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2016 (3) TMI 371 - ITAT DELHI

2016 (3) TMI 371 - ITAT DELHI - TMI - Revision u/s 263 - Held that:- Having regard to the legal position emerging from various cases including Hon'ble Jurisdictional High Court case, we are of the view that lack of opportunity on some of the issues in the show cause notice, vitiates the proceedings u/ s.263 and consequently the order u/s. 263 passed by the learned PCIT is also rendered bad in law.

Further, we find that the same very issue on which the show cause notice was issued by t .....

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ividend tax. The same view was adopted upto the assessment year 2009-10. Thus, the view adopted by the Assessing Officer during the assessment year under appeal is in consonance with the consistent view adopted by the Department itself in the preceding assessment years. Further, the Assessing Officer has not blindly followed the view adopted in the preceding assessment years but has also independently examined this issue by raising detailed inquiries and after considering the replies filed by th .....

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ion u/s.263 of the I.T. Act. Therefore, for these reasons also the order passed by the learned PCIT u/s. 263 totally fails to meet the jurisdictional requirements of section 263 of the I.T. Act - Decided in favour of assessee

Allowing credit for deemed dividend tax which would have been payable in Oman - whether the dividend income was granted exemption in Oman with the purpose of promoting economic development - Held that:- As find from the factual position discussed, it is seen that .....

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its are distributed to the shareholders. Therefore, even under the Omani Tax Laws, the PE offers for taxation only the dividend income actually received and not the total share of the PE in the profits of OMIFCO. On the other hand, books of account of the assessee in India are required to be prepared in consonance with the Indian Accounting Standards. Obviously, the undistributed share of profit reflected in the books of P.E. cannot be said to partake the character of income under the provisions .....

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, on merits also the directions issued by the learned PCIT on this issue are not justified and the same are hereby vacated. Thus we hold that the impugned order passed by the learned PCIT u/s.263 of the I.T. Act is without jurisdiction and not sustainable in law. - Decided in favour of assessee - I.T.A. Nos. 6785 & 6786/Del/2015 - Dated:- 9-3-2016 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER For The Assessee : Sh. Vijay Ranjan, Adv. Sh. Vartik Choksi, CA & Sh. KVR .....

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re being disposed of by this common order for the sake of convenience, by dealing with ITA No. 6785/Del/2015 (AY 2010-11). 2. The Assessee has raised as many as 14 grounds of appeal. However, the effective grounds in both the appeals which require to be adjudicated are as under:- (i) The impugned order passed u/s 263 of the I.T. Act is bad in law, being without jurisdiction for the following reasons:- (a) While the show cause notice referred to only one issue, the final order passed by the learn .....

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the appellant-society, the Assessing Officer has taken a view at the time of original assessment which is a plausible view and under section 263 the learned PCIT cannot substitute his view for the view adopted by the Assessing Officer. (d) The order passed by the learned PCIT is violative of the well established principles of consistency of approach. (ii) On merits also the directions issued by the learned PCIT arc totally unjustified. ITA No. 6785/Del/2015 - A.Y. 2010-11 3. The brief facts of .....

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d company in Oman under the Omani Laws. The Assessee holds 25% share in OMIFCO, which is engaged in manufacturing fertilizers. The fertilizers manufactured by OMIFCO are purchased by the Government of India under a long term agreement. 3.1 The Assessee has established a branch office in Oman to oversee its investment in OMIFCO. The branch office is independently registered as a company under the Omani laws and it is an accepted position by the Income Tax Department that the said branch office co .....

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essment Proceedings, detailed replies were filed on behalf of the Assessee. The Authorized Representative of the Assessee duly attended before the Assessing Officer and, as mentioned in the Assessment Order, all the necessary details were furnished, examined and the case was discussed. Thereafter, the assessment was completed under Section 143(3) vide order dated 27.02.2014 by the Assessing Officer. While completing the assessment, inter alia, the Assessing Officer allowed tax credit of a sum of .....

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ed credit for the aforesaid tax which would have been payable in Oman but for the exemption granted. 3.3 After the completion of the assessment, the Ld. Principal Commissioner of Income Tax (hereinafter referred as Ld. PCIT ), issued a Show Cause Notice dated 28.09.2015 under Section 263 of the I.T. Act, 1961. The ground on the basis of which the said notice was issued is reproduced below for ready reference from the notice itself: "A perusal of the records indicates that in the computation .....

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man Company Income Tax Law, which is reproduced below: "Tax shall not apply on dividends that the company earns from its ownership of shares in the capital of any other company. Therefore, no tax was payable by KRIBHCO on the dividend receipts of ₹ 143,83,99,800 in Oman. The DTAA between India and Oman allows tax credit in India for the taxes payable in Oman. Even though no taxes were actually paid on the dividend income from OMIFCO, the Assessee has claimed tax credit by relying on A .....

