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TMI Blog2023 (11) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... uccinctly, the fact as culled out from the records is that the Assessee is a resident of India deriving foreign income from two sources i.e. interest from deposit in bank account at Australia and rental income from two properties situated at 26, Shirley St, Australia and 9, Blenheim Avenue Australia respectively. She filed her return of income on 24.08.2018 (PB 2-4) declaring total income of Rs. 6,57,090/- which includes interest income from bank deposit in Australia of Rs. 7,37,194/-. The rental income from Australian property was not included in the Indian income tax return in view of Article 6 of DTAA and in respect of the rental income, tax of 4698.16 Australian dollars was paid in the income tax return filed in Australia (PB 5- 14). 3.1 In the assessment proceeding AO observed that assessee in her return of income has not shown Income from two house properties situated at Australia considering Article 6 of DTAA with Australia. However, Article 6 only states that the income of the real estate "may" be taxed in the contracting state in which that property is situated and it does not preclude the taxation of the same in resident state. He referred to section 5(1)(c) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to that permanent establishment. Article 8- Ships and Aircraft (PB 20) 1. Profits from the operation of ships or aircraft, including interest on funds connected with that operation, derived by a resident of one of the Contracting States shall be taxable only in that State. 2. Notwithstanding the provisions of paragraph (1), such profits may be taxed in the other Contracting State where they are profits from the operations of ships or aircraft confined solely to places in that other State. Article 10- Dividends (PB 21) 1. Dividends paid by a company which is a resident of one of the Contracting States for the purposes of its tax, being dividends to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident for the purposes of its tax, and according to the law of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the dividends. Article 12- Royalties (copy enclosed) 1. Royalties arising in one of the Contracting States, being royalties to which a resident of the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition, the AO relied on the Article 6(1) of DTAA with UK which reads "income from immovable property may be taxed in contracting state in which such property situated". The AO referred to the Notification No . 91/2008 dated 28.08.2008 and construed the words "may be taxed" as "shall be taxed" 8. We have gone through the provisions of Section 90(1) and Section 90(3), and the notification of the CBDT and impact of MLIs. ......... 9. Thus, we find that in the absence of an express provision, the right of the resident country to tax its residents cannot be taken away under the DTAA. Therefore, the expression "may be taxed" cannot be construed to mean "shall be taxable only in the resident state" , unless it is expressly stated . Provisions of Section 90(1)(a)(i) is clearly applicable to the facts of the case . 10. In the result, both the appeals of the assessee are allowed." In the above decision, one of the properties is situated in Australia and the Hon'ble ITAT held that income from house property offered in the income tax return in Australia cannot be taxed in India by allowing the appeal of assessee. 5. The Ld. CIT(A) has distinguished the above case only for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds), art. 12 (interest), art. 13 (royalty and fee for technical services), art. 14 (capital gains on other properties) and art. 22 (other income) which provide that such income may be taxed in both the Contracting States. Intention of parties to the DTAA is very clear. Wherever the parties intended that income is to be taxed in both the countries, they have specifically provided in clear terms. Consequently, it cannot be said that the expression "may be taxed" used by the contracting parties gave option to the other Contracting States to tax such income. The contextual meaning has to be given to such expression. If the contention of the Revenue is to be accepted then the specific provisions permitting both the Contracting States to levy the tax would become meaningless. The conjoint reading of all the provisions of articles in Chapter III of Indo-Canada treaty leads to only one conclusion that by using the expression "may be taxed in the other State", the contracting parties permitted only the other State, i.e., State of income source and by implication, the State of residence was precluded from taxing such income. Hence, the contention of the Revenue that the expression "may be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in case of Natasha Chopra Vs. DCIT (2022) 196 ITD 185 and Hon'ble ITAT, Mumbai Bench in case of Ms. Pooja Bhatt Vs. DCIT (2009) 22 DTR 458. 6.1 In this appeal the ld. AR of the assessee submitted a detailed paper book and the same is extracted here in below : S. No. Particulars Pg No. Filed before AO/CIT(A) 1 Copy of Index of Paper Book filed before ld. CIT(A) 1 CIT(A) 2 Copy of return filed in India 2-4 Both 3 Copy of Form No. 67 filed in Australia 5-14 Both 4 Copy of Form No. 67 filed in India 15-16 Both 5 Copy of Article 6,7,8 & 10 of DTAA between India and Australia 17-21 Both 6 Copy of decision of Hon'ble ITAT Delhi Bench in case of Natasha Chopra vs. DCIT(2022) 196 ITD 185 22-25 Both 7 Copy of decision of Hon'ble ITAT Bench in case of Ms Pooja Bhatt vs. DCIT (2009) 22 DTR-458 26-31 Both 8 Copy of decision of Hon'ble ITAT Mumbai Bench in case of Essar Oil Ltd. vs. Addl. CIT (2013) 28 ITR (Trib.) 609 32-36 Both 9 Copy of relevant part of decision of Hon'ble ITAT Mumbai Bench in case of Shah Rukh Khan vs. ACIT (2017) 150 DTR (Trib.) 25 37-40 Both 7. Per contra, the ld. DR submitted that once tax is payable or paid in the country of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income accrue or arise in India. She further submitted that as Article-6 of DTAA with Australia specifically provides the income from real estate property may be taxed in the contracting state in which property is situated. Thus, property which is located outside India and let outside India is not liable for tax in India. Thereby the assessee has paid tax on rental income in Australia itself and not in India. 