By K. B. Bhujle, Advocate
Principal CIT vs. Krishak Bharati
Co-perative Ltd.; 395 ITR 572 (Del):
The assessee was a multi co-operative
society registered in India. In a joint venture with the Oman oil company, it
formed a company in Oman in which it held 25% of the share holding. The
assessee established a branch office in Oman to oversee its investments in the
joint venture company. The branch office was independently registered as a
company in Oman and claimed the status of PE of the assessee in Oman under
article 25 of the DTAA between India and Oman and filed returns of income under
the Oman tax laws. For the A. Ys. 2010-11 and 2011-12, the assessments were
completed u/s. 143(3) of the Act, 1961, bringing to tax dividend received by
the assessee from the joint venture company but allowing tax credit in respect
of the dividend received from the joint venture company, although the dividend
was exempted under the Oman tax laws by an amendment w.e.f 2000. Thereafter,
the Principal Commissioner issued a notice u/s. 263 of the Act on the ground
that any income which was not taxed at all according to the tax laws, could not
be construed as an incentive and that the exemption granted was not an
incentive granted under the Omani tax laws. He held that no tax credit was due
to the assessee u/s. 90 and that the order passed by the Assessing Officer was
erroneous and prejudicial to the Revenue. He also held that the assessee had
credited more income than the dividend received by it, that the accretion and
addition to its opening capital in terms of the profit on account of its PE in
Oman, audited and submitted during the proceedings, were not disclosed in its
accounts in India. He directed the Assessing Officer to make the assessment
accordingly.
The Tribunal held that the order passed u/s.
263 was without jurisdiction and unsustainable and that tax credit had been
allowed to the assessee during several preceding assessment years and
therefore, when there was no change in the facts or the relevant provisions of
law, following the principle of consistency of approach, credit for deemed
dividend tax was allowable in respect of the assessment year in question. It
also held that, (a) the annual accounts of the PE were prepared in accordance
with the International Financial Reporting Standards and accordingly, its share
or profit or loss in the joint venture company at 25% had to be accounted as
income in the profit and loss account of the PE eventhough such income was only
to the extent of dividend declared and distributed, (b) the joint venture
company was required to transfer a specified amount out of the total
distributable profit to reserve under the Omani tax laws and only the remaining
profits were distributed to the shareholders, and (c) therefore, even under the
Omani laws, the PE offered for taxation only the dividend income actually
received and not the total share of the PE in the profits of the joint venture
company. The undistributed share of profits shown in the books of the PE could
not be said to partake the character of income under the provisions of the Act, 1961, as only the real income was
chargeable to tax. Accordingly, the Tribunal allowed the appeals of the
assessee.
On appeal by the Revenue, the Delhi High
Court upheld the decision of the Tribunal and held as under:
“i) The order u/s. 263 dealt
with issues which were not covered by the show-cause notice which was issued to
the assessee. This was not permissible.
ii) Neither did the Assessing
Officer overlook the relevant facts nor did he not make inquiries. The queries
were specifically with respect to dividend income and exemption and had also
considered the explanation of the Omani authorities on the subject. Therefore,
the Commissioner’s view that the assessment orders were erroneous and required
revision was unsustainable.
iii) The certification
rendered by the Sultanate of Oman in its letter to the effect that under the
company income tax law of Oman, dividend formed part of gross income chargeable
to tax and that the tax law of Oman provided income tax exemption to companies
undertaking to certain identified economic activities considered essential for the
country’s economic development with a view to encouraging investments in such
sectors, were to be regarded as conclusive. If the tax authorities had any
doubts, they could not have proceeded to elevate them into findings, but
addressed them to Omani authorities if not directly, then through the Indian
diplomatic channels. In not doing so, but proceeding to interpret the laws and
certificate of Oman authorities, the Department had fallen into error.
iv) The Appellate Tribunal
found that up to the tax year 2011 in the orders passed under the income tax
law of Oman, dividend had been included in the total income and thereafter
deduction had been granted and that it was established that the assessee was
entitled to get credit for the deemed dividend tax under the provisions of
section 90 of the Act, 1961, together with the clarifications issued by the
Sultanate of Oman and the assessment made under Omani laws.
v) The findings of fact did
not call for interference and the Appellate Tribunal did not err in holding
that the Principal Commissioner had erred in directing the Assessing Officer
u/s. 263 to withdraw the tax credit. Questions of law are answered in favour of
the assessee and the appeals are dismissed.”