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cle 8(bis) exempts dividend income received in Oman in totality, no tax was payable in Oman at all at any stage and thus no tax was foregone on account of tax incentives by Oman. Article 3(2) of the India-Oman DTAA provides that if a term used in the agreement is not defined then the term will have the meaning which it has under the Law of that Contracting State concerning the taxes to which this Agreement applies (i.e. India). The term 'tax incentive' has not been defined in the India O .....

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on in Oman. this cannot be interpreted as an incentive as it exists across the board with no exceptions in Oman. It is simply a feature of Oman's Tax Law that does not tax dividend income. Hence, it cannot be construed as an incentive granted under Oman's tax laws. Consequently, reliance on Article 25(4) of the India Oman DTAA was erroneous in this case and no tax credit was due to the Assessee under Section 90 of the IT Act. The Assessment Order passed, accepting the contentions of the .....

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Section 263 is illegal and ab initio void for the reason that on the very specific issue relating to allowing tax credit for the deemed tax paid on dividend income in Oman, was allowed at the time of original assessment. after raising detailed enquiries and after considering the detailed reply filed before the Assessing Officer. It was pointed out that in the query letter issued under Section 142(1) of the I.T. Act, 1961 during the course of Assessment Proceedings, specific query was raised cal .....

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the issue the Assessing Officer has taken a view which was a plausible or possible view and, therefore, the Ld. PCIT is debarred from substituting his own view in place of the views correctly adopted by the Assessing Officer. Several decisions were also cited in support of this contention. (ii) On the merits of allowing credit of the deemed tax also, detailed submissions were made. The provisions of DTAA read with the relevant provisions of Omani Tax Laws, as clarified by the Ministry of Finance .....

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his order, has reproduced Article - 25 of DTAA which lays down that, Tax payable in a Contracting State shall be deemed to include the tax which would have been payable but for the tax incentive granted under the Law of the Contracting State and which are designed to promote economic development". The Ld. PCIT observed that Article (115) of the Omani Tax Laws exempts from tax dividends received by the establishment, Omani Oil Company or Permanent Establishment from shares, allotments or sh .....

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T has no jurisdiction under Section 263 of the I.T. Act, 1961, the Ld. PCIT has observed as under in his order passed under Section 263: "The main point made by the Assessee with regard to non maintainability of notice under Section 263 of the Income Tax Act revolves around the argument that the Assessing Officer has granted relief under Section 90 of the Income Tax Act after considering the provisions of the Act, the treaty and since the order has been passed after making enquiries the ord .....

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ried to mix up the provisions of Section 147 and Section 263 of the Income Tax Act. Provisions of Section 147 which are initiated by the AO himself do restrict reopening of assessment where as a result of certain application of mind by the AO an opinion is formed. Under Section 147 of the Income Tax Act, the AO cannot change his opinion unless there is a certain new tangible information requiring change of opinion. This also includes a situation when there is application of mind but on account o .....

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on 263 of the Act. The jurisdiction under Section 263 is not restricted either to the limitation of Section 147 as claimed by the Assessee nor it can be restricted to the provisions of Section 154 which deal with the mistakes apparent from record only. Therefore, the claim of the Assessee is found to be without this merit and accordingly not maintainable. Similarly, reliance on the decision in the case of Malabar Industrial Company Ltd., is also misplaced. The decision of Hon'ble Supreme Cou .....

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ase, definitely the order could not be considered to be erroneous. However, in order to fall within the benefit of this decision of Hon'ble Supreme Court, the Assessee has to clearly show that the view taken by the Assessing Officer was a possible view as per law. This, however, is not the case as indicated above. In view of the above the claim of the Assessee that the action under Section 263 is not maintainable does not serve any purpose and is accordingly rejected." 6. From the factu .....

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order passed u/s. 263 of the I.T. Act. "This from the plain and simple reading of both the Oman Tax Law as applicable from 01-01-2010 (Royal Decree No. 28/2009) or the earlier law (Royal Decree 68/2000) effective from the tax year 2000, there is no tax payable on dividend in Oman and accordingly, no tax has been paid. Further, the exemption is not available because of any economic incentive for economic development as the case of the Assessee is not covered under the exemption. The Royal De .....

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him u/s.263 of the I.T. Act, but he has also passed order and given directions to the Assessing Officer in respect of a totally new issue which does not find any mention in the aforesaid show cause notice. Thus, apparently with regard to this new issue no opportunity was allowed to the assessee-society. Ld. Counsel of the assessee further stated that in his order the learned PCIT has identified this new issue as under:- " ............ Another interesting feature of the accounts is that Ass .....

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&L Account written in India as per Indian Tax Laws and accounting standards and submitted to the Department. The accretion and addition to its opening capital in terms of the profit as per account of PE which have been duly audited and submitted during the proceedings are not disclosed in its accounts in India. This makes it abundantly clear that the dividend declared or received only is being shown in its income in India and thus confirming that the income received by the Assessee by its ow .....

