2007 (5) TMI 202 - HC - Income Tax

Stay of the demand - Grant for interim relief - assessed income u/s 143(3) - demand for deposit of the tax and interest - DTAA between India-Finland - entitled to a refund of tax on the basis of the cumulative demands - application for modification - Petitioner relied upon a judgment delivered by the Special Bench of the Tribunal in the case of the petitioner itself and pertaining to the assessment years 1997-98 and 1998-99 and responded by saying that if the judgment is implemented by the Revenue the liability of the petitioner would be about Rs. 4.86 crores for the assessment year 2003-04 - HELD THAT - What has apparently come in the way of the CIT (A) is the impression carried by him (and which has been articulated by learned counsel for the Revenue) that each assessment year has to be treated as independent of the other and therefore the CIT (A) took the assessment year 2003-04 by itself and applying the decision of the Special Bench of the Tribunal granted relief to the petitioner by requiring a deposit of only Rs. 4.86 crores. This is of course one possible way of looking at the issue. However it has to be remembered that the State is bound to be fair to those with whom it has to deal with and to the extent possible it must avoid any harassment to the assessee public without causing any loss to the exchequer. Therefore if one looks at the matter in a broader perspective (and there is no reason why we should not) then it would be necessary to take into account the tax liability of the petitioner for the entire period in respect of which the dispute is still alive that is to say from the assessment year 1997-98 till the assessment year 2003-04. If this is done and an across the board review is taken of the tax liability of the petitioner as well as the amounts paid by the petitioner as has actually been done by the Tribunal in its order then the petitioner would be entitled to a refund. On the other hand if each year is taken separately then of course there would be a liability against the petitioner for the assessment year 2003-04 but such a narrow or constricted view does not commend itself to us since it would unnecessarily deprive an assessee of good money due to it from the Revenue. Looked at in this larger perspective we are of the view that the petitioner would be entitled to the relief prayed for since it has quite clearly paid more than the amount that is due if the order passed by the Special Bench is implemented. In arriving at this conclusion we have also taken note of the fact that the order of the Special Bench has not been stayed and is still operative and has in fact been given effect to by the Tribunal itself in its order. Consequently we issue a writ of mandamus and stay the requirement of the petitioner having to deposit Rs. 4.86 crores till its appeal for the assessment year 2003-04 is heard by the CIT (A). This would necessarily imply that the CIT (A) should hear the appeal of the petitioner for the assessment year 2003-04 without insisting on any deposit. The writ petition is allowed. All pending interim applications are disposed of.

Summary

Issues:
1. Interpretation of tax liability under the India-Finland Double Taxation Avoidance Agreement.
2. Application of judicial discipline in following higher appellate authorities' orders.
3. Consideration of cumulative tax liabilities for multiple assessment years.
4. Discretion of the Commissioner of Income-tax (Appeals) in granting relief.

Analysis:
1. The petitioner, a Finnish company, contended that its income from supplying telecommunication equipment to Indian operators should be treated as "business profits" under the India-Finland Double Taxation Avoidance Agreement, making it non-taxable in India. However, the Assessing Officer disagreed, assessing a significant tax liability for the assessment year 2003-04 based on the assumption of a permanent establishment in India.

2. The petitioner sought relief through an appeal pending before the Commissioner of Income-tax (Appeals), referencing a previous judgment by the Special Bench of the Tribunal. The petitioner argued for a consistent application of this judgment across all relevant assessment years, emphasizing the potential refund due if the cumulative demands and deposits were considered.

3. The Tribunal had acknowledged the principle of across-the-board implementation for certain assessment years, granting interim relief based on the Special Bench's decision. The petitioner highlighted this precedent to argue against the imposition of a substantial deposit for the assessment year 2003-04 alone, urging a broader view of the cumulative tax liabilities.

4. The Revenue opposed the petitioner's claims, asserting the correctness of the calculated tax liability for the specific assessment year. The Revenue emphasized the independent nature of each assessment year and the absence of any factual refund due to the petitioner, despite the potential impact of the Special Bench's order.

5. The High Court, guided by the principles of judicial discipline and fairness, emphasized the importance of following higher appellate authorities' orders. Considering the operational status of the Special Bench's order and the potential refund if applied uniformly, the Court granted a writ of mandamus, staying the deposit requirement for the petitioner pending the appeal for the assessment year 2003-04 before the Commissioner of Income-tax (Appeals).

6. The Court's decision aimed to prevent undue financial burden on the petitioner while ensuring a fair and comprehensive assessment of tax liabilities across relevant assessment years. The judgment underscored the significance of judicial discipline and equitable treatment in tax assessments, ultimately allowing relief to the petitioner based on the existing legal framework and precedents.