TMI Blog2012 (7) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... gene Pereira The circular issued by CBDT No. 789 dated 13th April draws a distinction between “liability to pay tax” and “actual or de facto payment of tax”. Phrase ‘liable to taxation’ it has been held is not the same as ‘payment of tax’. The test for liability for taxation is not determined on the basis of an exemption granted in respect of any particular source of income but by taking into consideration the totality of provisions of income tax law - Merely because at the given time there is an exemption from income tax in respect of any particular head, it cannot be contended or held that the assessee is not liable to tax - For the purpose of application of article 4 of the DTAC, what is relevant is the legal situation, namely, liability to taxation, and not the fiscal fact of actual payment of tax. If this were not so, the DTAC would not have used the words, “liable to taxation”, but would have used some appropriate words like “pays tax” - the company incorporated in Dubai and carrying on shipping business in India is entitled to benefit under Article 8 of the DTAA and there is no scope of taxing them in any port of India - in favour of assessee. - WRIT PETITION (CIVIL) NO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds:- (i) There is no new material or information with the Assessing Officer that income has escaped assessment after issue of no objection certificate and after issue of notice under Section 172(4) and, therefore, conditions precedent for issue of reassessment proceedings are not satisfied. (ii) The petitioner is entitled to benefit of Article 8 of the DTAA and the reasons recorded by the Assessing Officer are contrary to the ratio of the decision of the Supreme Court in Union of India vs. Azadi Bachao Andolan, (2003) 263 ITR 706, decision of this Court in ITR No. 1000/2011 titled Director of Income Tax vs. Mushtaq Ahmed Vakil dated 23rd August, 2011 and the High Court of Gujarat in Director of Income Tax (International Taxation) vs. Venkatesh Karrier Limited, (2012) 206 Taxman 488. 4. Certain basic facts which are relevant for decision of the present writ petition may be noticed. The petitioner vide letter dated 20th June, 2006 had applied for annual no objection certificate under Section 172 of the Act for the Assessment Year 2007-08. The said annual no objection certificate is issued under Circular No. 732 dated 20th December, 1995, which is as under:- Subject : I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent issued the annual no objection certificate vide letter dated 14th November, 2006. Paragraphs 2 to 6 of the said letter read as under:- 2. The application and other documents filed in this regard were examined. On prima facie examination of documents and details filed, it appears that the Emirates Shipping Line FZE is entitled for the benefit of the Article 8 of the DTAA between Govt. of India and Govt. of UAE. 3. In view of this and in accordance with the Board s circular No. 732 dated 20-Dec-1995, EMIRATES SHIPPING LINE FZE is eligible for 100% relief on account of income from the transportation of goods carried by EMIRATES SHIPPING LINE FZE on vessels chartered, owned or in a pool arrangement with the other shipping lines operating in international traffic. Accordingly, an Annual No Objection Certificate is hereby granted to EMIRATES SHIPPING LINE FZE in respect of taxation of shipping profits under section 172 for the following ports:- Sl. No. Port Location Represented by 1. Mumbai Emirates Shipping Agencies (India) Private Limited (Agent) 2. Chennai -do- 3. Mundra Emirates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 23rd March, 2009 was issued under Sections 147/148 of the Act for the assessment year 2007-08. By letter dated 22nd April, 2009, the petitioner replied and requested that the consolidated annual return filed earlier should be treated as the return filed pursuant to the reassessment notice. 10. On 13th May, 2009, the petitioner was provided with extracted reasons for initiation of reassessment proceedings, which read as under:- 2. As per the request made vide such letter, an extract of reasons recorded for re-opening the case u/s 147 for A.Y. 2007-08 is reproduced as below:- The assessee is a company incorporated under the laws of United Arab Emirates on 06.02.2006 and is engaged in the business of shipping of containers in international traffic and operating following services:- IDX India to US East Coast Service AFA China to East Africa GIA - India to Africa HLS India to Thailand HGX China to Saudi Arabia ICS India to China MAX China to UAE MIX Pakistan to Spain As per terms of Article 8 of Indo- UAE Double Tax Avoidance Agreement, the assessee has been claiming exemption from tax in India with respect to income earned from shipping operations. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct as applicable reads:- 172. Shipping business of non-residents.-- (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, live-stock, mail or goods shipped at a port in India. (2) Where such a ship carries passengers, live-stock, mail or goods shipped at a port in India, seven and a half per cent. of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. (3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the Assessing Officer a return of the full amount paid or payable to the owner or charterer or any person on his behalf, on account of the carriage of all passengers, live-stock, mail or goods shipped at that port since the last arrival of the ship thereat: Provided that where the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be. (8) For the purposes of this section, the amount referred to in sub-section (2) shall include the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature. 