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2015 (5) TMI 1036 - UTTARAKHAND HIGH COURT

2015 (5) TMI 1036 - UTTARAKHAND HIGH COURT - [2016] 380 ITR 138 - Interest paid on refund - treated as a business income taxable at 42 per cent OR 15 per cent. as provided in paragraph (2) of article 12 of the DTAA between India and the United Kingdom - Held that:- The words "in connection with" are relatable to the provision of services and facilities of supply of plant and machinery. We would think that it will be impermissible being too farfetched to include the amount received from the Incom .....

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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.

Income-tax Appellate Tribunal was legally justified in upholding the order of the learned Commissioner of Income-tax (Appeals) a .....

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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 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. a .....

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lant-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 a .....

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ch clause we shall refer to hereinafter. 4. An appeal was carried against the same which was unsuccessful. Equally unsuccessful was the further appeal carried before the Appellate Tribunal and the appellant is before us. 5. We heard the learned counsel for the appellant Shri S. K. Posti and Shri H. M. Bhatia, learned counsel for the Revenue. 6. The agreement is one for Avoidance of Double Taxation and Prevention of Fiscal Evasion between the United Kingdom of Great Britain and Northern Ireland. .....

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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 serv .....

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ross amount of the interest under clause (2) of article 12. Under clause (1) of article 12, interest arising in a Contracting State and paid to the resident of the other Contracting State may be taxed in the other State. In the facts of this case, interest which was received in India can be taxed in England. However, clause (2) provides that the said interest can also 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 .....

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d 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 appellan .....

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arises through a permanent establishment situated therein as fulfilled in this case. To continue with the requirement of clause (6) of article 12, it contemplates that the debt claim in respect of which interest paid is effectively connected with such permanent establishment on fixed rates. In this 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 .....

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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 questio .....

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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 .....

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ate 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 assessee must be taxed as was done by the Assessing Officer should have been gone into by the appellate authority. In fact, Shri H. M. Bhatia did made an attempt to make available the memorandum of appeal to convince us that the question was not raised before the appellate authority. Shri Posti would oppose the handing over o .....

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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 Comm .....

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ess the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.-In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant." 11. Learned counsel for the appellant also drew our attention to a judgment, reported in Ahmedabad Electri .....

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aterial 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 ob .....

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s fit." 12. This is an appeal under section 260A of the Act and section 260A of the Act reads as follows : "260A. Appeal to High Court.-(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appel .....

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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 d .....

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the Appellate Tribunal ; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub- 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 th .....

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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 decide the question which has not been decided or to decide the question which is wrongly decided subject to the only limitation that th .....

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In this 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 .....

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arned 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 connection with the business of exploration, etc., of mineral oils.-(1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non- resident, engaged in the business of providing services or facilities in connection .....

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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 pro .....

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n, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee." 16. The argument of the learned counsel for the appella .....

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s 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- .....

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ot be included under sub-section (2). 18. Learned counsel for the appellant would point out that, on the one hand, under the Treaty, the Department lays store by clause (6) of article 12, which provides for the amount being treated as business profits if it is in connection with the permanent office carrying on business in India through a permanent establishment. 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 o .....

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eated 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 i .....

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re used or to be used in the prospecting for, or extraction or production of mineral oils. The amount, which is contemplated under sub-section (2), has already been included. No doubt, 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) .....

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dgment 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' means the amount expended and 'expended' means to pay away, lay out or spend. It really represents money o .....

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