Income Tax Appellate Tribunal - Indore
Assistant Commissioner Of Income Tax vs Turquoise Investments And Finance Ltd. ... on 27 May, 2003
Equivalent citations: [2004]89ITD155(INDORE)
JUDGMENT
T.R. Sood, A.M.
1. At the outset of hearing, both the parties pointed out that issues involved in revenue's appeal as well as assessee's cross-objections are identical, therefore, only one appeal i.e. ITA No. 345/Ind/95 and corresponding cross-objection No. 32/Ind/2000 against the same may be heard and decision applied to all other appeals and cross-objections. It was further pointed out by the Ld. AR that cross-objection be heard first and if that issue is decided, appeal will not survive at all. The Bench acceded to this request and proceeded to hear the cross-objection first.
C.O. No. 32/IND/2000Cross-objection as well as appeals earlier were heard on 16/09/2002. During that hearing, no argument was advanced by Ld. AR in respect of condonation of delay in filing of cross-objection. At the time of dictation, it was noticed that cross-objection had been filed late by 1623 days. It was further noticed that a letter dated 05/06/2000 giving some vague reasons for filing of cross-objection late was filed. The contents of the same are as follows:-
(i) The abovementioned appeal is fixed for hearing before the Tribunal on 19/06/2000.
(ii) Please find attached hereto a copy of certain grounds the assessee wishes to urge against the order of the Commissioner of Income-tax(Appeals) alongwith Form No. 36A duly executed by way of abundant caution.
(iii) The assessee says that the issues raised by it go to the very root of the assessment itself and the true and proper meaning of the agreement for avoidance of Double Taxation between India and Malaysia as applied in view of the provisions of the Income-tax Act. The appellant says that a number of High Courts, Benches of the Tribunal and other appellate authorities have held that in view of the provisions of the DTAA income by way of dividends declared by a Malaysian Co. cannot be taxed in the hands of the recipient thereof in India In view of the same the entire assessment of such dividend is contrary to law and ought to be deleted. The assessee says that this contention goes to the very root of the assessment and hence the assessee ought to be permitted to urge the same.
(iv) The assessee says that, some of the authorities and decisions of the High Courts in this regard are recent decisions and have now come to its notice. The assessee says that this letter is being filed well before the date of hearing of the appeal. The assessee says therefore that no prejudice will be caused to the Income-tax Department by permitting the same to be urged while on the contrary if it is not permitted to urge the same an assessment which is contrary to the law of Indian will be made and tax not due from an assessee will be collected from it.
(v) The assessee says therefore that it is in the interest of justice that it may be permitted to urge the grounds abovementioned.
(vi) Kindly place a copy of the same before the Hon'ble members and send a copy to the DR.
(vii) The appellant says with respect that in its view it is entitled to urge the contentions set out in the grounds without any further being submitted, and the same ought to be considered and appropriate order/ directions ought to be passed thereon by the Tribunal. The appellant says that by way of abundant caution it has filed the same as a cross objection with an application for condonation of delay.
From this application, as is clear from the above noted contents, it becomes clear that assessee had not given any reason for late filing of cross-objection. Even no prayer was made for condonation of delay. In these circumstances, it was felt that delay could not be condoned. However, in the interest of justice, the case was released for fresh hearing so that reasons, if any, for delay in filing could be understood. The case was finally heard on 25/04/2003.
2. In the meantime, assessee had filed another application dated 16/03/2003 received on 25/03/2003 for condonation of delay which is reproduced as below:-
(i) The above-mentioned matters were listed for hearing and were partly heard from time to time. The company says that according to its records the issue of condoning delay if required, in respect of the Cross Objections filed was heard on 07/12/2001 and 16/09/2002. The appeals and cross objections were finally fully heard on their merits by the Hon'ble Income-tax Appellate Tribunal (the Tribunal) on 16/09/2001. Thereafter it appears that there is a noting on the Tribunal's file that some clarifications are required in so far as the condonation of delay, if required, is concerned and the matters are listed for hearing on 28th March, 2003. The company says that this letter is being filed by way of abundant caution as will be explained hereinafter.