8.3 The ld. AO did not accept the contention of the assessee stated in the order that Article 6 of DTAA only states that the income from real estate property may be taxed in the contracting state and it does not preclude the taxation of the same in the other contracting state in respect of which the assessee is a resident with relevant credit for tax paid in the contracting state where the property is situated. The ld. AO referring to the provision of section 5(1)(c) of the Income tax Act stated that the assessee's case falls within that provision. Based on that provision of law ld. AO made addition of rental income of Rs. 15,22,442/- by taking the amount of rent for the period 01.07.2017 to 30.06.2018 (Australian FY) as calculated at Pg 6-8 of the order. 8.4 In the first ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he detailed discussion relied upon by the ld. DR in the case of Bank of India Vs. ACIT [ 122 taxmann.com 247 ] is reiterated here in below : 2. These appeals raise two interesting issues, with wider ramifications, for our adjudication- first, whether or not the income of the assessee bank from its foreign branches, amounting to Rs. 1,408.32 crores, is required to be excluded from its income taxable in India; and, second, whether or not the assessee bank is liable to subjected to Minimum Alternate Tax under section 115 JB, and, if so, whether the income of the foreign branches, amounting to Rs. 1,408.32 crores, and, provision for bad doubtful debts amounting to Rs. 5,359.64 crores in required to be excluded from the computation of book profits computed under section 11JB of the Act. Let us take up these two issues first, and then we will proceed to take up the remaining issues raised in the appeal. 3. So far as the first issue is concerned, i.e. exclusion of profits of foreign branches from taxable income in India, this is certainly an issue of wider ramification touching the assessment of every Indian enterprise which has branch offices abroad inasmuch as whatever we decide in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 2008, entire global income of an Indian resident assessee is to be taxed in India and that where a DTAA provides that "any income of a resident of India 'may be taxed' in the other country, such income shall be included in his total income chargeable to tax in India, in accordance with the provisions of the Income-tax Act, 1961, and relief shall be granted in accordance with the method of elimination or avoidance of double taxation provided in such agreement". Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before us. 5. Learned counsel's contention, as articulated in the written note filed before us, is that the issue in appeal is covered, in favour of the assessee, by decisions of the coordinate benches in two immediately preceding assessment years, namely 2013-14 and 2014-15, wherein the matter has been remitted back to the file of the Assessing Officer in the light of certain directions. It is thus contended that when profits of a branch abroad has been subjected to tax abroad, under article 7 of the applicable double taxation avoidance agreement, the same income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same on the same-except for one new reason which we will take up a little later. In the case of Technimont (P.) Ltd. (supra), the coordinate bench, speaking through one of us (i.e. the Vice President), has, inter alia, observed, and we are in considered agreement with these observations, as follows: "4. To adjudicate on the issue on merits, only a few undisputed material facts need to be taken note of. The assessee before us is an Indian company with branch offices in UAE and Qatar. The assessee has earned profits aggregating to Rs. 11,91,18,391 in these branches, which, for the purposes of the provisions of the respective tax treaties, constitute permanent establishments. The claim of the assessee, as noted by the DRP at page 10, is that "the foreign branches create permanent establishments (PEs) in the foreign countries, the income from the same is liable to tax in these foreign countries, i.e. source states, and, hence, the income from aforesaid foreign branches should be exempt in India as per Article 7 of the tax treaties". The assessee has further contended that "according to many judicial precedents cited below, it has been held that under a tax treaty, it has been provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate bench. When learned counsel's attention was invited to the provisions of Section 90(3) read with notification no. 91/2008 dated 28th August 2008, and impact of this legal position on the claim of the assessee, he submits that section 90 was re-enacted with effect from 1st October 2009, and the notifications issued prior to re-enacted section 90 will not hold good in law. In support of this proposition, our attention is invited to a coordinate bench decision in the case of Essar Oil Ltd. v. Addl.CIT [2014] 42 taxmann.com 21 wherein it is said to have been held, in paragraph no. 76, that notifications issued under earlier section 90 shall hold good till 1st October 2009. As a corollary to this observation, according to the learned counsel, the notifications issued under earlier section 90 will not hold good after 1st October 2009. He submits that in this view of the matter, nothing really turns on the notification no 91/2008 under section 90(3). He submits that the impact of notification having been nullified by re-enactment of section 90, the law laid down by Hon'ble Supreme Court in the case of CIT v. PVAL Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC) will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that once an income is held to be taxable in a tax jurisdiction under a double taxation avoidance agreement, and unless there is a specific mention that it can also be taxed in the other tax jurisdiction, the other tax jurisdiction was denuded of its powers to tax the same. To that extent, the worldwide basis of taxation in the scheme of the Indian Income-tax Act was no longer applicable in a situation provisions of a double taxation avoidance agreement entered into under section 90 apply. That was the scheme of law, as evident from the following observations, as settled by Hon'ble Supreme Court: 13. We need not to enter into an exercise in semantics as to whether the expression "may be" will mean allocation of power to tax or is only one of the options and it only grants power to tax in that State and unless tax is imposed and paid no relief can be sought. Reading the Treaty in question as a whole when it is intended that even though it is possible for a resident in India to be taxed in terms of sections 4 and 5, if he is deemed to be a resident of a Contracting State where his personal and economic relations are closer, then his residence in India will become irrelevant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuded of its powers to tax the same. To that extent, the worldwide basis of taxation in the scheme of the Indian Income-tax Act is no longer applicable in a situation provisions of a double taxation avoidance agreement entered into under section 90 apply. 