TMI Blog2016 (3) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 the legal position which emerges from the various cases cited above, it is an undisputed legal position that the learned PCIT cannot substitute his view for the view of the Assessing Officer by invoking jurisdiction 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 dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the Ld. Principal Commissioner of Income Tax, Delhi-10, New Delhi u/s 263 of the Income Tax Act, 1961 relevant for the assessment years 2010-2011 2011-12. Since the issues involved in these appeals are common and identical, therefore, these appeals were heard together and are 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 learned PCIT is on three issues and thus the appellantsociety was denied opportunity which is against the well established principles of natural justice and which vitiates the entire proceedings u/s 263. (b) At the time of original assessment, there was full application of mind on the part of the Assessing on the same issue with regard to which the show cause notice was issued by the learned PCIT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 41.53 crores in respect of the dividend income of ₹ 134.41 crores received by the Assessee from OMIFCO. The said dividend Income was simultaneously brought to the charge of tax in the assessment as per the Indian Tax Laws. As per the Omani Tax Laws, exemption was granted to dividend income by virtue of the amendments made in the Omani Tax Laws with effect from the year 2000. However, by virtue of the provisions of Article - 25 of DTAA referred to above, the Assessing Officer allowed 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taxed at all as per the tax laws cannot be construed as an incentive. The Omani Companies Income Tax Law vide Article 8(bis) exempts dividend income from taxation 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 Assessee and allowing tax credit is erroneous as well as prejudicial to the interest of the Revenue. You are, therefore, in terms of provisions of sub-section (1) of Section 263 hereby given an opportunity to furnish justification as to why the tax credit of ₹ 41,44,23,149 should not be withdrawn for A.Y. 2010-11. 4. In response to the aforesaid Show Cause Notice, the Assessee has filed a detailed reply dated 13.10.2015 by raising the following contentions:- (i) Issue of notice under Section 263 is illegal and ab i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni Oil Company or Permanent Establishment from shares, allotments or shareholding it owns in the capital of any Omani Company. He has further observed that Article (116) specifically exempts various business activities from the charge of Omani tax. The Ld. PCIT has opined that under the Omani 'Tax Laws dividend is absolutely exempt and is not includible in the total income and, therefore, it cannot be said that any specific exemption was granted for the purpose of tax incentives for economic development. Regarding the contention of the Assessee that the Ld. PCIT 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 order cannot be turned as erroneous. The Assessee has also made reference to the decision of Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 factual position as explained above, it was seen that the learned PCIT has taken a view that even if the Assessing Officer, during the course of the original scrutiny assessment proceedings, has fully applied his mind to a particular issue and has made the assessment. Accordingly, the Ld. PCIT would have jurisdiction u/s. 263 of the I.T. Act, if he feels that the view adopted by the Assessing Officer is legally untenable. The Ld. PCIT has, accordingly, made the following observations in his impugned 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 own admission is its dividend income and not business income as claimed by the Assessee. 7.1 The Ld. PCIT held that even the assumed profits reflected in the Books of Account of the PE of the Assessee by virtue of undistributed and un-received dividend income, were also chargeable to tax under the provisions of the I.T. Act, 1961. 7.2 At the end of the impugned order under Section 263, the Ld. PCIT directed the Assessing Officer to modify the Assessment Order as under: 1. That the tax 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 the Indo-Oman DTAA to the extent of taxes which would h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Section 143(3) after due and full application of mind 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 as reflected in the Books of Account of the PE. He has also directed the Assessing Officer to frame a view regarding non-furnishing of complete details or furnishing inaccurate particulars by the Assessee. On these two issues, there was complete denial of natural justice on the part of the Ld. PCIT for the reason that Assessee Society was not allowed any opportunity whatsoever to present its case on these Issues. In these circumstances, the entire order passed by the Ld. PCIT under Section 263 is vitiated and rendered bad in law. It is an established legal position that there must be complete nexus between the reasons or ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99,015 instead of ₹ 18,58,350, (ii) Central excise refund and sales tax set off should have been excluded from the business profits under clause (baa) of the Explanation to Section 80HHC, and (iii) Central excise refund and sales tax set off should have been included in the total turnover. This clearly showed that there was no nexus between the reasons given in the Show Cause Notice and the reasons given in the order for holding the order of the Assessment Order erroneous .