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credit allowed by the A. O. in respect of dividend income in the Assessment Order is not available to Assessee in terms of either para (1) or para (4) of the Article 25 of the Indo-Oman DTAA. 2. The share of profit of its investment in Oman (to the extent it is not declared as dividend) is to be included in the global income of the resident tax payer India as per Section 4 & 5 of the I.T. Act. This part of income would be eligible for allowance of tax credit as per para (4) of Article 25 of .....

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e for income earned after this date and tax credit shall be computed accordingly. However, the A.O. shall ensure that the Assessee has been granted exemption by the Oman Tax Authority as provided in Article 118 of Royal Decree No. 28/2009.] It is also seen that the Assessee has not furnished complete and true income or particulars of income and, therefore, the A.O. shall also frame a view thereon and take action as per laws." 8. From the above it is seen that that the Ld. PCIT gave directio .....

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earned PCIT only on one Issue viz. tax credit on dividend, he passed his final order on the aforesaid three issues. The admitted position is that with regard to the other two issues no opportunity was allowed to the assessee before passing the order u/s 263 of the I.T. Act. 10. In support of aforesaid contentions, Ld. Counsel of the assessee has filed detailed written submissions, relevant documents and judicial pronouncements, For the sake of clarity, the relevant part of the written submission .....

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ind on the part of the Assessing Officer. In support of the contention that the impugned order under Section 263 is bad in law and ab initio void, the following submissions are made for the kind consideration of this Hon'ble Tribunal: (i) As mentioned above, the Ld. PCIT issued notice under Section 263 with regard to only one issue but he has passed the order on three issues. He has directed the Assessing Officer to tax the assumed profits on account of the undistributed dividends by OMIFCO .....

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s vitiated and rendered bad in law. It is an established legal position that there must be complete nexus between the reasons or grounds indicated in the Show Cause Notice issued under Section 263 and the final order passed under Section 263. Kind reference is invited to the Hon'ble Delhi High Court judgment in the case of CIT Vs. Ashish Rajpal 320 ITR 674. For ready reference the relevant part of the head note of this case is reproduced below: "Held, dismissing the appeal, that there w .....

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result of the breach of the principles of natural justice." (emphasis supplied) For the same proposition , the Assessee Society relies on the Hon'ble Mumbai Tribunal decision in the case of Colorcraft V/s ITO 303 ITR (AT) 7. The relevant part of the head notes of this decision is reproduced below for ready reference: "Held, (i) that the provisions of Section 263 provide that an opportunity is to be provided to the Assessee before passing an order. That means the Assessee is requir .....

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ce and the order of the Commissioner under section 263. The reason given in the Show Cause Notice to the Assessee was that duty drawback received by the Assessee could not be considered as profit derived from export in view of the Supreme Court judgment and, therefore, the said amount did not qualify for deduction under Section 80HHC. However, the order under Section 263 held the assessment order an erroneous on different grounds, namely, [i] the Assessing Officer should have excluded the export .....

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rroneous .qua deduction under Section 80HHC.: The order of revision was not valid with reference to Section 80HHC." (emphasis supplied) Similar view has been adopted in the following cases: a) CIT V/s. Roadmaster Industries of India Limited 40 taxmann. Com 298 (P&H) (b)Synergy Entrepreneur Solutions (P) Ltd vs. CIT 11 taxmann.com 385 (Mum.ITAT) In the backdrop of the factual and the legal position explained above, it is respectfully submitted that there is an inherent and fatal defect i .....

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nreasonable view in place of the view adopted by thc Department itself consistently for the past several years. The Ld. PCIT has discarded the view adopted by the Department in the past in spite of the fact that the factual and legal position continues to be the same. It is submitted that this very same issue was thoroughly examined in the case of the Assessee Society in the scrutiny assessment made under Section 143(3) of the I.T. Act, 1961 for the A.Y. 2006-07 vide Assessment Order dated 31 st .....

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; 20,01,66,400 during the previous year which has been included in its income under the head Misc. Income under Schedule 7 - 'Other Revenue'. The Assessee has referred to Section 90 of the Income Tax Act and claimed benefit of deemed tax paid in Oman by its PE in Oman. a reference has further been made to Article 25 of DTAA, Article 7, 11 and 25 of the DTAA between India and Oman. The Assessee has submitted that it has filed its return for the year ended 31-3-2006 under Oman's Income .....

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x Law, appears to be justified. The credit for ₹ 6,00,49m,920 as deemed tax paid under DTAA in addition to the prepaid taxes as claimed in Return of income is allowed. (emphasis supplied) 10. In respect of the Assessment Years 2007-08 to 2009-10 also assessments were made under Section 143(3) of the I.T. Act, 1961 and the Department has consistently adopted the view that the Assessee Society was entitled to tax credit of the deemed tax which would have been payable in Oman. The Department .....

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dering the detailed replies filed by the Assessee Society vis-a-vis the provisions of Law and DTAA. Therefore, the view taken by the Ld. PCIT is totally outside the ambit and purview of Section 263 of the I.T. Act, 1961. The Assessee Society strongly relies on the following decision: (i) Honble Delhi High Court judgment in the case of CIT Vs. Escorts Limited 338 ITR 435, the relevant part of which reads as under: "Where a fundamental aspect of a transaction is found to have been permeated t .....