(ii) The facts set out hereinafter are in respect of the Assessment year 1992-93 which was the year, which was argued before the Tribunal. The issues arising there from are identical for all the assessment years and the material facts for all the assessment years are similar in nature and hence what is set out hereinafter applies with equal force for all the assessment years in question.
(iii) The assessed is an investment company. The assessor's entire income arises from the business of investment in shares and securities of various companies. The nature of income is dividends, interest etc. which is routine from year to year and as a consequence the company decided to only make claims and assertions in their returns of income which are well settled in nature and which, with respect, really do not involve disputed legal issues.
(iv) The return of income for the assessment year 1992-93 was filed on 23/10/1992 and the income of the assessee company during the relevant previous year included dividend received from a Malaysian Company 'PAN Century Edible Oils SDN'. At the time of filing the said return, although there was a line of argument, which contended that dividend income received from a Malaysian company would not be subjected to tax at all in India, there was no authoritative pronouncement or binding authority in this regard. It will be appreciated that such a claim is based on the interpretation of the Double Taxation Agreement between India and Malaysia to the extent that it overrides the Indian Income-tax Act. 1961. Certainly lesser case law is available on the terms of the said treaty or any other treaty with similar provisions. Accordingly the assessee company claimed only deemed credit of tax paid on the dividend received in its return of income, which is clear on a mere plain reading of the relevant provision. The alternate claim of non-taxability of the dividend in the hands of the assessee was not explicitly set out in the return of income for the reasons afore mentioned. The assessee says that at this stage is difficult to exactly pinpoint a reason for the same and an inadvertent omission also cannot be ruled out.
(v) The assessing Officer vide his order under Section 143(3) of the Act dated 24/03/1994 rejected the claim of the assessee by merely following his earlier orders which themselves also only dealt with the question of granting credit for deduction of lax at source even if such deduction was exempted on other grounds (deemed deduction) and did not allow credit for the deemed TDS on dividend.
(vi) As a result of the manner in which the assessment order was framed (i.e. dealing only with the rejection of the claim for deemed credit) and the other reasons set out above when the assesses filed an appeal against the said assessment order on 19/04/1994 it did not raise a specific ground on this aspect. The assessee says that inadvertence apart, the first High Court decision on the subject was published in 1993 but the same was not binding in the state of Madhya Pradesh.
(vii) The appellant says that a perusal of the order of the CIT(A) dated 16/02/1995 will show that during the hearing of the said appeal a decision of a high Court in favour of the assessee's contention was cited. However, ultimately the said appeal was decided in favour of the Appellant on the question of allowing credit for deemed taxes deducted.
(viii) The department filed an appeal to the Tribunal against the said order of the CIT(A). At the time the appeal memo was served on the assessee, the company merely noted that the appeal was only of the department and it appeal's that the assessee lost sight of the, fact that by way it abundant caution it ought to also file a cross objection to the Tribunal on the question of non-taxability of the dividend income.
(ix) The assessee in or about the year 2000 received notice of fixation of the said appeals. Immediately thereafter, the matters were discussed in conference with Counsel who was briefed to appear on the assessee's behalf, who advised the company that the correct legal position was that income from dividends received from the Malaysian Company could not be taxed in India and as a matter of abundant caution the company ought to file cross objections making this clear although it was open to the company to urge this contention even without the same.
(x) Immediately thereafter on 7th June 2000 the assesses file Cross objections in all the above mentioned matters setting out the salient features of the matter along with a covering letter which was intended to serve as an application for condonation of any delay assuming that it was held necessary to have filed one.
(xi) The assessee says that the cross objections raise a pure point of law going to the root of the matter and the very jurisdiction of the assessing officer and/or other authorities under the Income-tax Act, 1961 to assess as it's income dividends received from a Malaysian company. The assessee says no investigation into facts are required and every material fact necessary to dispose of the issue raised in the cross objection is on the record of the assessing authorities and the Tribunal.
(xii) The assessee says that this application is filed by way of abundant caution for condonation of delay since as mentioned above, with due respect the assesses contends that it has the right to urge the ground set out in the memo of cross objection without the said application.
