TMI Blog2015 (5) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Income-tax Appellate Tribunal was legally justified in upholding the order of the learned Commissioner of Income-tax (Appeals) and of the Assessing Officer that the interest paid to the assessee on its refund is a business income and, therefore, it is taxable at 42 per cent. instead of 15 per cent. as provided in paragraph (2) of article 12 of the DTAA between India and the United Kingdom - Income Tax Appeal Nos. 1, 2, 3 and 4 of 2010 - - - Dated:- 19-5-2015 - K. M. Joseph (CJ) And V. K. Bist, JJ. For the Petitioner : S. K. Posti For the Respondent : H. M. Bhatia JUDGMENT K. M. Joseph, CJ. 1. The appeals being connected, we are disposing of the same by this common judgment. 2. The substantial questions of law, which have been framed at the time of admission of the appeals, are as follows : (a) Whether the learned Income-tax Appellate Tribunal was legally justified in upholding the order of the learned Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2) However, such interest may also be taxed in the Contracting State in which it arises and, accordingly, to the law of that State, provided that where the resident of the other Contracting State is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent. of the gross amount of the interest. (6) The provisions of paragraphs (1), (2) and (3)(a) of this article shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 (Business profits) or article 15 (Independent personal services) of this Convention, as the case may be, shall apply. 7. We will consider whether there is any merit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case, the appellant paid excess tax on behalf of its employees. The Income-tax Officer, after assessment, apparently has ordered refund. There was the delay and interest was paid under the Act at the statutory rate fixed. So there arises a debt claim and the interest is effectively connected with the permanent establishment on fixed rates. In such an eventuality, clause (6) of article 12 provides that the provisions of article 7, which relate to business profits, or article 15 (Independent personal services) of this Convention, as the case may be, shall apply. This will be assessed as business profits and in regard to business profits, the rate of tax is 48 per cent. It is on the said basis that, in fact, the Assessing Officer in the first assessment and also in the further assessment after proceedings under section 147 of the Act had assessed the appellant. This assessment has been upheld by the first appellate authority as also by the Tribunal. 9. We would think that in this analysis of the provisions of the clauses of the Treaty, there is no error as such committed by the Assessing Officer as confirmed by the first appellate authority and the Tribunal and, therefore, the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). It reads as follows : 251. Powers of the Commissioner (Appeals).-(1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment ; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment ; (b) in an appeal against an order imposing a penalty, he may con firm or cancel such order or vary it so as either to enhance or to reduce the penalty ; (c) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be- (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner ; . . . (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question : Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, it may be true that the appellant has not raised this question before the appellate authority and also before the Appellate Tribunal. The appellant has not produced the memorandum of the appeal before the Tribunal and the order of the Appellate Tribunal also does not bear it out that the appellant has raised this question but we would think that the question which is raised essentially, appears to be a pure question of law and it is substantial in the sense that it has got a direct and substantial impact on the destiny of the appellant's case and we hence proceed to formulate the following substantial question of law : Whether, in the circumstances of the case, the appellate authority and the Tribunal should have found that the amount of interest received on the refund by the Income-tax Department should be included in the amount on which the appellant was taxed under section 44BB of the Act ? 14. Having formulated the said question and having heard the learned counsel for the parties also, we proceed to answer the same. 15. Section 44BB of the Act is a special provision. It reads as follows : 44BB. Special provision for computing profits and gains in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Department is an amount, which has been received by the appellant in connection with its business of exploration carried out in India and, therefore, it should be included in sub-section (2) of section 44BB of the Act. 17. Per contra, the learned counsel for the Revenue would point out that a reading of sub-section (2), which provides for ascertaining the amounts which are to be included in computing the profits and gains under the deeming provision in sub-section (1) as chargeable under profits and gains of business or profession, the amount is limited to the amount which has been paid to the person (in this case to the appellant) 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 for the purpose of prospecting for, or extracting or production of mineral oil in India. He would point out that the payment by the Income-tax Department must be treated as a payment by a third party and he would submit that it is not in connection with the provision of services and facilities in connection with, or supply of plant and machinery. The appellant made payment on behalf of the employees. The amount is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we notice that there is no provision which provides as to who is to make the payment to the non-resident and which is to be included. In other words, it could be argued that any payment by the Income-tax Department as such is not expressly excluded. Shri Posti would confine himself to clause (a) of sub-section (2) of section 44BB of the Act and we are not called upon to decide the impact of clause (b) of sub-section (2) of section 44BB of the Act. But none the less on a reading of clause (a), we are left with the impression that what is contemplated is only the payments received actually or payable on account of the provision of services and facilities in connection with, or supplying plant and machinery on hire used, or to be used. No doubt, the learned counsel for the Revenue drew our attention to a judgment of the hon'ble apex court, reported in Vidya Sagar Joshi v. Surinder Nath Gautam, AIR 1969 SC 288. That is the case of the Representation of the People Act. Therein, the court, inter alia, has held as follows : The critical words of section 77 are 'expenditure', 'in connection with election' and 'incurred or authorised'. 'Expenditure' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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