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ng the allegation that the transactions were speculative could not be sustained. The fundamental nature of the transactions was examined year after year more importantly in the Assessment Year 1986-87 it was specifically considered by the Commissioner (Appeals) and it remained the same. Given the fact that the Assessee had been engaged in these transactions in the preceding Assessment Years, the Commissioner could have had no occasion to have recourse to the revisional powers under section 263 o .....

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0 ITR 44 (Ker.) The relevant part of the ratio is reproduced from the Heads note: "Held, dismissing the appeal, that with regard to another assessee, the same view was taken by the Tribunal and the Department accepted it for earlier years in the assessee s case also. Those orders were allowed to become final. The Department should be consistent at least in respect of the same assessee and it cannot also differentiate between different assessees. The assessee was entitled to the concessional .....

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igh Court may be reproduced below from page 330 of the report: ……It is no doubt true that the strict rule of the doctrine of res judicata does not apply to proceedings under the Income-tax Act. At the same time, it is equally true that unless there is a change of circumstances, the authorities will not depart from previous decisions at their sweet will in the absence of material circumstances or reasons for such departure:" (iii] The desirability of following the principle of .....

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n'ble Apex court in case of CIT Vs. J .K. Charitable Trust in Civil appeal No. 1698,1699/2008 vide order date 7/11/2008 has also held on similar line as stated herein above on principle of consistency. (iv) Similar view has been adopted by the Hon'ble Delhi High Court in the case of CIT vs. Dalmia Promoters Developers P. Ltd., [2006] 281 ITR 346. For ready reference, the relevant part of the Heads note is reproduced below: "……For rejecting the view taken for the earlie .....

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as no compelling reason for taking a different view. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the view taken for the earlier assessment years continued to be applicable even for the year under consideration. Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), CIT v. A.R.J. Security Printers [2003] 264 ITR 276 (Delhi) and CIT v. Neo Poly Pack P. Ltd. [2000] 245 ITR 492 (Delhi) followed.&quo .....

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5, an amount of ₹ 1,75,70,347 was received as gifts. The Assessing Officer held that this amount was assessable but the Tribunal held that it was not. On appeal to the High Court: Held, dismissing the appeal, that the assessee as a religious head was not involving himself In any profession or avocation nor performing any religious rituals/ poojas for his devotees for consideration or other. The amounts or gifts received by the assessee could not be said to have any direct nexus with any of .....

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sessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it w01:lld not be appropriate to allow the position to be changed in subsequent years. Since there was no change in the facts and law the amounts were not taxable. [The Supreme Court has dismissed the special leave petition filed by the Department against this judgment see [2011] 336 ITR (St.) 15-Ed. (emphasis supplied) 11.6 The rule of consistency has .....

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justifiable reason to differ with the said finding rendered by the Tribunal, more so taking note of the fact that the Department had for the Assessment Years 1986-87 to 1994-95, namely, for a period of nine years, accepted the fact that the payment made towards royalty is revenue expenditure and had not raised dispute thereon. That apart, even for the Assessment Year 1995- 96, the Assessing Officer has partially treated the payment of royalty as revenue expenditure. The sudden volte face by the .....

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l orders, but also in the orders passed by quasi-judicial authorities." 12.It is respectfully submitted that the order passed by the Ld. PCIT under Section 263 of the I.T. Act, 1961 also suffers from another jurisdictional defect for the reason that the relevant issue regarding tax credit of deemed tax on dividend was not only thoroughly examined and allowed during the preceding Assessment Years 2006-07 to 2009-10, but even during the previous year relevant to the Assessment Year under appe .....

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issions dated 11th December, 2013. The relevant parts of these submissions are reproduced below which contain the points of query and the replies thereto: "Query No. (xxvii) : Give details of income earned, income assessed, taxes payable and taxes paid in Oman. Query No. (xxviii): In respect of any income covered in DTAA, please furnish detailed note with copy of respective agreement and also give reason for claiming relief u/s 90 of the Income Tax Act, 1961. Query No. (xxix): Please give d .....

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iety at page 40, wherein the details of claim of deemed tax credit on dividend income received from Oman is elaborated. A copy of the notes forming part of computation is herein again enclosed as Annexure 02 to this letter for ready reference. The Society by virtue of it being a joint venture partner in Oman in Oman India Fertilizer Company SAOC (hereinafter referred as OMIFCO) has received during the year, dividend US$30.2325 equivalent to Indian Rupees of ₹ 143,83,99,800. The dividend wa .....

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pital held by the Society in the joint venture OMIFCO, Oman. The Director's Report of OMIFCO, Oman, and the Minutes of 12th Annual General Meeting of OMIFCO, Oman, held on March 10,2010 in support of the amount of dividend declared by OMIFCIO, Oman, are enclosed for ready reference as Annexure 03. The Copy of the certificate issued by M/s. OMIFCO SAOC indicating the dividend amount paid is enclosed to this letter as Annexure 04. The said dividend income of ₹ 143,83,99,800 has been incl .....