(xiii) The assesses applicant therefore prays that:
a) If it is held that memos of cross objections were required to be filed in order to enable it to urge that dividends received from the Malaysian company was not taxable in its hands for the assessment years 1989-90 to 1995-96 then any delay that has occurred in filing the same may be condoned, and/or
b) That the Tribunal may pass further or other orders as it deems fit granting appropriate relief as it deems necessary.
3. In para 1 of this application, it has been mentioned that issue of condoning delay was heard on 07/12/2001 and 16/09/2002. We would like to take strong objection to the averment that issue regarding condonment of delay was heard on 07/12/2001 and 16/09/2002. First of all, as borne out from records, on 07/12/2001, these cases were never heard and simply adjourned on the basis of adjournment application moved by the revenue. This is clear from our log books because on the same very day, Ld. Counsel for the assessee was representing another appeal in the case of Shri O.P. Rungta, ITA No. 925/Ind/95, which was argued in detail for about 21/2 hours and finally heard. We have gone through our log books for 16/09/2002 very carefully and find that there is no argument in respect of delay in filing of cross-objection. Further, no objection was raised on behalf of department. So, Bench could not take cognizance that cross-objection was filed late.
However, despite of all this, as mentioned above, the Bench decided to release the cases for re-hearing so that reasons for delay could be explained by the assessee . After this, appeals were taken up for hearing on 28/03/2003 when same were partly heard and Ld. Counsel for the assessee was specifically made aware that he should explain reasons for delay in filing of cross-objections as even application dated 16/03/2003 was not specific. Finally on 25/04/2003, Ld AR advanced his arguments in respect of condonation of delay. He contended that no condonation of delay was required, as issue raised in cross-objection was also raised before CIT(A) who has discussed this matter in para 2 and specific reference has been made to the decision of CIT v. S.R.M. Firm, 208 ITR 400. Though finally no verdict has been pronounced on this issue, it should be presumed that same has been decided against the assessee. Then he referred to the decision of Assam Co. (India). Ltd. v. CIT, 256 ITR 423. While referring to the various paras of the decision, he submitted that it was clearly held by Gauhati High Court that Section 254(1) of the Act confer wide powers to the Tribunal. The Rules made by the Tribunal embody the principle of procedure to be followed by the Tribunal for discharging of its function. The scheme of the rules read as a whole does not suggest that the rules have the effect of curtailing or circumscribing the powers, authority and jurisdiction of the Tribunal in dealing with matters at its disposal. He contended that Hon'ble Court after referring to the Rule 11 and Rule 27 observed that there was no prohibition in these rules totally precluding the Tribunal from considering any ground beyond those mentioned in the Memorandum of Appeal filed by a party whether the assessee or the department, in the absence of an appeal or cross-objection by the other side projecting the new ground. The Court has further observed that this view was reinforced by the Rule 11 which does not require that Tribunal to be confined to the ground set forth in the Memorandum of Appeal or taken by the leave of the Tribunal provided the party who may be effected thereby had sufficient opportunity of being heard on that ground. There cannot be any estoppel against the law. It is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the Memorandum of Appeal though the party urging the said ground had neither appealed before it nor had filed a cross-objection in the appeal filed by the other party as long evidentiary facts in support of the new ground are available on record He further relied on Assam Carbon Product Ltd. v. CIT, 224 ITR 57 and Amines Plasticisers Ltd. v. CIT, 223 ITR 173.
4. On condonation of delay, he referred to the decision of apex Court in Collector of Land Acquisition v. Mast. Katiji and Ors., 167 ITR 471 where Hon'ble Supreme Court had observed that the expression 'sufficient cause' employed in Section 5 of Limitation Act, 1963 is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice that being the life purpose of the existence of the institution of Courts while reiterating that liberal approach should be adopted in the matters of condonation of delay, he also referred to guidelines issued by Hon'ble Supreme Court and pointed out that from these guidelines it becomes clear that very liberal approach has to be adopted for condoning of delay.
5. He particularly contended that there can be no presumption that delay was occasioned, deliberately or on account of culpable negligence or on account of mala fides. He also contended that cross-objection have been filed about 11/2 years before the date of hearing and other party had sufficient opportunity of hearing on these issues.
