TaxTMI 
TaxTMI 
2012 (4) TMI 53
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....e was filed on 12.11.2003 declaring total loss of Rs. 36,22,66,970. The assessment was completed u/s 143(3) on 28.02.2006 inter alia accepting the assessee's contention that loss from sale of shares at Rs. 48,80,13,166 was taxable under the head 'Profits and gains of business or profession'. Here it is relevant to mention that the assessee disclosed loss from sale of shares in the return of income at Rs. 48.80 crore falling under the head "Profits and gains of business or profession" and thereafter claimed set off of such loss against the Dividend income and Interest on income-tax refund categorized under the head 'Income from other sources' amounting to Rs. 12.57 crore, thereby declaring total loss of Rs. 36.22 crore eligible for carry forward to subsequent years as per the provisions of the Act. The treatment of negative income from sale of shares falling under the head 'Profits and gains of business or profession' was done in conformity with the Ruling rendered by the Hon'ble Authority for Advance Rulings in assessee's own case on 30.04.2001 holding that the profits arising from realization of portfolio investments in India will be treated as part of company's business profits. ....
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....efore, the profits derived on account of purchase / sale of shares is chargeable to tax as capital gains. 3. Since the nature of loss derived by the assessee is not on account of business activity but under the head 'Capital Gains', such loss cannot be allowed to be set off against the income from other sources as per the provisions of Sec. 71(3) of the Act. In view of this, the set off of business loss which was quantified by the AO in the assessment order is capital loss which should be allowed to be carried over to the subsequent years and cannot be allowed to be set off against income from 'other sources'. It is also noticed that complete facts related to investment activity in India and SEBI guidelines in this regard were not disclosed by the assessee. These guidelines have come to notice only through the decision of AAR in Fidility Northstar case. 4. In view of the above, I have reason to believe that the income chargeable to tax under the head 'other sources' has escaped assessment by the reason of adjusting the loss under the head 'Capital Gains' against the dividend income of Rs. 12,54,30,185 and interest income of Rs. 3,16,013 derived by the assessee within the meaning ....
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....writ petition before the Hon'ble Bombay High Court against the initiation of proceedings u/s 263 in respect of the subsequent two assessment years. The Hon'ble Bombay High Court has held that the Ruling in Fidelity cannot displace the binding character of Advance Ruling rendered in assessee's own case and as such. Resultantly, the initiation of action u/s 263 has been quashed by the Hon'ble Bombay High Court on the ground that the Assessing Officer had taken a possible view and hence the CIT was not justified in finding fault with the Assessing Officer's opinion who followed a binding Ruling. These facts are borne out from the impugned assessment order. 7. During the course of assessment proceedings, the assessee made submissions in support of its case that the loss from sale of shares was liable to be considered only as 'Business income' and not as 'Capital gain'. Faced with the judgment of the Hon'ble jurisdictional High Court in assesee's own case on the very same issue for the subsequent two years, the Assessing Officer was left with no option but to hold that loss from sale of equities was correctly declared as "Business loss". However, he held that since the assessee had no ....
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....ome' but the same did not qualify to be considered in the present assessment because the assessee had no PE in India. 9. The learned Departmental Representative took us through the Ruling rendered by the Hon'ble AAR in assessee's own case, a copy of which is available on record. He referred to page 12 of the Ruling, in which it has been held that: 'Under these circumstances, it is held that the applicant's income from business is not liable to tax in India because of the absence of any permanent establishment of the applicant in India". In the light of above observations, the learned Departmental Representative contended that since the assessee's income from business was not liable to tax in India, there was no question of allowing any set off of such business loss in India against income from other sources. 10. In order to appreciate the rival contentions in this regard it is relevant to have a quick look at the following questions which were raised by the assessee before the Hon'ble Authority for Advance Rulings:- 1. Whether on the facts and circumstances of the case, The Prudential Assurance Company Limited (hereinafter referred to as the "Applicant") will be enti....
