TMI Blog2012 (4) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ken under this section after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax escaped assessment by reason of failure on the part of the assessee inter alia to disclose fully and truly all material facts necessary for his assessment - The reassessment has been initiated on the score that the loss so declared by the assessee was liable to be considered as 'Capital gain' and not 'Business income' and hence its set off was not permissible against income from other sources - It is a trite law that change of opinion cannot be a reason to reopen the completed assessment - Appeal is allowed - IT Appeal No.7353 (Mum.) of 2011 - - - Dated:- 26-3-2012 - R.S. Syal, N.V. Vasudevan, JJ. ORDER R.S.Syal, Accountant Member This appeal by the assessee arises out of the order passed by the Assistant Director of Income Tax (International Taxation) on 16.09.2011 u/s 143(3) r.w.s.147 and 144C(13) of the Income-tax Act, 1961. 2. Ground no. 2 of the appeal is as under : - 'On the facts and in law the learned Assessing Officer erred in rejecting the Appellant's claim of set off of business loss as per domestic laws against other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had obtained the Advance ruling in AAR No.445/98 dated 30-4-2001, wherein the Authority has ruled that the profit out of the activity of purchase and sale of shares is in the nature of business profit. It is seen from records that the permission granted by the RBI and the registration granted by SEBI under SEBI (FII) Regulations, 1995 to the assessee company is to make investment is under stock markets and not to carry on business or to trade in India. Accordingly, the gain earned on investment activities is taxable under the head capital gain and not under the head business income. It is also seen that the assessee is not having permission from the RBI to trade or carry on business activities in India. In the case of Fidelity Northstar Fund, the AAR in its Ruling had said that the profits derived on account of purchase and sale of equities is capital gain and chargeable to tax accordingly. In view of the above, the subsequent ruling of the AAR which clarifies the law on the subject as to the taxability of and nature of income, is applicable to the facts of the case and therefore, the profits derived on account of purchase/sale of shares is to be chargeable as capital gains. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a facie opined having reason to believe that the loss from the sale of shares was not taxable under the head "Profits and gains of business or profession" notwithstanding the fact that the assessee had obtained Advance Ruling in this regard. In the reasons noted above the A.O. opined that the RBI granted permission to the assessee and further SEBI granted registration under the SEBI (FII) Regulations, 1995 to make investment in stock market and not to carry on business or trade in India. He fortified his view by relying on a subsequent Ruling of the Hon'ble AAR in the case of Fidelity Northstar Fund in which it was held that the profit derived on account of purchase and sale of equities was chargeable to tax under the head 'Capital gains'. In the opinion of the A.O., the subsequent Ruling of the Hon'ble AAR clarified the law on the subject as to the taxability and nature of income as applicable to the facts of the assessee as well. It is on such basis that the A.O. entertained a view that the income chargeable to tax has escaped assessment on the ground that the gain earned on its investment activity was taxable under the head "Capital gain" and not as "Business income" and once su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is 'Business loss', which is not available for set off or carry forward in India in view of the fact that the assessee has no PE in India and further income of Rs. 12.57 crores is chargeable to tax in India. As such, the earlier application filed by the assessee u/s 154 seeking the benefit of carry forward of business loss was also held to be without any substance. The assessee also failed to convince the Dispute Resolution Panel on its point of view. The Panel vide its order dated 03.08.2011 approved the draft assessment order upholding the A.O.'s contention that the loss of Rs. 48.80 crore was not available to the assessee either for set off against the income from other sources or carry forward to subsequent years. That is how the Assessing Officer passed the impugned order on 16.09.2011 taxing dividend income and interest on income tax refund totaling Rs. 12.57 crore under the head 'Income from other sources'. The assessee is aggrieved against the decision of the A.O. in this regard. 8. We have heard the rival submissions and perused the relevant material on record. It is observed that the Assessing Officer initiated reassessment proceedings for the reason that the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held as having a permanent establishment in India? 4. Whether on the facts and circumstances of the case, based on the provisions of Article 7 of the Treaty, the Applicant will not be taxable in India in respect of its business profits? 5. Whether on the facts and circumstances of the case, the Applicant will be absolved from filing a tax return in India under the provisions of Section 139(1) of the Indian Income Tax Act, 1961 (hereinafter referred to as the "ITA") if its entire income is subject to tax only in the United Kingdom under the Treaty provisions? 11. The Hon'ble AAR has held that the assessee is entitled to the benefits of the treaty (hereinafter also referred to as the DTAA); the gains arising from the realisation of portfolio investments in India will be treated as part of Company's business profits; and that such income from business is not liable to tax in India because of its not having any permanent establishment in India. 12. From the above Ruling of the Hon'ble AAR rendered in assessee's own case, it is patent that the gain arising from realization of portfolio investments in India has been held to be business profits. The Assessing Officer, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clare that the ruling has lost its sanctity. The ld. DR has brought nothing on record to indicate that the Ruling delivered in the assessee's own case has been modified or even any process to get it modified has been initiated by the Revenue. In this view of the matter there remains no doubt whatsoever that the Ruling in the case of Fidelity Northstar Fund cannot apply to the facts of the instant case and the case of assessee shall continue to be governed by the Ruling given in its own case. We thus hold that the reason recorded by the A.O. in initiating the reassessment proceedings by opining that the loss of Rs. 48.80 crore which resulted from sale and purchase of shares is liable to be considered under the head 'Capital gains', is not in order. 