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2016 (4) TMI 337 - ITAT MUMBAI

2016 (4) TMI 337 - ITAT MUMBAI - TMI - Applicable rate of tax - India-Cyprus DTAA - as per revenue the benefit of the lower rate of tax prescribed in India-Cyprus Double Taxation Avoidance Agreement (DTAA) could not be allowed since assessee has failed to file any revised return to show that the non-filling of the schedule of S.I in the return of income was an inadvertent mistake - Held that:- Assessee is entitled to the benefits of the India-Cyprus Double Taxation Avoidance Agreement ('DTAA') a .....

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he claim was wrongly mentioned as being under section 80IB of the Act, which was sought to be explained by the assessee as a mere typographical error. The Hon’ble High Court affirmed the stand of the Tribunal, whereby the claim of the assessee for exemption under section 10B of the Act was allowed considering that a mere typographical error in mentioning section 80IB of the Act in the return of income would not disentitle the assessee’s claim for exemption under section 10B of the Act. - Decided .....

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income on accrual basis, such solitary error cannot be construed to mean that assessee has not been following the cash basis of accounting regularly. In our considered opinion, the plea of the assessee is quite justified, and in any case, the applicable legal position on any point has to be arrived at by keeping in mind the relevant provisions of law and not merely by the conduct of the parties. Ostensibly, Article 11(1) of India-Cyprus Double Taxation Avoidance Agreement (DTAA), which covers t .....

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taining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 28/03/2014 under section 143(3)r.w.s. 144C(1) of the Income Tax Act, 1961 (in short the Act ) . 2. In this appeal the assessee has raised the following Grounds of appeal:- 1. On the facts of the case and in law, the Learned Assessing Officer/ Dispute Resolution Panel ('Ld. Assessing Officer/DRP') erred in assessing the income of the Appellant at ₹ 23,93,98,904 as ag .....

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of Appellant's inadvertence of not filling Schedule 'SI' (Special Income) of the Income-tax Return Form. 2.2 The Ld. Assessing Officer/ DRP has erred in denying the Appellant from claiming the benefits of DTAA, merely due to non-filing of a revised return and disregarding judicial precedents and CBDT Circular, casting an obligation upon the Revenue to not to take an advantage of Appellant's bonafide mistake or ignorance. 2.3 The Ld. Assessing Officer/DRP also erred in ignoring th .....

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ble Tribunal to exercise its inherent powers and grant the Appellant its bonafide claim of charging its income to tax at the beneficial rates prescribed in the DTAA. Prayer The Appellant prays that it is entitled to claim the beneficial provisions of India-Cyprus DTAA and accordingly, its income ought to be taxed at the lower/ beneficial rate prescribed therein. 3· On the facts of the case and in law, the Ld. Assessing Officer/DRP erred in making addition to the returned income on account .....

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sis. 3.3 The Ld. AO/DRP erred in disregarding the fact that the method of accounting adopted by the Appellant has been followed by it regularly and consistently over the years and cannot be discarded on account of an inadvertent solitary error. 3.4 Without prejudice to the foregoing, the Ld. AO be directed not to tax the said interest income offered to tax on receipt basis in subsequent year(s). Prayer The Appellant prays that it should be entitled to offer its income to tax in the year in which .....

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, the Ld. AO erred in initiating the penalty proceedings under section 271(1)(c) of the Act. 2.1 Although in the memo of appeal, the assessee has raised multiple Grounds of appeal, but the dispute is essentially on two issues, which we shall with hereinafter in seriatim. 3. Briefly put, the relevant facts are that the appellant assessee was incorporated in Cyprus and is a tax resident of Cyprus. It is engaged in the business of making investment in real estate development companies in India and .....

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ing Officer, however, taxed the income on the normal rate of 43.23% on the ground that the assessee company did not fill up the Special Income (SI) schedule in the return of income filed. In other words, the Assessing Officer did not allow the benefit of the lower rate of tax prescribed in the India-Cyprus Double Taxation Avoidance Agreement (DTAA). This is the first area of difference between the assessee and the Revenue. 3.1 Secondly, the interest income earned from CCDs was declared by the as .....

