Income Tax Appellate Tribunal - Cochin
Deputy Commissioner Of Income-Tax vs Norasia Lines (Malta) Ltd. on 22 April, 1999
Equivalent citations: [2000]72ITD503(COCH)
ORDER
M. M. Cherian, A.M.
1. This appeal is directed against the order passed by the CIT(A), Kochi in the case of M/s Norasia Lines (Malta) Ltd., for the asst. yr. 1996-97.
2. The assessee is a non-resident company registered in the Republic of Malta. The company is engaged in the business of shipping in the international traffic. The company does not have any place of management in India and it is represented in India by agent M/s Trans Asian Shipping Services P. Ltd., having registered office at Ernakulam. The company has been meeting its tax liability in respect of freight in India under the provisions of s. 172 of the IT Act. After the Double Taxation Avoidance Agreement (DTAA) had been made between India and Malta, the assessee decided to exercise the option of an assessment to be made under s. 172(7). The assessee accordingly filed the return of income on 25th March, 1997, for the asst. yr. 1996-97 and claimed refund on the basis of the relief available under the DTAA. The assessment was completed under s. 143(3) of the IT Act and in that order the AO disallowed the claim of double taxation relief on the ground that the agreement between India and the Republic of Malta became operative from the fiscal year beginning on 1st April, 1996, i.e. from the asst. yr. 1997-98 onwards. The assessee took up the matter in appeal before the CIT(A) with the claim that the Double Taxation Agreement had become operative in India from the asst. yr. 1996-97 and so the assessee was entitled to the relief under the agreement. The CIT(A) concurred with the assessee that it was entitled to the relief for the asst. yr. 1996-97. The appellate authority further held that even if there was any ambiguity regarding the assessment year from which the agreement became operative, that interpretation should be adopted which would favour the assessee and in that sense the relief could not be denied for the asst. yr. 1996-97. The Revenue is in appeal before the Tribunal with the contention that the CIT(A) was not correct in holding that the assessee was entitled to the relief under the DTAA for the asst. yr. 1996-97.
3. We have heard the Departmental Representative, Shri C. D. Nair, and the assessee's counsel, Shri R. Vijayaraghavan, Advocate. On behalf of the Revenue it was submitted that as per Art. 29 of the agreement between the Government of India and the Republic of Malta, it could be seen that the agreement would become effective for the fiscal year beginning on or after the 1st day of April of the calendar year next following that in which the agreement had been entered into force. The learned Departmental Representative pointed out that the agreement was entered into on 8th February, 1995, a date falling in the calendar year 1995. It was his contention that in India the agreement became effective only in the fiscal year beginning on the 1st day of April of the calendar year next following the calendar year 1995 in which the agreement had been signed. Shri C. D. Nair submitted that the fiscal year concerned was the year beginning on the first day of April, 1996. It was the contention of the learned Departmental Representative that the assessee would be entitled to the relief under the agreement from the fiscal year 1st April, 1996 to 31st March, 1997, i.e. the asst. yr. 1997-98. He further contended that the CIT(A) was not correct in holding that there could be two views on the interpretation of the provisions of Art. 29 and so the interpretation favourable to the assessee should be adopted. It was stated that from a reading of Art. 29(2)(a) it would be clear that only one interpretation was possible in regard to the fiscal year from which the provisions became operative and so there was no question of making an interpretation favourable to the assessee, which would go against the clear intentions of the agreement. In this context, Shri C. D. Nair also brought to our notice a letter issued by the CBDT addressed to the Chief CIT, Kerala on 18th September, 1997 that the provisions of the DTAA between India and Malta became operative in India with effect from the fiscal year beginning on 1st April, 1996. It was his contention that in view of the clarification issued by the Central Board, the AO was justified in not allowing the relief for the asst. yr. 1996-97, inasmuch as the provisions of the agreement became applicable only w.e.f. 1st April, 1996.
4. Arguing on the above lines, the learned Departmental Representative urged us to reverse the order of the CIT(A) and to uphold the finding of the AO that the assessee was not entitled to any relief for the asst. yr. 1996-97 under the provisions of the agreement.