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bject matter of taxation in both the countries, one has to read Section 90 of the Income Tax Act, 1961 along with the provisions of DTAA between India and Oman. (b) The copy of the DTAA agreement between India and Oman is enclosed as Annexure 05 and particular reference is invited to Article 11, 7 and 25 of the DTAA. (c) Article 11 (4) of DTAA provides that the provisions of Article 11 (1) shall not apply if the beneficial owner of the dividends being a resident of a contracting state carries on .....

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a permanent establishment situated therein profits attributed to that permanent establishment to the extent they are attributable directly or indirectly to that permanent establishment may be taxed In the other Contracting State. (e) The Assessee Society has duly filed the Return of Income under the Omani s Income Tax Law by including the said dividend income as part of its total income, copy of the Income Tax Return filed for the year ended March 31, 2010 under the Omani's Income Tax Law al .....

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.... (not legible) in accordance with the exigencies of public good. This tax exemption is, therefore, granted by the Omani Tax Authorities as an incentive for promoting economic development. Further reference is invited to the letter dated 11th December, 2000 of Secretary General of Taxation, Ministry of Finance, Oman, addressed to the joint venture partner, which clarifies that Article 8 (bis) under the Omani Income Tax Law is for achieving the main objective of promoting economic development .....

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ountries so that the benefit is retained by the investor. Such credit is known as tax sparing. If the credit is given only to actual tax paid and not for the tax which would have been payable then the benefit which the developing country intended to offer to the concerned tax payer would be nullified. The country's sacrifice of the revenue would ultimately accrue to the state of residence. (i) As a consequence of the above, Article 25(4) of the DTAA read with the provisions of Article 8(bis) .....

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6-03-2010 (j) In view of the changes in the local Omani Income Tax Law with effect from Tax Year 2010, wherein the PE's income is chargeable to tax @ 120/0 instead of 30 as per the old Omani Law applicable upto 31-12- 2009. Accordingly, the deemed tax credit benefit will be available 300/0 for the amount of dividend received upto 31-12-2009 and 12 of the amount of dividend received during January to March 2010. Accordingly, the claim of Deemed Tax Credit is ₹ 41,44,23,149 (Rs.403025288 .....

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ting economic development within Oman by attracting investments." A copy of the Assessment Order of the Omani Tax Authorities as received by us for the Tax Years 2002 to 2006 is enclosed for your kind perusal. Copy of the Assessment Order for year 2007-08 is also enclosed for your kind reference. (Annexure 10) The assessment of the Society for the Assessment Year 2006- 07 was completed u/s 143(3) by order dated 31-12-2008 and by a speaking order, the Assessing Officer has accepted the conte .....

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thorities as also Assessment Orders passed by them. It was also clearly pointed out in this reply that in respect of A.Y. 2006-07 credit for deemed tax was allowed after thoroughly discussing these issues in the Assessment Order and the same view was adopted during the subsequent Assessment Years and upto the A.Y. 2009-90. This shows that during the course of the Assessment Proceedings, there was full application of mind on the part of the Assessing Officer on this issue. The discussion given at .....

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by virtue of this claim made by the Assessee, the Assessee Society effectively is not paying any tax on dividend income either in Oman or in India. In the last para of the Assessment Order, he has observed: "Relief under Section 90 of the Income Tax Act, 1961, as claimed by Assessee is also allowed". These facts abundantly prove that the relevant issue has been thoroughly examined by the Assessing Officer during the course of the Scrutiny Assessment Proceedings and he has allowed the c .....

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by the Department consistently after due application of mind. However, the Ld. PCIT has tried to justify the assumption of jurisdiction under Section 263 of the I.T. Act, 1961 by observing that even if there is application of mind by the Assessing Officer, the PCIT has power under Section 263 to set aside his order for the reason that the powers vested under Section 263 cannot be equated with the requirements of Section 147 of the I.T. Act, 1961. This observation by the Ld. PCIT is devoid of any .....

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Decrees issued by Omani Authorities. The exemption in respect of dividend income under the Omani Tax Laws continues even in the Income Tax Law by the Royal Decree No. 28 of 2009. In any case, this is a totally irrelevant point raised by the Ld. PCIT. The disputed issue pertains to merely the question as to whether deemed tax on dividend payable in Oman is eligible for credit while making the assessment under the Indian Income Tax Act. In any case, the moot point is as to whether the issue was e .....

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e Department itself in the preceding Assessment Years. In these circumstances, the established position of Law is that the Ld. PCI cannot substitute his view in place of the view taken by the Assessing Officer while exercising powers under Section 263 of the Income Tax Act, 1961. 14. In the backdrop of the factual position explained above, it is humbly submitted that the order passed by the Ld. PCIT under Section 263 is bad In law for the following reasons: (i) There is complete lack of opportun .....

