TMI Blog2008 (6) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... facts giving rise to this appeal are these. The assessee (SCGBV)is a non-resident company of Netherlands which is a leading suppl1erof graphic arts products in North America, Europe and Latin America. In the year under consideration, the assessee had declared total loss of Rs. 1,51,67,050 in the return filed by it in the status of non-resident. This loss represented the loss on the sale of shares of Coats of India Ltd. (COIL). The details furnished by the assessee in the return showed that the assessee had purchased 5,79,550 shares in the preceding year on 20th April, 2000 which had been sold on 21st Sept., 2001 resulting in loss of Rs. 3,23,59,639. Since the shares were held for more than 12 months such loss was declared as long-term capital loss. The assessee had also purchased 35,11,624 shares on 29th June, 2001 and sold the same on 21st Sept., 2001 which had resulted in short-term capital gain of Rs. 1,71,92,585. Thus, the net capital loss was declared at Rs. 1,51,67,050. The return was accompanied by the Form No. 3CEB with reference to sale of 40,91,174 shares of COIL. In this form, it was also stated that the method used for determining the arm's length price (ALP) was compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot from acquisition thereof. This contention was rejected by the AO. 6. Faced With this situation, the assessee raised an alternate contention that the benefit of the tax treaty be allowed to the assessee. In order to avail the benefit of the treaty, the assessee also furnished copy of the TRC. However, the benefit of the tax treaty was denied by the AO by observing as under: "I have considered the submissions given by the assessee's representatives and the circumstances under which the tax has been determined. The assessee has claimed carry forward of losses to the tune of Rs. 1,51,61,054 in the return of income and in the subsequent submissions, it has omitted to be subjected itself to the provision of the s. 92 of the IT Act. For the purpose of sales of shares, it has justified its pricing by CUP method relying on the BSE market quote on the date of sale. However, it has omitted to carryout the same exercise for the purchase of shares which have also been done during the same financial year. As discussed earlier the assessee was all along asking for taxation under the IT Act and carry forward of losses. For that reason, in spite of specifically calling for the TRC, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the reasons given below: "I have considered the submissions of the appellant and in my opinion no fault can be attributed to the appellant in claiming the benefit of treaty subsequent to the filing of the return. It is fact that the TRC was filed before the AO in support or its contention that the company is resident of Netherlands and the fact that the benefit of DTAA between India and Netherlands was not claimed at the time of filing of return will not disentitle the appellant to claim the benefit, if he finds that the treaty provisions are beneficial to the appellant. As per the treaty provisions viz., art. 13(5), capital gain arising to the appellant on account of alienation of shares in India, would only be taxable in Netherlands and the same cannot be taxed in India in view of DTAA between India and Netherlands. The AO's contention that appellant has omitted to be subject itself to the provision of s. 92 of the Act is not borne out of the facts as during the course of proceeding before the TPO, it was clearly informed to the TPO that these shares were acquired from the associate enterprise through intra-group transfer agreement dt. 29th June, 2001. Insofar as the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of ALP as provided in s. 92 of the Act. Since the assessee had initially opted to be governed, by the provisions of IT Act, it was the duty of the AO to determine the income or loss as per the provisions of ss. 92 to 92F of the Act. In the course of assessment proceedings, it was found by the AO that purchase price of the shares was not at arm's length since the price of shares of COIL at the stock exchange was Rs. 73 per share as against Rs. 113 per share paid by the assessee. When the AO determined the income of the assessee On the basis of ALP it has resulted in the net profit of Rs. 13.54 crores, and odd. It is at this stage, the assessee opted to be governed by the DTAA and furnished TRC. Through she had not challenged the right of the assessee to be governed by the provisions of DTAA, it has been strongly argued by her that benefit of DTAA can be given only to the tax abiding assessees and not to the assessees who had committed default with reference to the provisions of ss. 92 to 92F. In this connection, she has relied on the definition of the term 'tax' in art. 3(d) of the DTAA. According to her, the assessee is required to fulfil three conditions mentioned in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the AO which is also apparent from p. 5 of the assessment order. It was also pointed out by him that the AO himself had admitted that benefit of DTAA would he available but for the provisions of art. 3(d) of DTAA. Regarding the interpretation of art. 3(d), it has been strongly submitted by him that default or omission must be in relation to taxes and, therefore, the scope of such terms cannot be extended to default or omission with reference to the procedural provisions relating to the determination of income arising from the international transactions. In support of his contention, he has relied on the decision of the Tribunal in the case of ABN Amro Bank NV. Therefore, It has been pleaded by him that the stand of the Revenue cannot be accepted. Apart from the above contention. it has been submitted by him that the assessee suo motu disclosed the information of purchase of shares to the TPO and; therefore, the assessee cannot be held to be guilty of committing any default to omission under s. 92 of the Act. He has also relied on the decision of the Authority for Advance Rulings in the case of Vanenburg Group B.V. In re (2007) 208 CTR (AAR) 177 : (2007) 159 Taxman 219 (AAR)in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said decision can be of no assistance since scope of art. 3(d) had not been discussed nor was it a case where benefit of the treaty was sought to be denied under the said article. 12. Having considered the rival submissions, we do not find merit in the contention of the learned Departmental Representative for the reasons given hereafter. The main objection of the Revenue for denying the benefit of DTAA is that DTAA itself provides that "tax" for the benefit of DTAA shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which the convention applies [art. 3(3) of DTAA]. According to the Revenue, the DTAA intends to benefit only those non-residents who are law abiding and genuine taxpayers. If the assessee does not come forward with correct income by disclosing true and correct facts or complying with the relevant provisions then the benefit of DTAA cannot be given to such non-resident assessee. In the present case, it has been pointed out that the assessee made defaults firstly, by not disclosing the purchase transactions effected with associate concerns in Form. No. 3CEB; secondly, by not disclosing the ALP in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination of ALP of international transactions. Therefore, in our opinion, the default, if any, relating to the provisions of ss. 92 to 92F would not be covered by the default or omission mentioned in art. 3(d). 14. The view taken by us is also fortified by the decision of the Tribunal in the case of ABN Amro Bank NV vs. Jt. CIT, wherein art. 3(d) of Indo-Netherlands treaty was subject-matter of adjudication. At p. 78, the Third Member opined as under: "The term 'tax' has been defined in the DTAA vide art. 3(d) of the DTAA to mean Indian tax or Netherlands tax as the context requires, but does not include any amount which is payable in respect of any default or omission in relation to the taxes to which this convention applies or which represents a penalty imposed relating to this tax. By this definition, the interest paid cannot be treated or equated to a tax payment. Tax deducted at source is the liability of the assessee under s. 192/195 of the Act. It was to be deducted by it at the time of payment of salary to the expatriate employees. The assessee committed a default and an omission in relation to, the tax by not deducting the same within the prescribed time under the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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