He referred to the decision of Supreme Court in N. Balakrishnan v. N. Krishnamurthy(1998) 7 SCC 123. He contended that in this case, it was observed by Supreme Court that Rules of Limitation are not meant to destroy the rights of parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. It was further observed that in the absence of any thing showing malafides or deliberate delay, Court should normally condone the delay. He then referred to judgment of State of U.P. v. Bahadur Singh and Ors. (1983) 3 SCC 73. He also relied on State of West Bengal v. Administrator, Hawra Municipality and Ors., (1972) 1 SCC 366. He then proceeded to advance arguments on merits of cross-objection, which we shall consider later on for the reasons recorded along with such contentions.
6. On the other hand, Ld. DR submitted that no reasons have been given in application for delay in filing of cross-objections. He also referred to page 7726 of Commentary of Income-Tax law by Chaturvedi & Pithisaria, Fifth Edition, where it has been observed that there is no inherent power with Tribunal to over ride the expressed statutory provisions for condoning such delay. He also referred to the case of Yakub Rajak Memon v. Competent Authority, 217 ITR (AT) 48.
7. In the rejoinder, Ld. AR submitted that the decision of Yakub Abdul Rajak Memon (supra) was rendered under Section 12(4) of the Smuggler & Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. In that Act, proviso to Section 12(4) is there which limit the power of Tribunal to condone delay for specified period only and that is why it was observed in that decision that there was no inherent power which can be invoked in the face of, or to over ride the expressed statutory provisions. In this very case, it was further observed that question of inherent power arises only if the statute is silent on the point. As there is no specific provision regarding condonation of delay in Income-Tax Act, therefore, provisions of Limitation Act would apply and Tribunal can consider this question on the basis of settled principles of law. He also referred to the Full Bench decision of Bombay High Court in Ahmedabad Electricity Co. v. CIT, 199 ITR 351 where it was held that addl. Grounds could be raised before Tribunal. He also relied on National Thermal Power Co. Ltd. v. CIT, 229 ITR 383.
8. We have considered the rival submissions carefully. We have also gone through the relevant records, the application filed by the assesses and judgments cited by the parties. First of all, we would like to reiterate a very important observation made by Hon'ble Supreme Court in CIT v. Sun Engg. Works Pvt. Ltd., 198 ITR 297. It was observed by the Court that "it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision".
9. Again in case of Padmsudara Rao (Deceased) and Ors. v. State of Tamil Nadu and Ors., 255 ITR 147, Constitutional Bench of the Hon'ble Supreme Court observed at page 153 that "Courts should not place reliance on decisions without discussing as to how the factual situation tits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board (1972) 2 WLR 537 (HD). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases".
10. From these two observations, it is clear that decision of one case cannot be blindly applied in another case without going through the facts of the case and context in which it was decided. Though we have no quarrel with Ld. AR that a very liberal approach has to be adopted while condoning the delay but it does not mean the delay should be condoned in every case. Again Hon'ble Supreme Court in Lachhmandas Arora. v. Ganeshilal (1999) 8 SCC 532 has observed that "there is no gain saying that the law of limitation may harshly effect a particular party but it has to be applied with all its vigour when the statute so prescribes. The courts cannot extend the period of limitation on equitable grounds". Now let us turn to the decision relied on by the Ld. AR in Collector, Land Acquisition v. Mast. Katiji and Ors. (supra). Hon'ble Supreme Court has directed lower courts to adopt a very liberal approach for condonation of delay. In this case, though facts haw not been discussed but it has been said that "the courts, therefore, has to be informed of the spirit and philosophy of the provision in the course of the interpretation of the expression 'sufficient cause'. The delay was condoned in this case stating that Hon'ble Court was satisfied that sufficient cause existed for the delay. In N. Balakrishnan v. N. Krishnamurthy (supra), the Hon'ble Supreme Court condoned the delay on the following facts:-
A suit for declaration of title and ancilliary relief filed by the respondent was decreed ex parte on 20/10/1991. The appellant, who was defendant in the suit on coming to know of the decree moved an application to set it aside. But the application was dismissed for default on 17/02/1993. The appellant moved for having that order set aside only on 19/08/1995 for which a delay of 883 days was noted. In condonation application, it was pointed out that appellant engaged an Advocate for making the omission to set the ex parte decree aside but the Advocate failed to inform him that the application was dismissed for default on 17/02/1993. When he got a summon from the execution side on 05/07/1995, he approached his Advocate, but he was told that perhaps execution proceedings would have been taken by the decree holder, since there was no stay against such execution