2004 (12) TMI 632 - AT - Income Tax

Summary

Issues Involved:
1. Validity of rectification order under section 154 of the Act withdrawing the exemption under section 80GGA of the Act.
2. Charge of flat rate of tax at 25% under section 115A of the Act without granting deductions under section 80GGA of the Act.
3. Non-granting of deductions under section 80GGA of the Act on interest income and long-term capital gains.

Detailed Analysis:

1. Validity of Rectification Order under Section 154:
The Tribunal analyzed the rectification orders passed by the Assessing Officer (AO) under section 154 for the assessment years 1987-88 and 1989-90. The AO had issued notices under section 154 proposing to charge income tax at the rate of 25% on gross dividends received by the assessee, a foreign company, in accordance with section 115A and CBDT Circular No. 202. The AO rejected the assessee's claim for deduction under section 80GGA, leading to rectification orders. The CIT(A) upheld these orders, and the Tribunal confirmed that the amendment to section 115A by the Finance Act, 1994 was clarificatory in nature, thus justifying the AO's actions.

2. Charge of Flat Rate of Tax at 25% under Section 115A:
For assessment years 1990-91 and 1991-92, the Tribunal examined the AO's decision to charge a flat rate of tax at 25% on gross dividends without allowing deductions under section 80GGA. The Tribunal upheld the AO's view, supported by the CIT(A), that section 115A required taxation on gross dividends without deductions. The Tribunal agreed that the amendment to section 115A by the Finance Act, 1994, which disallowed deductions under Chapter VIA for dividend income and reduced the tax rate from 25% to 20%, was clarificatory and applicable to earlier years.

3. Non-Granting of Deductions under Section 80GGA on Interest Income and Long-Term Capital Gains:
The Tribunal acknowledged an apparent mistake in its previous order for the assessment year 1991-92, where it did not address the assessee's ground regarding the deduction of Rs. 12,07,198 under section 80GGA against interest income and long-term capital gains. The Tribunal recognized this omission as a mistake apparent from the record and directed that the amended provisions of section 115A, which disallowed deductions under Chapter VIA, should apply to the earlier assessment years. Consequently, the Tribunal ordered that the tax rate of 20% (as per the amended provision) be applied to the earlier assessment years.

Other Contentions:
The assessee's counsel argued that the sovereignty of India extended to Sikkim from 1975, and the Indian Income-tax Act applied from 1-4-1990, implying the assessee should be considered an Indian company. However, the Tribunal found this contention not legally sustainable as it was not raised in the original appeal and could not be introduced via the Miscellaneous Application.

Conclusion:
The Tribunal concluded that while the power to rectify under section 254(2) is limited to correcting mistakes apparent from the record, it identified and rectified the omission regarding the tax rate applicable to earlier assessment years. The Tribunal dismissed the contention to recall the entire order and adjudicate afresh, emphasizing that such actions would amount to an impermissible review. The Miscellaneous Application was partly allowed, specifically addressing the tax rate issue.