13. The aforesaid Section is a special provision for levy and recovery of tax from non-resident owners and charterers of ships. The tax is paid at flat rate of 7.5% by the non-resident owners and charters which carry passengers, live stock, mail or goods. The tax is payable on the account of such carriage, whether or not the amount is paid or payable in or out of India. The amount payable or paid is deemed to be income accruing in India to the owner or the charterer. Under Section 172(3), before departure of ship, a return is required to be filed by the Master of the ship specifying the amount paid or payable. The proviso provides and states that return may not be filed under Section 172(3), where the Master of the ship has made satisfactory arrangements for filing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the facts of the present case that in terms of Circular No. 732 dated 20th December, 1995, the petitioner was issued an annual no objection certificate and in terms thereof, the ships operated and owned by the petitioner were allowed to leave the ports. The certificate as itself was treated as valid and binding and in compliance with the Section 172. It is after the ships had left the ports and after the end of assessment year on 31st March, 2007, that the petitioner had filed an annual return on 18th June, 2007. We do not think that annual return can be treated as a return filed under Section 173(3) as the same is to be filed at the port on arrival and before departure of the ship, by the Master of the ship after she arrives at the port. It is in respect of each ship. Return filed in the present case was a consolidated return for the entire year and was not filed by the Master of the ship who had anchored the ship at the port. 17. It is difficult to accept the contention of the petitioner that provisions of Section 147/148 cannot be invoked in the present case or in cases where summary assessment is made under Section 172(4) of the Act. As in the present case, no objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the whole statute. Other parts of the statute along with the section have to be read to find out the intention of the Legislature. Section 172 of the Act should not be, therefore, construed as a standalone provision existing and having separate existence, independent of the entire Act. This will make the other parts inconsistent with Section 172, even when there is no conflict between them. An order made under Section 172(2)/172(4) is amenable to correction under Section 154 and even Revision, both by the assessee or by the Revenue, when conditions under Sections 263 or 264 of the Act are satisfied. In the present case, as noticed there is no inconsistency or repugnancy between Section 147 and 172 and if we consider and read them harmoniously, we do not think that the contention of the petitioner that Section 172 incorporates a bar or prohibition for invoking reassessment proceedings under Section 147/148 can be acceptable. The two provisions can operate simultaneously and are reconcilable. Both operate independently and within the parameters stated. In fact the contention of the petitioner if accepted will result in a serious challenge to the validity of the Circular No. 232. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as a payment in advance of the tax" leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The "ad hoc" assessment made u/s. 172(4) of the Act is superseded and a "regular assessment" is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all "the provisions" of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are necessarily attracted. Xxxxx So, necessarily all the provisions in the Act in respect of the payment of advance tax will apply. On effecting the regular assessment, if there is any excess payment made by the assessee, then the assessee would be entitled to the excess amount paid and also interest, for payments made in excess of the tax assessed. We are unable to appreciate the distinction drawn by the High Court between "advance tax" and "payment in advance of the tax" mentioned in sub- s. 172(7) of the Act. We hold that the distinction so drawn has no basis. The High Court has further held that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of all provisions of the Act. Provisions which are in consonance and do not come into conflict with Section 172 continue to apply and can be enforced. 21. Accordingly, the first contention of the petitioner that provisions of Section 147/148 cannot be invoked, has to be rejected. We also rely upon decision of a Division Bench of this Court in Areva T D, SA vs. ADIT, 179(2011)DLT314. The following quote in the decision in Areva T D SA (supra), is relevant and material:- 28. Explanation 2(a) of the aforesaid Section clearly takes care of the situation where no return has been filed. On a conjoint reading of Sections 195 and 197 of the Act, we are of the view that if any opinion is expressed at the time of grant of certificate it is tentative or provisional or interim in nature and the same would not debar the assessing officer from initiating a proceeding under Section 147 of the Act on the ground that there has been a change of opinion 22. This brings us to the second issue; validity of initiation of reassessment proceedings i.e. whether pre-condition for re-initiation of proceedings are satisfied in the present case. As noticed above, several contentions have been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant material and ground for the Assessing Officer to form a tentative or prima facie opinion that the income as escaped assessment which includes non assessment or under assessment. But, it is not the requirement that the Assessing Officer should have finally ascertained the fact of escapement of income by recording findings or conclusion. This final ascertainment takes place when the final assessment order is passed. The Assessing Officer has to show tentatively or prima facie that income has escaped assessment. There should be some material or basis for the said formation of belief (refer Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers, (2008) 14 SCC 208; ITO v. Selected Dalurband Coal Co. (P) Ltd. (1997) 10 SCC 68; Raymond Woollen Mills Ltd. v. ITO, (2008) 14 SCC 218). 25. The Assessing Officer in the present case has in the reasons to believe observed that the assessee was incorporated under the laws of UAE on 6th February, 2006 and engaged in the business of shipping of containers. It claims benefit and advantage of Article 8 of DTAA and has filed residency certificate issued by Ministry of Finance and Industry, UAE. The Assessing Officer, thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d:- In our view, the contention of the respondents proceeds on the fallacious premise that liability to taxation is the same as payment of tax. Liability to taxation is a legal situation; payment of tax is a fiscal fact. For the purpose of application of article 4 of the DTAC, what is relevant is the legal situation, namely, liability to taxation, and not the fiscal fact of actual payment of tax. If this were not so, the DTAC would not have used the words, liable to taxation , but would have used some appropriate words like pays tax . On the language of the DTAC, it is not possible to accept the contention of the respondents that offshore companies incorporated and registered under the MOBA are not liable to taxation under the Mauritius Income-tax Act ; nor is it possible to accept the contention that such companies would not be resident in Mauritius within the meaning of article 3 read with article 4 of the DTAC . 