in a letter filed along with the revised return of income that the same is being filed in view of the decision of the AAR in the case of sister concern of the assessee viz., Fidelity Advisors Series VIII, (supra). Later in point of time i.e. on 8-1-2007 the AAR in the case of Fidelity North Star Fund (supra) reversed its earlier decision in the case of Fidelity Advisors Series VIII, (supra). We have already narrated the ruling in the case of Fidelity North Star Fund (supra). It is consequent to this decision that the assessees' withdrew its appeals against the assessment orders before the CIT(A). It is thus clear from the facts that the claim made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee after concealment was detected in the course of assessment proceeding or the revised return was not a voluntary return or valid return or the explanation given by the assessee was not bona fide, we are of the view that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee such a claim made in the return cannot amount to concealment of income or furnishing of inaccurate particulars of such income which may attract levy of penalty under section 271(1)(c) of the Act. Accordingly, we are inclined to uphold the findings of the ld. CIT(A) in deleting the penalty imposed by the AO. 21. Similar view has also been expressed by the Tribunal in the case of Variable Insurance Products Funds Overseas Portfolio (supra) With regard to the contention put forth by the ld. D.R. on the basis that the assessees were not a resident of US, we find that this was not the basis on which the assessment proceedings proceeded before the AO nor it was the basis on which penalty was imposed on the asssessees'. Moreover, the ruling of the AAR on the issue was the basis on which the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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