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d there was full application of mind on the part of the Assessing Officer who adopted a view which is plausible view and, therefore, the Ld. PCIT has no jurisdiction to substitute his view. For this proposition, the Assessee relies on the legal position as explained below: (a) The assessee relies on the Hon'ble Gujarat High Court decision in the case of CIT v. Arvind Jewelers 259 ITR 502. The facts and the ratio of this case are reproduced below for your kind consideration: "The provisi .....

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fficer and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. When an Assessing Officer adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order rejudicial to the interests of the Revenue unless the view taken by the .....

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900. The Commissioner of Income-tax held that the order was erroneous and prejudicial to the interests of the Revenue, in so far as the Income- tax Officer had not carried out any investigation either while adding certain amounts in the total income or while accepting the assessee's explanations on the various points. The Tribunal set aside the order of the Commissioner of Income-tax. On a reference: Held, that the finding of fact by the Tribunal was that the assessee had produced relevant m .....

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s not justified." (emphasis supplied) [Special Leave Petition dismissed vided 266 ITR (St.) 101] (b) From the above Gujarat High Court judgment, it is clear that even if two views are possible on merits of a question, and if the Assessing Officer has adopted one view, his order cannot be said to be erroneous and prejudicial to the interests of Revenue. For the same proposition, reliance is placed on the leading Supreme Court decision in the case of Malabar Industrial Company Ltd. v. CIT 243 .....

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The assessee strongly relies on the Born bay High Court decision in the case of CIT v. Gabrial [India] Ltd. 203 ITR 108. In this case, it was held that if the Assessing Officer has raised queries and the assessee has reiled written submissions / explanation, merely because there is no discussion in the Assessing Officer's order on the relevant issue, it cannot be said that such order becomes erroneous. Similar view has been taken by the Rajasthan High Court in the case of CIT v. Ganpat Ram B .....

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ectra Shares and Scrips Pvt. Ltd. Vs. CIT, 354 ITR 35 (AP). (ix) Cadila Healthcare Ltd. vs. CIT, 51 taxmann.com 255 (Ahmedabad Trib.). (x) CIT vs. P.D. Abraham, 53 taxmann.com 217 (SC). (xi) Sterling Construction & Investments vs. ACIT 374 ITR 474 (Born) (xii) CIT V/s Fine Jewellery (India) Ltd 372 ITR 303 (Born) 14. Besides challenging the legality of the order passed by the learned PCIT u/s 263 of the I.T. Act, the assesseesociety, in the written submissions and also by way of the elaborat .....

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ns of the DTAA read with Section 90 of the Income Tax Act, 1961. The relevant provisions of DTAA may be reproduced below for ready reference: (i) Article - 3(2): As regards the application of this Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the Law of that Contracting State concerning the taxes to which this agreement applied. (ii) Article - 7 - Business Profits: The profits of an enterprise of a .....

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ting States will continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement. (2) Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in the Sultanate of Oman, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the Sultanate of Oman, whether directly or by deduction. Such deduction s .....

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h deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which IS attributable to the income which may be taxed in India. (4) The tax payable in a Contracting State mentioned in paragraph 2 and paragraph 3 of this Article shall be deemed to include the tax which would have been payable but for the tax incentive granted under the laws of the Contracting State and which are designed to promote economic development. (5) Income which, in accordan .....

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nder the Omani Tax Laws and, therefore, tax payable would include the tax which would have been payable. The only requirement is that such incentive should have been granted with the object of promoting economic development. Therefore, this issue has to be analysed from this angle. It may kindly be noted that till the year 2000 dividend income was chargeable to tax under Omani Tax Laws. By virtue of Royal Decree No. 68/2000 read with the consequential Royal Decree No. 47/81, Article 8(bis) was i .....

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ares, portions or stocks in the capital of any other company. 2. Profits or gains realized by the Company from the sale of securities listed in Muscat Securities Market or from their disposal. The question is whether this exemption was subsequently granted with the purpose of promoting economic development. The expression "incentive" is neither defined in the Omani Tax Laws nor in the Income Tax Act, 1961. Therefore, for clarification as to whether this incentive was for the purpose of .....

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eproduced below for ready reference: "We refer to your letter dated 2 December, 2000 and our previous letter dated 6 August, 2000 on the above subject. Under Article 8 of the Company Income Tax Law of Oman, dividend forms part of the gross income chargeable to tax. The tax law of Oman provides income tax exemption to companies undertaking certain identified economic activities considered essential for the country's economic development with a view to encouraging investments in such sect .....

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s that undertake those activities considered essential for the country's economic development suffered a tax cost on their return on investments. the tax treatment under the above mentioned Article 5 had the negative impact on investments in tax exempt project. The Company Income Tax Law of 1981 was, therefore, recently amended by Royal Decree No. 68/2000 by the insertion of a new Article 8(bis) which is effective as from the tax year 2000. As per the newly introduced Article 8(bis) of the C .....