27. During the course of arguments before us, learned counsel for Revenue has relied upon another decision of Authority of Advance Ruling in Abdul Razak A. Meman, In re (supra) and had read the following passage:- From the above discussion, as the UAE D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of U. A. E. represent a very prosperous region in West Asia, and in that sense, can be considered to be developed countries. But they are really developing countries in the true sense of the term. They have no industries and there is not much prospect of joint ventures with other countries or of flow of technology either way. There is not much possibility of Indian companies carrying on trade or business in or of foreign companies carrying on trade in Dubai having income in India. The attraction of the U. A. E. lies in the vast surplus funds it has available for investment outside the country. It is common knowledge that there is a competition for its surplus funds from the U. S. S. R. as well as several European and Asian countries. India is also in the process of looking out for foreign countries interested in investing in India and must have considered the DTAA as providing an opportunity to improve the economic relations between the two countries and encourage the flow of funds from Dubai to India. There could be no better way of doing this than by the offer of some tax incentives to attract investment in India of Dubai capital. Any incentive offered in respect of Dubai would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, even article 4, crucial to the application of the agreement, concerns itself with individuals in paragraphs 1 and 2 and deals with other categories of persons in paragraph 3 only as a residuary class. These are clear indications that the DTAA was an agreement intended to be applicable to individuals from the very date of its coming into force and was not intended to be a dead letter qua individuals until appropriate U. A. E. legislation brought them within the tax net in that country. It should also be noted that though there is no term of operation provided for in the agreement, it cannot be described as an agreement of permanent duration. On the other hand, article 31 makes the agreement liable to termination by either side at short notice. The argument suggested, therefore, though plausible, is not acceptable. If we now turn to interpret article 4(1) of the agreement in the above background, it will be seen that it takes on a different complexion altogether. The reference to a person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of incorporation or place of management or any other criterion of a similar nature will th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States is taxed in one or the other State but not both (see articles 6, 7, 8, 13, 15, 18, 19, 22). It is only in regard to items like dividends, interest and royalty (articles 10, 11, 12) that, while the general practice of having them taxed in both countries is retained, the rate of tax in the source country is pegged at a low figure so as to attract more capital. In this view of the matter, the agreement clearly voices the intention that income of certain types should be taxed only at a concessional rate in its country of source. It will thus be seen that the language of paragraph 1 of article 4 lends itself to two equally plausible interpretations. One of them seems to give effect to the natural meaning of some of the words employed in the paragraph. However, it not only results in certain other words becoming an unnecessary surplusage but also renders the agreement practically devoid of all contemporary relevance. On that interpretation, only companies can take advantage of the agreement and all other categories of assessees would be excluded from its benefits for the present. The second interpretation perhaps places some strain on some of the words but gives a meaning to all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the decision by the Authority for Advance Rulings constituted under section 245-O of the Income-tax Act, 1961, in Cyril Eugene Pereira s case [1999] 239 ITR 650 (AAR). Section 245S of the Act provides that the Advance Ruling pronounced by the authority under section 245R shall be binding only : (a) on the applicant who had sought it ; (b) in respect of the transaction in relation to which the ruling had been sought ; and (c) on the Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction. It is therefore obvious that, apart from whatever its persuasive value, it would be of no help to us. Having perused the order of the Advance Rulings Authority, we regret that we are not persuaded. 30. As noticed above, in Mohsinally Alimohammed Rafik s case (supra), the Advance Ruling Authority had specifically taken into account the nature and character of the taxation law in Dubai and then stated and given their finding. 31. A Division Bench of this Court in ITA No. 1000/2011 titled Director of Income Tax vs. Mushtaq Ahmed Vakil, has held as under:- It is an undisputed fact that India has entered into a Doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing words: ?The appellants (i.e. Union of India) contend that, acceptance of the respondent?s submission that double taxation avoidance is not permissible unless the tax is paid in both countries is contrary to the intendment of section 90. It is urged that clause (b) of the sub-section (1) of section 90 applies to a situation where income-tax has been paid in both the countries, but clause (b) deals with the situation of avoidance of double taxation of income, inasmuch as Parliament has distinguished between the two situation, it is not open to a Court of law to interpret clause (b) distinguished between the two situations, it is not open to a Court of law to interpret clause (b) of section 90 sub section (1), as if it were the same as situations contemplated under clause (a)? Having regard to the aforesaid pronouncement of the Apex Court which is binding on us, we are of the view that no question of law much less substantial question of law arises in these appeals. We, therefore, dismiss both these appeals. 32. Similar view has been taken by Gujarat High Court in Venkatesh Karrier Limited (supra) holding that the company incorporated in Dubai and carrying on shipping busine ..... 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