proceedings. On the advice of same Advocate, he signed some papers including Vakalalnama for registering the execution proceedings besides making a payment of Rs. 2000/- towards Advocate's fees and other incidental expenses. But the fact is that the said Advocate did not do anything in the court even thereafter. On 04/08/1995, the execution warrant was issued by the court and he became suspicious of the conduct of his Advocate and hence rushed to the court from where he got the disquitting information i.e. application to set aside the ex parte decree stood dismissed for default as early as 17/02/1993 and nothing was done in the court thereafter on his behalf. In these circumstances, a prayer was made for condonation of delay. It was further found by the Hon'ble Supreme Court that the appellant had also moved the Distt. Consumer Disputes Redressal Forum, Madras North ventilating his grievance and claiming a compensation of Rs. 1 lakh as against his erstwhile Advocate and the said Forum passed final order directing the said Advocate to pay a compensation of Rs. 50000/- to the appellant, Hon'ble Supreme Court was satisfied with the reasons and delay was condoned. In State of U.P. v. Bahadur Singh and Ors. (supra), a writ petition under Article 226 and 227 of the Constitution was dismissed hy high Court on the sole ground that petition was filed after a long delay. The High Court had observed that usually a period of limitation was 90 days for filing the writ petition and computing the limitation on this basis held that petition was delayed by 42 days. The Hon'ble Supreme Court observed that there was no limitation prescribed by any statute for filing of writ petition. However, the only known principle was that the court helps the vigilant and not the indolent. It was further observed that it is a rule devised on the principle of judicious circumspection and has to be applied wisely. Court condoned the delay because explanation offered was found convincing and acceptable. In State of West Bengal v. Administrator, Hawra Municipality (supra) it was observed by the Hon'ble Supreme Court that the delay in filing an appeal should not have been for reasons which indicate party's negligence in not taking necessary steps which he should have taken. What would be necessary steps will depend upon the circumstances of a particular case which will have to decided by the courts on the facts and circumstances of the case.
From the above discussion, it is very clear that though it is a settled principle of law that very liberal approach has to be adopted in interpreting the sufficient cause advanced by the parties for condonation of delay but at the same time there is always a necessity of some sufficient cause as envisaged in Section 5 of the Limitation Act, 1963. In the absence of sufficient cause, delay cannot be condoned merely on equitable grounds as was observed by Hon'ble Supreme Court in P.K. Ramachandran v. State of Kerala AIR (1998) SC 2276. The Rajsthan High Court in Gopilal v. Sunderlal, AIR 1996 Raj. 219 had observed that Ld. Distt. Judge had not committed any error in exercise of jurisdiction in rejecting the application of the petitioner appellant, as from the facts it was clear that petitioner failed to offer sufficient and reasonable reasons for not filing the appeal within time. Hon'ble Delhi High Court in Democratic Builders v. Union of India, AIR (1993) Delhi 132 held that where the petitioner moved an application for condonation of delay along with an affidavit sworn by Executive Engineer of its Department. However, close scrutiny of affidavit reveals that no reasons whatsoever was mentioned therein as to why the objections could not be preferred within the statutory period from service of notice. Similarly, rejection of condonation was approved in State of Haryana v. Chandramani AIR (1996) SC 1623 because the appellant has not furnished a reasonable explanation for delay in filing the appeal. From this discussions, it becomes clear that assessee had to establish sufficient cause for not filing its cross-objections in time. In case before us, the cross-objections are late by 1623 days. We have already reproduced application for condonation of delay in above noted paras. From the contents of this application it is clear that no reasons whatsoever have been given. In second application, some vague reasons have been given in para 6 to 9 where finally it is stated that it was only in year 2000 when assessee received notice of fixation of appeals that assessee company was advised to file cross-objection. Assessee company is wholly owned subsidiary of Grasim Industries Ltd., which is one of the largest companies in this country and it cannot be said that proper advice was not readily available. In para 6 it is stated that first high court decision on this issue was published in 1993, we fail to understand why assessee could not file its cross objection in 1993 or within reasonable time. On the perusal of application, it simply seems a case of negligence and as observed by Hon'ble Supreme Court in P.K. Ramachandran v. State of Kerala (supra), we have no powers to extend the period of limitation on equitable grounds. Further as observed by Hon'ble Supreme Court in State of UP v. Bahadur Singh, "the only principle was that court helps the vigilant and not indolent" and in case before us the assesses has not been vigilant. In these circumstances, we refuse to condone the delay.