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 in the order passed by the Ld. PCIT under Section 263 for the reason that on some of the issues covered in the order, the Assessee Society was not given any opportunity. Therefore, on this ground alone the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has taken a conscious view after considering the provisions of the Omani Tax Law, Section 90 of the I.T. Act, 1961, Article 25 of the DTAA and the clarifications issued by the Royal Decrees of the Sultanate of Oman. in respect of assessment for A.Y. 2010- 11, which is the subject matter of the present appeal, the Assessing Officer has adopted the same view in consonance with the view adopted in the past and further after full application of mind and after raising detailed queries and after considering 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also relics on the Hon'ble Supreme Court decision in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321. This Supreme Court decision together with other judgments of the Supreme Court have been referred to by the Hon'ble Gujarat High Court in the case of Taraben Ramanbhai Patel v. ITO [1995] 215 ITR 323. The observations of the Hon'ble Gujarat High 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 consistency again came up for consideration before the Hon'ble Delhi High Court in the case of Director of Income-tax (Exemptions) vs. Escorts Cardiac Diseases Hospital Society [2008] 300 ITR 75. In this case exemption ujs.l0(22A) was granted from assessment years 1988-89 to 1994-95. There was no change in facts. The Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 his activities as a religious head. In the absence of a link or connection between the gifts made by the devotees and the profession or avocation carried on by the assessee, the personal gifts could not be termed as income taxable under the Income-tax Act, 1961. In the assessee's own case in assessment year 1988-89, the Department had accepted the position that gifts received by him on birthdays and other occasions were not taxable. Where a fundamental aspect permeating through different assessment 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 [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion of the assessment and with regard to allowing tax credit on deemed dividend tax, enquiries were raised at serial numbers (xxviii) to (xxx). The Assessee Society responded to these queries as per detailed submissions 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 detailed note on tax credit claimed by the Society in respect of dividend income received from OMIFCO. Query No. (xxx): Explain as to the condition of carrying on business in Oman through PE and the holding in respect of which the dividends are paid is effectively connected with such permanent establishments; and Article 11 (4) of the DT AA is applicable in your case. Please refer Note No. 2 of the notes forming part of computation of taxable income an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 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 business in the other Contracting States of which the company is paying the dividends is a resident, through a permanent establishment situated therein, then in such a case provisions of Article 7 of DT AA would apply. Since the Assessee Society has a permanent establishment through the branch office, Article 7 would apply. (d) Article 7 of DTAA deals with business profits and it provides that where an enterprise of a Contracting State carries on business in the other Contracting State through 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 along with a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75 - received on 24- 08-2009, ₹ 58,14,02,250 - received on 31-12-2009 and ₹ 9,49,82,175 - received on 16-03-2010 (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 plus ₹ 11397861). This may kindly be allowed to the Assessee against the total tax. Further, we wish to inform you that the Omani Tax Authorities have done the Tax assessment vide their order dated 14-12-2008 of the Permanent Establishment of KRIBHCO at Muscat. The Omani Tax Assessment Order indicates that the ..Dividend income is exempt from tax in accordance with Article 8 (bis)(1) of the Company Tax Law. The tax exemption on dividend is granted with the objective of promoting economic development within Oman by attracting investments. A copy of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the credit after full application of mind. The Assessing Officer was also fully conscious of the fact that during the preceding Assessment Years such credit was already allowed by the Department and thus, it was a settled issue. 13. The Ld. PCIT in his order under Section 263 has not doubted that on this issue the Assessing Officer raised enquiries and there was full application of mind on his part. He has also not doubted that in preceding Assessment Years such credit of deemed tax has been allowed 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 merit and defies the settled legal position which emerges from a chain of Supreme Court and High Court decisions to which a reference is made infra. The Ld. PCIT has also observed in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 provisions of section 263 of the Income-tax Act, 1961, cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also placed on the Allahabad High Court judgement in the case of CIT v. Mahendrakumar Bansal 297 ITR 99 wherein it has been held that merely because the ITO had not written a lengthy order, it would not establish without bringing on record specific instances that the assessment order passed u/s. 143(3) is erroneous and rejudicial to the interests of the Revenue. 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 Bishnoi 296 ITR 292. 