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he ground that the S.I Schedule in the form of return of income was not filled up by the assessee and, therefore, the income was taxed at the normal rate of 43.23%. The assessee has been consistently pointing out that non filling-up of the schedule for S.I in the form of return of income was an inadvertent mistake. In this context, assessee had explained that the computation of income filed contained a note to the effect that assessee was a tax resident of Cyprus and was thus, entitled to the be .....

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g assessment year of 2009- 10, wherein assessment was finalized under section 143(3) of the Act, the assessee has been allowed the benefit of the lower rate of tax prescribed in the India-Cyprus Double Taxation Avoidance Agreement (DTAA). The Ld. Representative for the assessee asserted that similar situation has prevailed even in the subsequent assessment years of 2011-12 and 2012-13, wherein the return of income was accepted in the processing done under section 143(1) of the Act. 5. In this ba .....

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on record clearly establishes that the appellant is a tax resident of Cyprus, which is further supported by the Tax Residency Certificate , issued by the Competent Authority of Cyprus, copy of which has been placed on record. Consequently, it is eligible to claim the benefit of India-Cyprus Double Taxation Avoidance Agreement (DTAA) and such claim of the assessee has been accepted by the Assessing Officer in scrutiny assessment in the preceding assessment year of 2009-10 and also in the subseque .....

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(DTAA). The assertions of the assessee that such non filing-up of the Schedule-S.I in the form of return of income is an inadvertent omission has been rejected. In our considered opinion, the lower authorities have completely misdirected themselves in refusing assessee s claim for being taxed at the concessional rate of 10% prescribed in the India-Cyprus Double Taxation Avoidance Agreement (DTAA). Notably, the accepted history of the case depicted by the assessment under section 143(3) for asses .....

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s made investments in Compulsorily Convertible Debentures in Indian companies engaged in real estate development. During the previous year relevant to the A.Y 2010-11, the Company has earned interest of ₹ 155,649,334/- from such investments. As per article 11(2) of the India-Cyprus tax treaty, interest is taxable in India @ 10%. The company has accordingly paid taxes on interest income @ 10%. 6.1 Notably, the tax liability on the total income has also been computed at 10%. In view of the a .....

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nce Agreement (DTAA), mere technical error would not defeat the claim of the assessee, which is otherwise in accordance with law. On this proposition, the Ld. Representative for the assessee had relied upon the judgment of the Hon ble Rajasthan High Court in the case of CIT vs. Rajasthan Fasteners (P) Ltd., [2014] taxmann.com 175 (Rajasthan). In the case before Hon ble Rajasthan High Court, the assessee s claim for exemption under section 10B of the Act was sought to be denied by the Revenue on .....

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for exemption under section 10B of the Act. 6.2 In our considered opinion, in the present case, having regard to the facts and evidence on record and in law, the claim of the assessee for taxation @ 10% following India-Cyprus Double Taxation Avoidance Agreement (DTAA) deserves to be allowed. We hold so. 6.3 In the result, so far as the first issue is concerned, assessee succeeds. 7. In so far as second issue is concerned, relevant facts are that assessee had invested ₹ 606.50 crores in th .....

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y resisted such action of the Assessing Officer in the course of assessment proceedings as also in the course of the hearing before us. The main point raised by the appellant is that having regard to Article 11 of the India-Cyprus Double Taxation Avoidance Agreement (DTAA) interest income in question is liable to be taxed in India on the basis of payment. In support of such proposition, the Ld. Representative for the assessee has placed reliance on the following decisions:- 1. DIT v. Siemens Akt .....

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September and thus, income was liable to be assessed on accrual basis. 9. We have carefully considered the rival submissions. The assessee company made investments in CCDs in Indian companies engaged in real estate development and the interest earned on such investment is sought to be offered to be taxed on receipt basis. The crucial plea of the assessee is based on Article -11(1) of the India-Cyprus Double Taxation Avoidance Agreement (DTAA), which read as under:- 1. Interest arising in a Contr .....

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ngesellschaft (supra), wherein having regard to the DTAA between India & Federal Germany Republic, the assessment of royalty or fee for technical services was held to be taxable on receipt basis. In the case of National Organic Chemical Industries Ltd. (supra), the Tribunal was concerned with payment made to non-residents i.e. a Swiss company, for acquiring some material safety data sheets. It was held that since the payment was covered by the scope of Article 12(4) of the Double Taxation Av .....

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