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he Project would be effectively connected with such Permanent establishments. On the above presumption, we confirm that tax would be payable on dividend income earned by the Permanent Establishments of the Indian Investors, as it would form part of their gross income under Article 8, if not for the tax exemption provided under Article 8(bis). As the introduction of Article 8(bis) is to promote economic development in Oman, the Indian Investors should be able to obtain relief in India under Artic .....

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an accepted position of interpretation that if there is some doubt about the interpretation of a particular provision of Law, the Competent Authority to clarify that provision is only the Government of that particular country. The Income Tax Department of India has no locus standi in this matter. The issue has been clarified by the highest Authority of the Sultanate of Oman through the Secretariat General of Taxation. In this connection, kind reference is invited to the Article (6) of Omani Inco .....

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and this shall be whether the name or description is printed, stamped or written." From the above it is clear that any notification/ document issued by the Secretary General has the force of official document. The position clarified in the Omani letter dated 11th December, 2000 is further authenticated by the assessments made in respect of the Permanent Establishment of the Assessee Society under the Omani Tax Laws. In respect of the tax years 2002 to 2006, a common order has been passed un .....

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d with the investment of Kribhco-Muscat. The dividend income is, however, exempt from tax in accordance with Article 8(bis)(1) of the Company Income Tax Law. The tax exemption on dividend is granted with the objective of promoting conomic development within Oman by attracting investments." In the said Order the dividend income is first included in the total income and thereafter deduction is granted. For the subsequent years also, the assessments are made in similar manner. Up to the tax ye .....

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sessee Society is entitled for the tax credit which has been rightly allowed by the Assessing Officer and, therefore, the Ld. PCIT has completely erred in giving directions to the Assessing Officer under Section 263 to withdraw the said tax credit." 15. As already noted by us above, besides giving directions to the Assessing Officer for withdrawing the tax credit for deemed dividend tax, which forms part of the show cause notice, the learned PCIT further directed the Assessing Officer to br .....

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w: 31-12-2010 (US$) (US$) 31 Dec 2011 93,521,908 Opening Balance 114,251,371 37,757,271 Share of profit for the year 59,781,818 {17,027,271} Dividend received (43,180,000) 114,521,271) Closing balance 130,853,189 16. With regard to this new issue, on behalf of the appellant-society it has been strongly contended before us that any directions issued by the learned PCIT on this issue are bad in law and ab initio void for the reason that there is no mention of this issue in the show cause notice an .....

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ed that the annual accounts of the PE are prepared in accordance with the International Financial Reporting Standards (IFRS). As per the IFRS - 28, the share f PE in the profit/loss in OMIFCO at 25 has to be accounted as income in the Profit & Loss Account of the PE even though such income is neither accrued nor received. The actual income received is only to the extent of dividend declared and distributed. Out of the total distributable profits, OMIFCO is required to transfer a specified am .....

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ited to the Profit & Loss Account. The undistributed share of profit reflected in the books of the PE does not partake the character of income under the provisions of the Income Tax Act, 1961. It is a settled position of law that accounting entries are not determinative of taxability under the Income Tax Act, 1961. For this proposition, reference is made to the following Supreme Court decisions which settle this issue: (i) Sutlej Cotton Mills Limited Vs. CIT 116 ITR 1 (ii) Kedarnath Jug Mfg. .....

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a V / s CIT 340 ITR 407 (Del)] It is reiterated that as a shareholder the PE and the Assessee cannot be taxed on the entire income earned by OMIFCO. The PE is only liable to tax in respect of the income distributed by OMIFCO to the shareholder. The share in the undistributed profits of OMIFCO is merely a book entry in the books of the PE and it does not represent any real income earned by the Assessee Society. Such income has neither been credited nor been received by Assessee Society and, there .....

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his order u/s.263, has also directed the Assessing Officer to frame a view with regard to the default of non-furnishing complete and true income or particulars of income on the part of the assessee. Admittedly, this issue does not find any place in the show cause notice issued by the learned PCIT. With regard to this issue the following submissions have been made on behalf of the assessee:- "18. Lastly, the Ld. PCIT has directed the Assessing Officer to frame a view regarding non-furnishing .....

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ly by the Assessing Officer." 12. On the other hand, Ld. CIT(DR) controverted the various submissions and arguments advanced by the Ld. Counsel of the Assessee. He has strongly relied upon the impugned Order passed u/s. 263 by the Ld. PCIT and has invited our attention to the various findings recorded by the learned PCIT in his impugned order. The learned CIT(DR) has vehemently argued that under the Tax Laws of Sultanate of Oman, dividend income enjoys a general exemption across the board a .....

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ssing Officer. With regard to the other issue pertaining to undistributed dividend income, the learned CIT(DR) has argued that the learned PCIT has given elaborate reasons in his order to justify such addition. It was argued that the said undistributed dividend income is reflected in the audited accounts of the P.E. of the assessee in Oman and, therefore, there is no reason why such income should not be brought to the charge of tax. It is pointed out that the Assessing Officer completely failed .....