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....he assessee against the initiation of proceedings u/s 263 for the subsequent two assessment years has thoroughly considered the provisions of Chapter XIX-B from sections 245N to 254V dealing with the Advance Ruling. Section 254S(2) postulates that the Ruling shall be binding unless there is a change in law or facts on the basis of which the advance ruling was pronounced. Rule 18 of the Authority for Advance Rulings (Procedure) Rules, 1996 provides that where the Authority finds suo moto or on a representation made to it by the applicant or the Commissioner or otherwise but before the ruling pronounced by the Authority has been given effect to by the Assessing Officer, that that there is a change in law or facts on the basis on which the ruling was pronounced, it may by order modify such ruling in such respects as it considers appropriate, after allowing the applicant and the Commissioner a reasonable opportunity of being heard. The above provisions make it crystal clear that any Ruling given in a particular case hold the field and cannot be characterized as suffering from any infirmity by reason of some other ruling rendered in another case or otherwise, unless the procedure adopte....
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....ome-tax Act (hereinafter called the Act). The assessee claimed the 'Business loss' under the Act and as per the provisions of section 71 claimed set off of such business loss against income from other sources. On the other hand, the AO held that since the assessee has no PE in India in the previous year relevant to the assessment year under consideration, it can neither have any income nor loss from business operations capable for consideration under the Act. The action of the AO has the effect of pushing the assessee compulsorily under the DTAA thereby not permitting it to be governed by the provisions of the Act. 14. Section 90 of the Act assumes significe in this regard, the relevant of which reads as under : - "90. Agreement with foreign countries.- (1) ........... (2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." 15. A bare pe....
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....t. Thus if the income itself is not chargeable to tax under the Act, then the DTAA cannot create a liability to tax by roping in such income under any of its relevant Articles. Even if any Article of DTAA provides for chargeability of a particular amount which is not chargeable to tax under the Act, then such provision of the DTAA shall have to lean in favour of the provision of the Act. The corollary that follows is that one needs to firstly examine as to whether the particular sum is chargeable to tax under the Act or not. If it is chargeable to tax then it needs to be examined as to whether such income is not taxable as per DTAA. If the income is chargeable to tax both under the Income-tax Act as well as DTAA, then the assessee cannot escape tax on it. If however such income is not chargeable to tax in India under the Act, then the matter ends there. There is no need to consider the provisions of the DTAA as to whether any charge is attracted there under on such income. If such income is chargeable to tax in India under the Act but the provisions of DTAA exempt it, then again there can be no question of taxability of such sum due to the mandate of section 90(2). The essence is t....
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....s asked by the assessee. All the questions are in relation to ascertaining the taxability of income from sale and purchase of shares as per the provisions of the DTAA. Even the sentence from the Ruling relied on by the ld. DR completes with the expression 'because of the absence of any permanent establishment in India'. Thus the real meaning of sentence read by the ld. DR claiming to be in its favour is that the assessee's income from business is not liable to tax in India because it has no permanent establishment in India. The Ruling has not been rendered on the question of the taxability of such income under the provisions of the Act. It can be seen from the sequence of all the questions answered by the Hon'ble AAR. In response to question no. 1 it has been held that the assessee is covered under the DTAA. In answer to question no. 2 it has been held that the gain arising from the realization of portfolio investment in India will be treated as part of the company's business profits and hence covered under Article 7. In response to question no. 3 it has been decided that the assessee has no PE in India. And answer to question no. 4 finally says that based on the provisions of Arti....
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....loss should be set off against other income of Rs. 12.57 crore as per section 71 of the Act. That is precisely the prayer as per ground no. 2. The ld. DR contended that such business loss can not be set off against income of Rs. 12.57 crore. 22. Section 71 deals with "Set off of loss from one head against income from another". Sub-section (1) provides that where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. Sub-section (2A) of section 71 provides that notwithstanding anything contained in sub-sections (1) and (2), the loss under the head "Profits and gains of business or profession" shall not be set off against income assessable under the head "Salaries". Other sub-sections of section 71 are not relevant in the present context. From the prescription of section 71, it is palpable that there is no bar in allowing set off of loss under the head "Prof....
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....8 or to disclose fully and truly all material facts necessary for his assessment for that assessment year". From the above statutory provision contained in the proviso to section 147 it is abundantly clear that where an assessment order is passed u/s 143(3), no action can be taken 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. Admittedly the assessment in this case was completed u/s 143(3) on 28.02.2006 and the assessment year under consideration is 2003-2004. Action for reassessment could have been taken on or before 31.03.2008, that is within a period of four years from the end of the relevant assessment year, without there being any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Beyond that date, the action could have been taken only if the assessee had failed to disclose fully and truly all material facts necessary for his assessment. Admittedly notice u/s 148 has been issued o....