5. Per contra, Shri R. Vijayaraghavan, the learned counsel for the assessee supported the order of the CIT(A) and submitted that the AO was in error in his interpretation of the provisions of para 2(b) of Art. 29 of the agreement. According to the learned counsel, it was on a wrong understanding that the reference in Art. 29(2)(a) is to the calendar year that the assessee's claim of the relief was denied for the asst. yr. 1996-97. The learned counsel contented that the year of applicability of the agreement could be interpreted only as the fiscal year beginning on the 1st day of April of the calendar year next following the fiscal year in which the agreement had been entered into and that the agreement having been entered into in the fiscal year 1994-95, the year following that was the fiscal year beginning on the 1st day of April, 1995, i.e. 1995-96, which was the previous year relevant for the asst. yr. 1996-97. Shri Vijayaraghavan extended his argument with the submission that if the interpretation given by the AO were accepted, then the words in cl. (2) of Art. 29 "the agreement shall enter into force 30 days after the date of the later of the notifications" would be rendered meaningless, since the fiscal year beginning on 1st of April of the next calender year could never be the less than 90 days from the end of the calendar year. According to the learned counsel, such an interpretation would only result in contradicting the very provisions that relate to "entry into force" and rendering the said clause redundant. With the contention that no clause in any statute would be redundant, Shri Vijayaraghavan submitted that the interpretation given by the assessee should be preferred which would make the relevant provisions in the agreement workable. In this context, it was also pointed out that the provisions of the agreement became applicable in Malta from the immediately following fiscal year. If the interpretation given by the Revenue were accepted, it would mean that the provisions of the agreement would become applicable in India only after a lapse of one more fiscal year. According to the learned counsel, there was no reason why the agreement became operative in India after a lapse of one year after it became effective in the Republic of Malta. Shri Vijayaraghavan submitted that even if there could be a doubt regarding the fiscal year from which the agreement could be operative in India, that interpretation should be accepted which would give the benefit to the assessee. Arguing on the above lines, the learned counsel submitted that the CIT(A) was correct in his view that the assessee was entitled to the relief in terms of the agreement for the asst. yr. 1996-97.
6. We have given due consideration to the submissions on both sides and gone through the provisions of the agreement entered into between the Government of India and the Republic of Malta on 8th February, 1995. Art. 29 of the agreement containing the provisions regarding 'entry into force' reads as under :
"(1) The Governments of the Contracting States shall notify each other that the legal requirements for the entry into force of this agreement have been complied with.
(2) The agreement shall enter into force thirty days after the date of the later of the notifications referred to in para (1) and its provisions shall have effect;
(a) in India;
as regards income for any "fiscal year" beginning on or after the first day of April of the calendar year next following that in which this agreement enters into force;
(b) in Malta;
as regards income for any "fiscal year" beginning on or after the first day of January of the calendar year next following that in which the agreement enters into force."
[See (1996) 218 ITR (St) 38]
7. It can be seen from cl. (a) of para (2) that the provisions of the agreement shall have effect in India in respect of the income of any fiscal year beginning on or after the first day of April of the calendar year next following that in which the agreement enters into force. But then in para (2) it is made clear that the agreement shall enter into force thirty days after the date of the later of the notifications referred to in para (1). That means, even though the agreement had been entered into on 8th February, 1995, it did not take immediate effect; the agreement would become effective only when the Governments of the contracting states notified each other that the legal requirements for the entry into force of the agreement had been complied with (vide para 1 of Art. 29). The Government of India accordingly issued the Notification No. G.S.R. 761 (E) dt. 22nd November, 1995 as under :
"Whereas the annexed agreement between the Government of the Republic of India and the Republic of Malta for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has entered into force on 8th February, 1995, after the notification by both the contracting states to each other of the completion of the procedures required under their laws for bringing into force of the said agreement in accordance with para 1 of Art. 29 of the said agreement;
Now, therefore, in exercise of the powers conferred by s. 90 of the IT Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of the said agreement shall be given effect to in the Union of India."
8. As the above notification was issued only on 22nd November, 1995, as per the provisions of para (2) in Art. 29, the agreement entered into force after thirty days from that date. That means, the agreement became effective after 22nd December, 1995, only. But then, the provisions of the agreement did not become effective immediately after 22nd December, 1995. Now we have to look into cl. (a) of para (2) as to when the provisions would have effect in India; cl. (b) will show when the provisions would have effect in the Republic of Malta.