9. The development of law, however, did not stop at that. 10. It may be recalled that, with effect from 1st April 2004, a new sub-section 3 was inserted in Section 90, and this new sub-section provided that "(a)ny term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf". In exercise of the powers so vested in the Central Government, vide notification no. 91 of 2008 dated 28th August 2008, it was notified as follows: In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 90(3) will not hold good in law after 1st October 2009, unless such notification is reissued on or after 1st October 2009. 13. The argument of the learned counsel is only fit to be noted and rejected. It is only elementary that merely because a section is amended or even substituted, whether by repeal of the legislation itself or by amendment in the legislation, the notifications, circulars and instructions issued therein do not cease to hold good. Section 297(2)(k) of the Income-tax Act, 1961, specifically provides that notwithstanding the repeal of Income-tax Act, 1922, "any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly". On a similar note, under section 24 of the General Clauses Act, "Where any Central Act or Regulation, is, after the commencement of this Act, repealed and reenacted with or without modifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of section 54A. 14. When such are the views of Hon'ble Supreme Court in respect of validity of notifications in respect of amendment in law by re-enactment of the statutory provisions under the Income-tax Act, in which these provisions are of similar nature though by way of different provisions, it is futile to argue that when reenactment of law has exactly the same provisions, so far as the related notification is concerned, the mere fact of re-enactment of law will be fatal to the notification. As regards learned counsel's reliance on observations made by a coordinate bench, in the case of Essar Oil (supra), to the effect "We are, therefore, of the considered view that the substitution of Section 90, which has come into effect from 1st April 2004, and notification issued therein shall continue to hold at least upto 1st October 2009", the import of words "at least" is being missed out. The issue for consideration by the coordinate bench was pre 1st October 2009 situation, and the coordinate bench was of the view that "at least" for this period, the validity of notification cannot be called into question. As held by Hon'ble jurisdictional High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " we are unable to accept the submission of the learned authorised representative that the issue is covered earlier decisions of the Tribunal". The assessee, therefore, does not derive any benefit from this legal precedent relied upon. All other judicial precedents hold good in respect of the pre-amendment law, but then the legal position, as analysed above, has changed, and, under the changed legal position, these judicial precedents do not hold good. As regards the DRP decisions for the immediately two preceding assessment years, we have noted that the post amendment legal position was not even brought to the notice of the Dispute Resolution Panel. There is not even a whisper of a suggestion that the amendment in law in Section 90(3) and the post amendment notification was brought to the notice of the DRP. Learned counsel's arguments before the DRP simply proceeded on the basis that there was no change in statutory provisions after the Kulangadan Chettiar's judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus decline to remit it to the assessment stage." 7. Learned counsel has shown, in accepting the fact that even though the issue is covered in favour of the assessee by earlier decisions of the coordinate benches, these coordinate bench decisions cease to be binding judicial precedents inasmuch as reasoning adopted therein does not hold good any longer in the light of the decision in the case of Technimont (P.) Ltd. (supra), admirable grace. It is not clear to us whether this approach is to preempt a detailed discussion on merits of the matter, or whether this approach is indeed bonafide stand of the assessee. That does not, however, matter much at this stage, as all the facets of this matter are covered above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes abroad earned in tax jurisdictions with which India has entered into double taxation avoidance agreement. While granting the tax credit, the Assessing Officer will examine the provisions of the respective tax treaty, and compute the admissible tax credit separately for each jurisdiction in accordance with the scheme of related treaty. With these directions, the matter stands restored, for the limited purposes of granting tax credit, in terms of the related double taxation avoidance agreements, if, and to the extent, admissible. 9. The action of the authorities below is thus upheld in principle, but its clarified that the tax credits for the taxes paid abroad, in treaty partner countries, will be admissible in terms of the provisions of the respective treaty. Thus, respectfully following the above detailed decision where in all the facets of the issue involved is discussed and held that Once the tax is payable or paid in the country of source, then country of residence is denied of the right to levy tax on such income or the said income cannot be included in return of income filed in India, would no longer apply after the insertion of provision of sub-section (3) of section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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