11. As far as the contention of Ld. AR that addl. ground can be raised at any point of time is concerned, we agree with him that addl. ground can be raised at any point of time. But the distinguishing feature in the present case is that if no valid cross-objection is there whether any addl. ground in such cross-objection can be taken by him. Even in N.T.P. Co. Ltd. v. CIT (supra). Hon'ble Supreme Court directed the Tribunal to consider addl. ground if facts relating to the same were already available on the record and appeal was pending before the Tribunal. This clearly shows that addl. ground can be taken when appeal and/or cross-objection are already pending. However, if the appeal and/or cross-objection are dismissed because of limitation we do not think even addl. ground can be raised in such appeal and/or cross-objection because if the appeal and cross-objection is otherwise not maintainable, the scope cannot be extended by raising additional ground in such appeal and/or cross-objection.
However, we find force in the contention of Ld. AR that purpose of deciding a particular appeal by the Tribunal is to ascertain the correct tax liability of the assesses in accordance with the law. In Assam Co. (India) Ltd. v. CIT (supra), the Hon'ble Gauhati High Court has observed that there is no prohibition in the Rules totally precluding the Tribunal from considering any ground beyond those mentioned in the appeal filed by the party whether the assesses or the department in the absence of an appeal or cross-objection by the other side projecting the new ground. We think, that ratio of this decision would simply mean that even if there is no appeal or cross-objection by the other side, issue raised by any party can be considered by the Tribunal in the appeal which is already pending before it. As discussed above, we have already dismissed the cross-objection of the assessee for want of limitation, therefore, contention raised on merits that this income was not at all taxable would be considered while adjudicating the appeal of the revenue.
12. In the result, cross-objection is dismissed.
13. ITA No. 345/IND/95 In this appeal, revenue has raised the following grounds:
(i) On the facts and in the circumstances of the case, the learned CIT(A) erred in directing that the assessee's claim in respect of credit of tax on its dividend income from the Malaysian company M/s. Pan-Century Edible Oil said as deemed to have been deducted at source; be allowed.
(ii) On the facts and in the circumstances of the case, the learned CIT(A) erred in allowing the additional ground of appeal raised by the assessee, thus in directing that its claim of interest under Section 244-A relating to tax said as deemed to have been deducted at source on its dividend income from the Malaysian Company M/s. Pan-Century; be allowed.
(iii) It is therefore, prayed that the order of the CIT(A) may please be set aside as it is bad in law on the facts of the case.
14. At the outset, Ld. DR pointed out that first ground pertain to direction of the CIT(A) forgiving credit in respect of deemed tax on dividend income from Malaysian company, Pan-Century Edible Oil. The brief facts of the case are that assessee derived income from dividends . It had also earned income in form of dividend from Pan-Century Edible Oil, Malaysia and claimed deemed TDS in respect of such dividend amounting to Rs. 6,42,450/-. This credit was claimed on the basis of Clause 2(b) of Article XXII of the Double Tax Avoidance Agreement (DTAA for short) between India and Malaysia, 107 ITR 36(St.). Following his earlier order, AO denied the claim of such TDS as there was no deduction of tax at source and the question of allowability do not arise. Ld. CIT(A) after analyzing Clause (2) (a) and Clause (2) (b) of Article XXII of DTAA with Malaysia observed that object of this provision was to define Malaysian tax payable are not only included the tax actually levied in Malaysia but also the tax which is deemed to have been paid by the resident of India in Malaysia as laid down therein therefore, credit of Malaysian tax as provided in para (2) (a) would also include the tax deemed to have been paid by the resident of India on its income in Malaysia He further found that assessee had filed Foreign Inward Remittance Certificate from UCO Bank and a certificate from Public Accountant was also filed that such dividend was exempt from taxation. He also noticed that such credit was allowed in case of Grasim Industries Ltd. in respect of dividend received from Thailand Rayon Co. Ltd. as per the provisions of DTAA with Thailand. In this background, he directed to the AO to allow credit for deemed tax deducted in Malaysia.