9. As already stated, in India the provisions shall have effect in respect of the income of any fiscal year beginning on or after the 1st day of April of the calendar year next following that in which the agreement enters into force. The contention of the assessee is that the word 'that' in para (2)(a) refers to the fiscal year, and then the provisions will have effect in India from 1st April, 1995, which is the beginning of the fiscal year following the fiscal year (1994-95) in which the agreement was entered into. According to the assessee, the agreement was entered into on 8th February, 1995, a date falling in the fiscal year 1994-95, and so the following fiscal year is the year beginning on 1st April, 1995, and in that sense the provisions will have effect in respect of the income of the previous year 1st April, 1995 to 31st March, 1996, which is relevant for the asst. yr. 1996-97. According to the Revenue, the word 'that' in para (2)(a) refers to the calendar year, because the clause 'that in which the agreement enters into force' qualifies the preceding words 'calendar year' and so the reference cannot be to anything other than the calendar year, and in that sense, the provisions will be operative in India from 1st April, 1996, as the calendar year following the calendar year in which the agreement was entered into is the year 1996. The CIT(A) has concurred with the assessee on the interpretation of the term 'that' appearing in cl. (2)(a). But at the same time the appellate authority felt that the other view taken by the Revenue was also possible. But then, when two views were possible, the CIT(A) felt that, that interpretation favourable to the assessee should be preferred. He has relied on a number of decisions for preferring an interpretation favourable to the assessee.
10. On going through the provisions of the agreement, particularly the provisions of Art. 29, it appears to us that the entire controversy has arisen on a confusion regarding the date on which the agreement entered into force. But the assessee and the CIT(A) have proceeded as if the agreement entered into force on 8th February, 1995, when it was signed on behalf of the Contracting States. We have already seen that though the agreement was signed on 8th February, 1995, it did not enter into force immediately. In fact, as already noted, in terms of para (2), "the agreement shall enter into force thirty days after the date of later of the notifications referred to in para (1)". We have already seen that the Notification was issued by the Government of India on 22nd November, 1995, and that after 30 days from that date, the agreement entered into force on 22nd December, 1995. We do not know when the Notification as per para (1) was issued by the other contracting state. Even if the Republic of Malta had issued the Notification on an earlier date, it makes no difference, as according to para (2) the agreement shall entered into force thirty days after the date of the later of the notifications referred to in para (1). Suffice it to say that the agreement could have entered into force only after 22nd December, 1995. Now we may come back to cl. (a) of para (2) to see when the provisions shall have effect in India. It can be seen that in India the provisions have effect in respect of the income for any fiscal year beginning on or after the 1st day of April of the calendar year next following that in which the agreement entered into force, As the agreement entered into force on 22nd December, 1995, the calendar year next following, is 1996 and the first day of April of the calendar year next following, is 1st April, 1996. That means, the provisions of the agreement shall have effect in India from 1st April, 1996 only, i.e. from the previous year 1996-97, which is relevant for the asst. yr. 1997-98. The provisions are not effective for the asst. yr. 1996-97.
11. It is not difficult to see that the interpretation given by the assessee and accepted by the CIT(A) on the provisions of cl. (a) cannot be correct. If the assessee's interpretation that the provisions are operative from 1st April, 1995, is accepted, that would mean that even before the Notification was issued by the Government of India on 22nd November, 1995, the provisions of the agreement became effective in India. That would mean that the provisions of paras (1) and (2) in Art. 29 have become unworkable. We cannot imagine the provisions of an agreement between two sovereign states taking effect without first the Governments of the contracting states notifying that the legal requirements for entry into force of the agreement have been complied with, especially when there is the clear stipulation that only after 30 days from the date of the later of the notifications the provisions of the agreement shall have effect. From a reading of paras (1) and (2) of Art. 29, we find that the agreement entered into force on 22nd December, 1995. Therefore, in India the provisions of the agreement could become operative only from a date after that and not on an earlier date, i.e. 1st April, 1995. Even if the interpretation placed by the assessee on the words 'that in which the agreement enters into force' as meaning the fiscal year, is accepted, it can be seen that the provisions could not have become effective in India from the asst. yr. 1996-97. This can be shown with the following details :
Date on which the agreement entered 22nd December, 1995 into force in terms of para (2) of Art. 29 Fiscal year in which the above date Year ending 31st March 1996 falls (as interpreted by the (i.e. 1995-96).
assessee).