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from the various decisions cited before us. At the threshold, we find that that there is no dispute with regard to the following factual position:- (i) In this show cause notice issued by the learned PCIT the only issue referred to pertain to allowing tax credit on dividend income earned in Oman. (ii) At the time of original assessment proceedings detailed inquiry letter was issued by the Assessing Officer with regard to tax credit of deemed dividend tax which would have been payable in Oman but .....

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n scrutiny assessments made by the Department right up to the assessment year 2009- 10. Thus, in respect of the assessment years 2010- 11 and 2011-12 the Assessing Officer has only followed the view adopted by the Department in the preceding several assessment years. 14. Keeping in view of the facts and circumstances of the case and the precedents relied upon, the validity of the order passed u/s.263 needs to be considered. As per the admitted position, show cause notice was issued only with reg .....

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nine issues, the entire proceedings uls.263 get vitiated as a result of the breach of principles of natural justice. Similar view has been adopted in several other cases referred to above. In the case of Ashish Rajpal (supra) the Hon'ble Delhi High Court have further observed that the threshold condition for setting aside the assessment u/s.263 is that before passing an order, opportunity has to be granted to the assessee and such opportunity is a necessary concomitant of the inquiry the Co .....

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tes the proceedings u/ s.263 and consequently the order u/s. 263 passed by the learned PCIT is also rendered bad in law. 15. Further, we find that the same very issue on which the show cause notice was issued by the learned PCIT was not only thoroughly examined during the course of scrutiny assessment proceedings in respect of the assessment year under appeal, but the same was consistently examined during the preceding assessment years starting from the assessment year 2006-07. As a matter of fa .....

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essing Officer has not blindly followed the view adopted in the preceding assessment years but has also independently examined this issue by raising detailed inquiries and after considering the replies filed by the assessee-society. Thus, the view adopted by the Assessing Officer is a possible and plausible view and the Assessing Officer has adopted this view having regard to the well established principles of consistency of approach and also after considering the merits of the claim. In view of .....

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3 is bad in law for the following reasons:- (i) No opportunity in the show cause notice was allowed on certain issues on which directions have been issued in the order passed u/s. 263. (ii) The issue communicated to the assessee in the show cause notice was thoroughly examined at the time of original assessment and, therefore, there was complete application of mind on the part of the Assessing Officer on this issue. (iii) Further, the Assessing Officer at the time of original assessment has adop .....

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foresaid discussions and precedents relied upon, we quash the impugned order passed by the learned PCIT u/s.263 of the I.T. Act. 17. Since the order passed by the learned PCIT which is under appeal has been quashed by us, going into the merits of the issues is only of academic interest. However, since detailed arguments have been raised on the merits of the issues, for the sake of completeness, we proceed to examine and decide the issues on merits as well. 18. With regard to allowing credit for .....

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examined is whether the dividend income was granted exemption in Oman with the purpose of promoting economic development. The exemption has been granted under Article 8(bis) of the Omani Tax Laws. The said provision has been clarified and explained vide letter dated 11.12.2000 issued by the Sultanate of Oman, Ministry of Finance, Secretariat General for Taxation, Muscat. The text of this letter has already been reproduced (supra). From this letter, the following points emerge:- (a) Under Article .....

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t by attracting investments. (e) Tax would be payable on dividend income if not for the tax exemption provided under Article 8(bis). (f) As the introduction of Article 8(bis) is to promote economic developments in Oman, the Indian investors should be able to obtain relief in India under Article 25(4) of the Agreement for Avoidance of Double Taxation. 19. From the above clarifications there remains no doubt regarding the purpose of granting exemption to dividend income. The interpretation of Oman .....

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iew of the facts stated above, we are of the considered view that on merits also the assessee-society is entitled to tax credit in respect of deemed dividend tax which would have been payable in Oman. Therefore, we hold that on merits also the learned PCIT was not justified in directing the Assessing Officer to withdraw the aforesaid tax credit. Further such credit was allowed by the Assessing Officer during several preceding assessment years and, therefore, when there is no change in the facts .....

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mount of undistributed dividend from Omani Company as reflected in the Profit and Loss Account of the PE of the assessee in Oman. We have already recorded a finding that the Ld. PCIT has no jurisdiction whatsoever to issue any directions with regard to any issue on which no show cause notice was issued and on that account even the order of the ld. PCIT gets vitiated. Coming to the merits, from the factual position discussed, as aforesaid, it is seen that the annual accounts of the PE are prepare .....

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herefore, even under the Omani Tax Laws, the PE offers for taxation only the dividend income actually received and not the total share of the PE in the profits of OMIFCO. On the other hand, books of account of the assessee in India are required to be prepared in consonance with the Indian Accounting Standards. Obviously, the undistributed share of profit reflected in the books of P.E. cannot be said to partake the character of income under the provisions of the Income-tax Act. It is settled posi .....

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