15. Before us, Ld. DR referred to Article XXII of Agreement for Avoidance of Double Taxation, of income between Govt. of India and Govt. of Malaysia. He submitted that plain reading of Clause 2(a) of this Article would make it clear that provision regarding credit would be applicable only if tax was payable in both the countries. As in this case, no tax was payable in Malaysia in respect of dividend received by the assessee company, there is no question of credit being given to the assessee. He contended that though there was a provision in Clause 2(b) of this Article regarding credit for deemed tax paid but such clause was subject to proviso which very clearly provides that such deemed credit can be allowed only if there is an agreement between two Contracting States in respect of the scope of the benefit accorded by the said measures.
16. He also submitted that Investment Incentive Act, 1968 of Malaysia had already been repealed and new Act known as Promotion of Investment Act, 1986 has been replaced. In this background, the scope of benefit accorded in the new Act had to be approved by both the countries which has not been done so far and thus, there is no question of giving deemed credit in respect of taxes which were reduced or relieved by special incentive measures by Govt. of Malaysia
17. On the other hand, Ld. AR submitted that proviso was applicable only to Clause (bb) and not Clause (aa) because in Clause (aa) there was a specific reference to particular sections of Investment Incentive Act, 1968 of Malaysia, whereas in Clause (bb) the reference was to measures which may be introduced in future in various Acts and that is why there was a proviso that scope of such new measures is yet to be approved by both the countries. He then referred to Clause 3 of Article XXII and submitted that similar benefit was given to the residents of Malaysia in Clause (b). He particularly referred to Clause 3(b) (ii) (aa) to (ee). In Clause (aa) to (ee) reference has been made to various sections, such as, Section 10(15) (iv) (b) & (c), Section 33, Section 80J, 80K, Section 80M. He contended that if there was an amendment, say for example, in Section 80J that would not require separate agreement by both the countries for such amendment. He also referred to Clause (a) and agreed that though basically this clause refers to credit to be allowed by other contracting States in case tax has already been paid but Clause 2(b) specifically deals with situation where no tax has been paid and such tax should be treated as deemed payment and corresponding credit is to be given. 18. The Ld. AR then referred to provisions of Section 21, 22 of Investment Incentive Act, 1968 and Section 22 and 23 of Promotion of Investment Act, 1986 (copy of relevant sections has been filed) and submitted that provisions of new Act under Section 22(1), (2) and Section 23(1), (2), (3) were identical to the provisions of Section 21(1), (2) & 22(1) (2) (3) of old Act known as Investment Incentive Act, 1968, which has been referred to in Clause (aa) of Clause 2(b) (ii) of Article XXII. In view of these identical provisions, there was no need to enter into separate agreement by Govt. of India with Govt. of Malaysia. Ld. AR also referred to Articles VI, VII & XI and submitted that income from dividend was earned in Malaysia was not taxable at all in India. In this respect, he relied on CIT v. V.R.S.R.M. Firm, 208 ITR 400, CIT v. R.M. Muthaia, 202 ITR 508, CIT v. V.R.R.M. Ramaswamy Chettiar, 211 ITR 368, ITO v. A.K.N. Govinda Swamy Chettiar 44 ITD 138, Ayer Mani's Rubber Estate Ltd. v. IAC, 46 ITD 429, DCIT v. Jamnadas Madhavji & Co., ITA No. 9200/Bom/1990 (copy enclosed). He again referred to Articles VI. VII & XI and submitted that though words 'may be taxed' have been used but same have been used purposely because it was not mandatory on any Contracting State to tax every income. He submitted that, to identify the Contracting State which will levy tax on particular item of income can be done through agreement but agreement cannot impose a condition that Contracting State should invariably levy tax on income on that particular item.
