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TMI Blog2015 (5) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... ia and the United Kingdom, paragraph (2) of article 12 of the DTAA between India and the United Kingdom is not applicable and, hence, the interest paid on refund by the Income-tax Department it will be treated as the business income ?" 3. The appellant-assessee is engaged in a business of oil exploration. It is a non-resident company. Originally, the assessment was completed on March 8, 2005. The bone of the contention in this case relates to the taxability and the rate at which the amounts received by the appellant by way of interest on the refund ordered in respect of excess tax paid on behalf of the employees of the assessee. As already noted, the appellant was engaged in oil exploration as non-resident of India. The tax was computed at the rate of 15 per cent. on the basis of the provisions of article 12 of the Double Taxation Avoidance Treaty (hereinafter referred to as "the Treaty"). Subsequently, the matter was reopened under section 154 of the Income- tax Act, 1961 (hereinafter referred to as "the Act"). The same was dropped. Still thereafter the proceedings were initiated under section 147 of the Act. The Assessing Officer assessed the interest income under clause (6) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed in the Contracting State in which it arises (which in this case is India) as tax was paid by the Government of India in the Income-tax Department on the excess tax paid on behalf of the assessee-appellant's employees. It is to be taxed, according to the law in India, namely, the Income-tax Act, 1961, as it stands. The limitation which is cast is that when the beneficial owner of the interest so charged is a resident of the other State which means that since the appellant is resident of England, the tax so charged should not exceed 15 per cent. of the gross amount of the interest. Therefore, the appellant would contend that the tax should have been charged at 15 per cent. of the interest received which the appellant became entitled to on the basis of excess tax paid. 8. As matters stood there if there was no other provision to consider, the appellant would indeed be justified in offering 15 per cent. to taxation. But if we come to clause (6), we notice that clause (6) expressly provides that the provisions of paragraph (1), inter alia, will not apply, if the beneficial owner of interest (the appellant in this case) is the resident of the Contracting State carries on bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant was taxed under section 44BB of the Act. He would submit that at any rate, the interest income which is derived under the refund order from the Income-tax Department should also be assessed under section 44BB and taxed under sub-section (2) at the rate of 10 per cent. His argument is immediately met by Shri H. M. Bhatia, who points out that substantial question of law is not raised in this matter. To the same, Shri Posti would respond and submit that the court is not confined to the substantial question of law which has been framed and any substantial question of law which may arise can also be considered and framed and answered. In fact, Shri H. M. Bhatia would submit that such a question was not even raised before the appellate authority and it was also not raised before the Tribunal and it does not lie into the mouth of the appellant to raise the same in this proceeding under section 260A of the Act. To the same, Shri Posti would submit that even if the matter is not raised before the first appellate authority, it has always been the law that the appellate authority must consider the matter as it arises from the order of assessment and the question as to whether the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay High Court, wherein the Full Bench, inter alia, took the following view (headnote) : "The basic purpose of an appeal in an Income-tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either before the Appellate Assist ant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The appellate authorities, of course, cannot travel beyond the proceedings and examine new sources of income. For this purpose, other separate remedies are provided to the Department under the Income-tax Act. But, apart from this, there is nothing in section 254 or section 251 of the Income-tax Act, 1961, which would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the Department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee. Under section 254(1), the Appellate Tribunal may, after gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section." 13. On a conspectus of these provisions, the legal effect of the section would appear to be that the appeal is normally to be heard on the substantial questions of law formulated and the appellant can be allowed to argue only in regard to the same. It is also open to the respondent to point out that though a substantial question of law has been formulated but in fact and in law, the said question of law is really not a substantial question of law. The High Court is to deliver judgment on the basis of the decision on the question of law framed and it also provides that the High Court may also decide the appeal on any other substantial question of law which may not have been formulated. The only condition is that it should be satisfied that the case involved such a question. Even if the Appellate Tribunal has not decided an issue or an issue has been wrongly decided, it is open to the High Court in a proceeding under section 260A of the Act to either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch business chargeable to tax under the head 'Profits and gains of business or profession' : Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 44DA or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections. (2) The amounts referred to in sub-section (1) shall be the following, namely :- (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in the prospecting for, or extraction or production of, oils in India ; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in the prospecting for, or extraction or production of mineral oils outside India. (3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He contends that it is incongruous to still contend that it will not fall within the four corners of sub-section (2) of section 44BB of the Act. 19. We are of the view that there may not be merit in the contention of the learned counsel for the appellant. What section 44BB of the Act provides for is a special provision in respect of income in the form of profits derived by non-residents engaged in business, providing services and facilities, supplying plant and machinery used for extraction or production of mineral oils. Profits is deemed at 10 per cent. of the amounts mentioned in sub- section (2). The said amount is to be treated as the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" and then we pass on to the method of computing the amounts for the purpose of sub-section (1) which is provided in sub-section (2). It provides for including all amounts paid or which are payable (whether in India or out of India) to the assessee or to any person on its behalf. To this extent, the appellant is covered by the same and it has been assessed also in regard to other income also. This section further provides that the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve already set out as falling within the same. No doubt, a question may arise as to whether after providing for a deeming provision in sub-section (1) providing that notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, 10 per cent. of the amounts in sub-section (2) shall be deemed to be the profits and gains chargeable to tax and yet the amount under clause (6) of article 12 of the Treaty is to be taxed as business profits. But we also asked the learned counsel for the Revenue whether the tax is premised under section 28, or is taxable under section 56 (the income from other sources), the answer was, it is under section 56 of the Act. Learned counsel for the Revenue would submit that the appellant had been taxed under clause (6) of article 12 of the Treaty. 21. We need not probe the matter further as we confined ourselves to questions of law which we have formulated already and also which we have formulated today. 22. In the upshot of the above discussion, we answer the questions of law, which were already formulated, against the appellant. We also answer the question of law, which we have formulated today, against the appellant. Conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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