Calendar year next following the 1st January, 1997 to 31st above fiscal year.
December, 1997 (1997) 1st April of the above calendar year 1st April, 1997 Fiscal year beginning on 1st April, 1997 1st April, 1997 to 31st March 1998 i.e. 1997-98
12. That means, if the interpretation canvassed by the learned counsel for the assessee is accepted, the provisions of the agreement will have effect in India from the fiscal year 1997-98 only; i.e. for the asst. yr. 1998-99. In any case, that interpretation will not make the assessee entitled for the relief under the agreement for the asst. yr. 1996-97.
13. In view of the above finding, we further state that so far as the asst. yr. 1996-97 is concerned, there are no two views regarding the applicability of the provisions of the agreement. There can be only one view on the issue and that is that for the asst. yr. 1996-97, the provisions of the agreement are not applicable in India.
14. There is thus no question of adopting an interpretation favourable to the assessee. As we see, there is no ambiguity in regard to the application of the provisions of the agreement for the asst. yr. 1996-97. True, there is the publication issued by the Directorate of Income-tax (RS & PR), in which it is shown that the provisions of the agreement with Malta were applicable for the asst. yr. 1996-97. In the subsequent letter dt. 1st September, 1997, addressed to the Chief CIT, Kerala, the CBDT has clarified the position that the provisions of the agreement are operative in India with effect from the fiscal year beginning on 1st April, 1996. It is not clear as to why a 'correction' was not issued in regard to the publication of the Directorate wherein the assessment year was wrongly shown as 1996-97. Suffice it to say that the assessee cannot claim any benefit on the basis of a wrong interpretation, even if that interpretation is given in an official publication of the Government. It cannot be said that the assessee acquires a right from the mistake of the Departmental authorities, even if the mistake appears in an official publication of the Department. It may be noted that there is no estoppel against a statute. As held by the Delhi High Court in CWT vs. Meattles (P) Ltd. (1985) 156 ITR 569 (Del), when the Revenue authorities take a particular view of the statutory provisions and later on realise that it was a mistaken view then they cannot be estopped from taking a correct view of the statutory provisions later on. However, we are deciding this appeal on our view on the provisions of Art. 29 of the agreement and not on the subsequent clarification issued by the CBDT to the Chief CIT, Kerala.
15. In the above circumstances, we reverse the order of the CIT(A) and decide this ground of appeal in favour of the Revenue.
16. Another ground raised by the Revenue in this appeal is regarding the deletion of the interest levied under s. 234A of the IT Act. While making the assessment, the AO levied interest under s. 234A on the view that there was delay in filing the return of income. The assessee filed the return on 25th March, 1997, exercising the option for assessment under s. 172(7) and then claiming refund on the basis of the relief under the agreement. The AO levied interest under s. 234A for the reason that the return had not been filed within the time under s. 139(1). In the assessee's appeal, the CIT(A) held that under s. 172(7) there was the option given to the assessee to file the return of income to claim the refund and that it was not the statutory obligation of the assessee to file the return for making the assessment under s. 172(7). The CIT(A) deleted the interest levied under s. 234A on the reasoning that in respect of the return filed under s. 172(7) there could be no levy of interest.
17. The levy of interest under s. 234A in this case has been the subject-matter of appeal before this Tribunal in the appeal by the Revenue in respect of the proceedings under s. 143(1)(a). In the order in ITA No. 506/Coch/1998, dt. 19th April, 1999, this Tribunal held that the interest under s. 234A was not leviable in respect of the return filed by the assessee under s. 172(7). In view of our finding in the order in ITA No. 506/Coch/1998, we uphold the decision of CIT(A) and decide this ground against the Revenue.
18. In the result, this appeal by the Revenue is partly allowed.