TMI Blog2010 (9) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... been claimed as exempt. Thereafter, relying on the AAR ruling in the case of XYZ/ABC Equity Fund, (2001) (250 ITR 194) (AAR) and Fidelity Advisors Series VIII, (2004)(271 ITR 1) (AAR), the assessee filed a revised return of income on 25.03.2005 showing taxable income at Rs. Nil, and claiming refund of taxes paid, on the ground that its income was in the nature of business income and since the assessment has not having PE its income is not taxable in India in view of Article 7 read with Article 5 of DTAA. However, the Assessing Officer completed the assessment vide order u/s.143(3) dated 22.12.2006 determining the income under head as capital gain at ₹ 9,28,49,984/-. The penalty proceedings u/s. 271(1)(c) were also initiated for making false claim in the revised return of income. The Assessing Officer accordingly, levied penalty of ₹ 3,06,40,490/- u/s. 271(1)(c) of the Act. 2.1 The Assessing Officer has discussed the provision of the scheme of Government of India under which the Fll s are allowed to operate in Indian Securities and special provisions of Indian Income-Tax dealing with taxability of Fll s. The Assessing Officer held that Flls are permitted to inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im to exemption from income tax India. Since the ruling in case of sister concern the FFEF filed an advance ruling to the AAR in the year 2006 to obtain an order in its case whether its income from the sale of portfolio investment in India would be categorized as business income. The AR argued that it is well established principal that no penalty can be levied where a subsequent judgment has been delivered which establishes a point of law/principle contrary as to the position taken by taxpayer. 2.3 The AR submitted that along with the revised return of income, the entire basis on which the revised returns have been field, has been explained and all the information and explanations were furnished and the Assessing Officer in the assessment orders itself has discussed the issue as to whether the income should be assessed under the head business income or under the head capital gains and on this factual matrix, the question of coming to a conclusion that the assessee have concealed the particulars of income or have furnished inaccurate particulars of income so as to enable the levy of penalty u/s. 271(1)(c) does not arise. The AR also submitted that they have filed revised retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stodian in India would tantamount to the Fidelity Advisor Series VIII having a PE in India, and in this regard ruled in the negative. The AAR ruled that the income earned by Fidelity Advisor Series VIII was in the nature of business income and in the absence of PE in India its income from sale of securities was not taxable in India. The AAR has taken a similar view in the case of XYZ/ABC Equity Fund (2001) 250 ITR 194 (AAR). In view of the above, the fund wishes to offer is income as business income and accordingly revised the ROI for the above mentioned Assessment Year. The revised ROI in Form No.2 along with the computation of income is attached with the letter. 3. The learned AR relied on the following decisions before the CIT(A). CIT vs. Carborandum Universal Ltd. 215 ITR 376 (Mad.) CIT vs. Ganesh Prasad badri Prasad 231 ITR 951 (MP) CIT vs. Subramanian Chettiar 110 ITR 602 (Ker.) CIT vs. Raj Trading 217 ITR 208 (Raj) ACIT vs. Porrits and Spencers (A) Ltd. 22 SOT 231 (Del.) CIT vs. Ganesh Builders 299 ITR 403 (Mad.) The assessee also relied on the decision of the ITAT, Mumbai in the case of M/s. Variable Products Funds, Overseas Portfolio in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of bonafide belief, which does not hold water. This view of learned Assessing Officer manifests that there was bonafide belief on the part of assessee and at the same time it was based on judicial ruling in same type of fund that the its income could be assessed as business income. The assessee filed revised returns of income along with a letter which explaining the reasons for filing the return of income. It is evident from the return filed by the assessee that full disclosure of the claim that its business income is not taxable in India in view of article 7 read with Article 5 of DTAA. The Assessing Officer has, however, taken a different view that the amount is taxable. It is trite law that penalty proceedings are distinct and separate proceedings for assessment proceedings. The finding recorded in the assessment order is not conclusive for deciding the imposition of penalty. It only has a persuasive value. Any finding recorded in the assessment order does not mean that the penalty has to be imposed automatically. Explanation 1 to section 271(1)(c) provides that the penalty would be deemed to attract where in respect of a fact material to the computation of income eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the assessee that it does not have a PE in India and its income could be considered as business income as per article 7 of DTAA hence its income is not taxable in India is backed by various judicial precedents. When there are two views possible and the assessee has taken one view based on a bonafide belief, which is not agreeable to the Assessing Officer/higher appellate authorities it will not automatically lead to a case for penalty u/s. 271(1)(c) of the I.T. Act, 1961. Considering my aforesaid conclusions as well as case laws as discussed above and respectfully following the decision of jurisdictional Tribunal in the case of M/s. Variable Product funds; Overseas Portfolio vs. ADIT (IT) 2(2) (ITA No.559/m/09)(Assessment Year 2004-05)(dtd.07.05.09) which is another Fidelity sub account like assessee and which is fully applicable to the facts of the assessee, it is held that no penalty u/s. 271(1)(c) for the year under consideration is leviable in case of assessee. I am therefore satisfied that the Assessing Officer has wrongly imposed penalty. Penalty imposed by the Assessing Officer is deleted. Accordingly, the Assessing Officer is directed to delete the entire penalty of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