13. The main question which falls for our adjudication is whether the assessee is entitled to set off of income of Rs. 12.57 crore against the business loss of Rs. 48.80 crore. The Assessing Officer in the impugned order has held that since the assessee has no PE in India, there cannot be any question of taxation of business income in India or for that purpose allowing set off of business loss income against income from other sources. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enshrined in the provision itself which states that 'the provisions of this Act shall apply to the extent they are more beneficial to that assessee'. Ordinarily, but for such provision, an assessee to which the DTAA applies shall be subjected to tax in India as per the provisions of the Act. If, however, the provisions of the DTAA are more beneficial to the assessee, then such provisions, shall override the corresponding provisions of the Act. On the other hand, if the provisions of the Act are more beneficial to the assessee, it is such provisions which shall apply notwithstanding less beneficial provision in the DTAA. The logic behind it is simple that the DTAA is intended to grant relief of tax and not create any fresh tax liability, which is not provided under the Act. To state simply, if a particular income falls under the tax net as per the Act, the same shall be chargeable to tax in the hands of the assessee to whom DTAA applies, unless it is shown that the provisions of DTAA provide for non-taxability of such income or taxability at a lower rate. In such a situation, the beneficial provision as contained in the DTAA shall prevail over the provision under the Act. It shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to be ruled by either of the two which is more beneficial to it". In view of the above discussion, it becomes manifest that the statute by way of section 90(2) has itself given an option to an assessee to be ruled either by the Act or the DTAA, whichever is more beneficial to him. Such an option lies with the assessee and not with the Revenue. The Assessing Officer cannot thrust the provision of DTAA on an assessee, who has chosen to be governed by the Income-tax Act. 17. Adverting to the facts of the instant case, it is observed that the assessee chose to be ruled by the provisions of the Act. However, the Assessing Officer superimposed his choice on the assessee by considering the case only under DTAA and holding that since the assessee has no PE in India, there can be no business loss available for set off against income from other sources. The view of the A.O. runs contrary to the manifest prescription of section 90(2) which in unequivocal terms provides that the provisions of DTAA shall apply to the extent they are more beneficial to the assessee. When the assessee chose to be governed by the provisions of the Act and not DTAA by not claiming to have any PE in India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Suppose the assessee has such business income of Rs. 100 and also income from other sources say Rs. 30, his total income under the Act will become Rs. 130. If the assessee exercises option given to it u/s 90(2) and chooses to be covered under DTAA, then his total income in India will stand reduced to Rs. 30, because the Business income of Rs. 100 will not be taxable because of absence of any PE in India as held by the Hon'ble AAR in its Ruling, which is still valid. Now suppose instead of income, there is a business loss of Rs. 100 and income from other sources continues to be Rs. 30. Under the provisions of the Act, the assessee will get the benefit of set off of business loss against such income of Rs. 30, thereby leaving total income at Rs. Nil. If the assessee opts to be governed by the DTAA, in that case, its total income would be Rs. 30 because of non-consideration of business income, positive or negative, for the purposes of the computation of total income due to absence of its PE in India. Thus it is clear that as per the facts of the instant case, the assessee suffered a business loss of Rs. 48.80 crore which was liable to be considered under the provisions of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this extent. Ground no. 2 is, therefore, allowed. 23. The assessee has raised ground no. 3, which reads as under : - 'Without prejudice to the above grounds, on facts and in law the learned Assessing Officer erroneously calculated the tax payable considering the refund issued to the Appellant at Rs. 2,86,99,513 as against Rs. 2,59,91,859. 24. In view of our decision on ground no. 2 above holding that the total income for the current year shall be Rs. Nil because of the set off of business loss against the income from other sources, the calculation of tax made by the AO, which is subject matter of the above ground no. 3, has become academic. 25. Ground no. l is against the initiation of reassessment proceedings. It has been noticed above that the assessment in this case was completed u/s 143(3) on 28.02.2006. The AO issued notice u/s 148 on 31.03.2010 for the reasons set out above. The learned A.R. contended that the initiation of such reassessment proceedings be held as void as having been barred by time. 26. We have heard the rival submissions and perused the relevant material on record. First proviso to section 147 provides: "that where an assessment under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich led to the escapement of income. The assessee claimed loss from sale of shares as 'Business loss' by relying on the Ruling given by the Hon'ble AAR in its own case. While disposing ground no. 2 of the assessee's appeal above we have noted that such ruling is binding on the Department and it is impermissible to deviate from it without following the prescribed procedure. The assessee religiously followed the ruling and declared all the particulars in its return of income, which came to be accepted by the AO in the original assessment made u/s 143(3). The situation would have been otherwise if the such ruling had been modified earlier and the assessee had still taken the benefit of this ruling in this year itself without specifically disclosing it in the return of income. Thus it becomes to be a clear case of no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In such a situation the issuance of notice u/s 148 after the expiry of four years from the end of the relevant assessment year is clearly barred by time. 27. There is one more reason for which the initiation of reassessment cannot be upheld. From the comput ..... X X X X Extracts X X X X X X X X Extracts X X X X
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