13. In the written submissions the assessee-society has also relied on the following cases:- (i) CIT vs. Ashish Rajpal, 320 ITR 674 (Del.) (ii) CIT vs. Hindustan Coco Cola Beverages P. Ltd. 331 ITR 192 (Del.). (iii) CIT vs. Anil Kumar Sharma, 335 ITR 83 (Del.). (iv) CIT vs. R.K. Construction Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 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 shall not, however, exceed that part of the income-tax (as computed before the deduction is given) whichis attributable to the income which may be taxed in the Sultanate of Oman. (3) Where a resident of the Sultanate of Oman derives income which, in accordance with the provisions of this Agreement, may be taxed in India, the Sultanate of Oman shall allow as a deduction from the tax on the Income of the resident an amount equal to the income-tax paid in India, whether directly or by deduction. Such 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Tax Authorities regarding the purpose of Article 8(bis). This issue was clarified by the Sultanate of Oman, Ministry of Finance, Secretariat General for Taxation, Muscat, vide their letter dated 11th December, 2000 addressed to Oman Oil Company SAOC. Since this letter is a very important document, text of this letter is reproduced 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 sectors. Before the recent amendments to the Profit Tax Law on Commercial and Industrial Establishments, Article 5 of this law provided for exemption of dividend income in the hands of the recipients if such dividends were received out of the profits on which Omani income tax was paid by distributing companies. It meant that Omani income tax was payable by the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Income Tax Law of Companies No.47 /1981 herein the functions of the Secretariat General are specified. Para 3 of the aforesaid Article (6) is reproduced below for ready reference: 3 - Any form or notification of document issued or published or delivered by the Secretary General in accordance with this Law shall be considered an official document if it carries the name or description of the Secretary General or the responsible officer who is designated by virtue of Paragraph (2) of Article (3) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend received by them. The movement of investment in the final accounts as on 31st December, 2010 in notes to the financial statement No. (4) it has been indicated as below: 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 and, therefore, there is complete denial of opportunity to the appellant-society, which renders the entire proceedings u/s. 263 as bad in law. It is further contended that even on merits no such addition as directed by the learned PCIT ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 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, therefore, cannot be taxed under the Income Tax Act, 1961. As a matter of fact, even the Oman Tax Authorities have excluded such income while assessing the income of the PE. 17. In view of the above it is humbly submitted that the directions issued by the Ld. PCIT for bringing to charge of tax the undistributed profit from OMIFCO is not only bad in law but also not warranted even on merits. These directions deserve to be quashed. 11. Ld. Counsel for the Assessee further stated that Ld. PCIT In 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 learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charge of tax under the provisions of the Income-tax Act. 13. We have carefully considered the rival submissions and perused the relevant records available with us, especially the impugned order passed by the Ld. PCIT u/s. 263 of the Act alongwith the legal position on the relevant issues which emanates 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 for the exemption granted. The assessee had filed detailed replies which were duly considered by the Assessing Officer before allowing tax credit. (iii) Such tax credit was also allowed by the Department in respect of the assessment year 2006- 07 as per the assessment order wherein, a detailed discussion on this point has been made which shows that after proper application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 fact, in the assessment order passed u/s. 143(3) for the A.Y. 2006-07, there is a detailed discussion on this point and after proper and thorough application of mind the Assessing Officer allowed credit for deemed dividend 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 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax incentive granted under the laws of the contracting State and which are designed to promote economic developments. Thus, the crucial issue to be 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-8 of the Omani Tax Laws, dividend forms part of gross income chargeable to tax. (b) As a result, investors in tax exempt companies that undertake activities considered essential for the country's economic development suffered a tax cost which had the negative impact. (c) The Company Income-tax Law of 1981 was therefore amended by Royal Decree No.68/2000 by insertion of a new Article 8 (bis). (d) Thereby the Government of Oman would achieve its main objective of promoting economic development by attracting investments. (e) Tax w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as aforesaid, it is seen that the annual accounts of the PE are prepared in accordance with the International Financial Reporting Standards (IFRS). As per IFRS-28 the share of PE in the profit / loss in OMIFCO at 25% has to be accounted as income in the Profit and Loss account of the PE even though such income received is only to the extent of dividend declared and distributed. Out of the total distributable profit, OMIFCO is required to transfer a specified amount to reserves under the Omani law and only the remaining profits 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 of the Income-tax Act. It is settled position that accounting entries are not determinative of taxability under the Income-tax Act and further only the real income can be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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