2001 (7) TMI 997 - AT - Income Tax

Summary

Issues: Taxability of deposit made by Nepali citizen in Indian bank, applicability of Double Taxation Avoidance Agreement (DTAA), imposition of penalty under section 271(1)(c) of the Income-tax Act.

In this case before the Appellate Tribunal ITAT Patna, the issue revolved around the taxability of a deposit made by a Nepali citizen in an Indian bank. The depositor had opened a joint account and deposited a sum of Rs. 1,23,700 in the financial year 1991-92. The Assessing Officer treated the deposit as income earned on Indian soil and assessed it under section 144 of the Income-tax Act, considering the Branch Manager of the bank as an agent of the depositor. A penalty of Rs. 77,704 was imposed under section 271(1)(c) for concealment due to failure to file income returns. The Commissioner (Appeals) set aside the penalty, leading the Revenue to appeal to the Tribunal under section 253 of the Act, challenging the Commissioner's order.

Upon hearing arguments, the Tribunal analyzed the provisions of the Double Taxation Avoidance Agreement (DTAA) and the Income-tax Act. It was highlighted that two modes of assessment were considered: one under section 69 of the Act and the other under Article 21 of DTAA. The Tribunal referred to a previous decision where it was established that unexplained investments may be deemed income under section 69, a legal fiction, while Article 21 of DTAA operates on factual grounds. The Tribunal concluded that the provisions of DTAA, being more beneficial to the assessee, took precedence over the Act. Therefore, deposits made by Nepali citizens in Indian banks could not be taxed in India, invalidating the assessment in this case.

As the assessment under section 69 of the Act was deemed invalid, the penalty imposed under section 271(1)(c) was also deemed unsustainable. The Tribunal held that the Commissioner (Appeals) was justified in deleting the penalty, ultimately rejecting the Revenue's appeal. The judgment clarified the taxability of deposits made by Nepali citizens in Indian banks and emphasized the importance of DTAA provisions in determining tax liabilities in such cases.