19. In the rejoinder, Ld. DR submitted that contention regarding non-taxability of this particular item was not raised before AO or CIT(A), therefore, same should not be entertained. He also submitted that judgments relied on by Ld. AR pertain to individual or HUF, therefore, same cannot be made applicable in case of companies. He particularly referred to Clause 5 of Article XI which provides that dividend could not be taxed in other contracting State in case of companies.
20. In the rejoinder, Ld. AR reiterated the contentions raised by him in respect of raising the issue of non-taxability of this item which was advanced by him while arguing the cross-objection of the assesses. He further submitted that Clause 5 of Article 11 relates to altogether different sphere in the sense that it talks of profits from sources within a Contracting State derived by a company then what will be the situation regarding dividend paid by such company to non-resident share-holder of other Contracting State. On a specific query by the Bench, Ld. AR agreed that if it is held that income from dividend was not taxable in the hands of assessee company, then there was no question of allowing any credit for deemed tax paid in Malaysia.
21. We have considered the rival submissions carefully. We have also gone through the relevant material on record and judgments relied on by the parties. It is well settled by now that the provisions of DTAA entered into with any county would override the provisions of Income-Tax, 1961 if they are at variance from the provisions of the Act. From plain reading of Article 11, it becomes clear that dividend income can be taxed only in the Contracting States where such dividend has been declared. We are unable to agree with Ld. DR that Clause 5 which refers to the company only will restrict the scope of Clause 1 of Article XI. Clause 5 deals with altogether different subject i.e. where income has been derived by a company from various sources, then what shall be the treatment on dividend to be paid by such company to persons non-residents in that other Contracting States. Hon'ble Madras High Court has clearly held in CIT v. V.R.S.R.M. Firm (supra) that dividend income received by an Indian assessee from Malaysia is not taxable in India as per Article XI. In view of this decision and other judgments relied on by Ld. AR, we hold that dividend income received by the assessee company is not taxable in India.
22. As far as credit against deemed taxes paid is concerned, Ld. AR has already admitted that no such credit should be allowed once income from dividend is held to be non-taxable. Otherwise also, we think that proviso to Clause 2 would apply to Sub-clauses (aa) as well as (bb) because same have been connected by conjuction 'or'. Further considering the fact that Investment Incentive Act, 1968 itself has been repealed and replaced by new Act known as Promotion of Investment Act, 1986. Though the relevant sections of both the Acts are similar but the scope of both the Acts may Indifferent and that is why an agreement as envisaged in the proviso may be required. In any case, Ld. Counsel for the assessee has already admitted that once the income from dividend is held to be non-taxable, there is no question of allowing credit for deemed taxes.
23. As far as ground No. 2 is concerned, at the outset, Ld. AR submitted that issue is covered in favour of the assesses by the decision of Hon'ble Supreme Court in CIT v. Narendra Doshi 254 ITR 606.
24. On the other hand, Ld. DR fairly conceded that issue is covered in favour of assesses.
25. After considering the rival submissions, we decide ground No. 2 against the revenue following the judgment of Hon'ble Supreme Court in CIT v. Narendra Doshi (supra). However, we may observe that as no credit for tax-deemed to have been paid on dividend for Pan Century Edible Oils Ltd. is to be allowed no interest could possibly accrue on the same.
26. In the result, appeal is partly allowed.
27. ITA Nos. 342, 343, 344/IND/95, 504/IND/95 & 962/IND/96.
In view of the above noted discussion, these appeals are allowed.
28. In the result, appeals are allowed accordingly.
29. C.O. Nos. 29 to 31/IND/2000, 33/IND/2000 & 2/IND/2002.
In view of the above noted discussion in cross-object ion No. 32/IND/2000, these cross-objections are dismissed.
30. In the result, cross-objections are dismissed.
31. ITA Nos. 505 to 508/IND/95 & 965/IND/96.
In view of above noted discussion in ITA No. 345/IND/95, these appeals are allowed.
32. In the result, these appeals are allowed accordingly.
33. C.O. Nos.34 to 37/IND/2000 & 5/IND/2002.
In view of above noted discussion in C.O. No. 32/IND/2000, these cross-objections are dismissed.
34. In the result, all these cross-objections are dismissed.