2005 (1) TMI 628 - AT - Income Tax

Challenged the Validity of order passed u/s 263 - erroneous and prejudicial to the interests of the Revenue - whether an order, which the learned Authorised Representative describes as authorisation , passed by the Assessing Officer u/s 195(2) is an order within the meaning of section 263 - the AO permitted by his order passed under section 195(2) - payment of the guarantee money to a non-resident outside India without deduction of tax at source - HELD THAT - It is a fact that the assessee had made the requisite application to the Assessing Officer u/s 195(2) for payment/remittance of the guarantee money to the Australian Cricket Board without deduction of tax at source which the Assessing Officer permitted by his order passed u/s 195(2). It is in pursuance of the said order of the Assessing Officer u/s 195(2) that the amount of guarantee money was remitted on December 3, 1996. Once the permission granted by the Assessing Officer had been acted upon and the amount of guarantee money remitted/paid, the question that arises for consideration is whether the order containing the said permission could be revised or cancelled u/s 263 after almost two years after the money had been paid. A close scrutiny of the provisions of section 263 shows that the Director can pass such order in revision as the circumstances of the case justify . Thus, the power of the Director to pass an order in revision u/s 263 is circumscribed, inter alia, by the circumstances of the case also. He cannot ignore them or be oblivious of them. Circumstances of the case must also justify the order u/s 263. He had the full authority in law to invoke his revisional jurisdiction u/s 263 till the amount of guarantee money was remitted and revise or cancel the order passed by the Assessing Officer u/s 195(2) in accordance with law. Once the amount of guarantee money stood paid/remitted, and that too to a non-resident outside India, on the basis of a subsisting order passed by the Assessing Officer u/s 195(2), it was not possible for the assessee to deduct the tax at source. It is well-settled that a person cannot be asked to do impossible things and this principle in our view also circumscribes the power of the Director u/s 263. If the impugned order of the Director is allowed to stand, it would have the effect of asking the assessee to deduct the tax at source out of the guarantee money which was no longer possible. His order cannot, therefore, be allowed to stand on the facts and circumstances of the case. However, on a perusal of the impugned order of the learned Director, we find that neither this plea was raised before him nor were the aforesaid documents, as filed before us, filed before him nor were they considered by him. We have taken them on record as they go to the root of the matter. We, therefore, consider it appropriate to set aside the impugned order of the Director and restore the matter to him with the direction to pass a fresh order in accordance with law after duly examining/verifying the aforesaid submissions and the documents and keeping in view the observations made above. To this limited extent, the appeal of the assessee is treated as allowed. The appeal filed by the assessee is treated as allowed for statistical purposes.

Issues Involved:
1. Jurisdiction of the Director of Income-tax (Exemption) u/s 263.
2. Authorization permitting remittance without deduction of tax at source.
3. Nature of the authorization as an order.
4. Tax liability on guarantee money.
5. Binding nature of the Board's instruction dated May 17, 1996.
6. Applicability of the Double Taxation Avoidance Agreement with Australia.
7. Validity of the Director's findings canceling the authorization.

Summary:

Issue 1: Jurisdiction of the Director of Income-tax (Exemption) u/s 263
The assessee challenged the Director's order u/s 263, arguing it was beyond jurisdiction and thus a nullity. The Tribunal held that the authorization issued by the Income-tax Officer u/s 195(2) is indeed an "order" within the meaning of section 263, making it subject to revision by the Director if found erroneous and prejudicial to the Revenue.

Issue 2: Authorization Permitting Remittance Without Deduction of Tax at Source
The assessee contended that the authorization could not be revised u/s 263 as it was acted upon. The Tribunal noted that the Director's power to revise is circumscribed by the circumstances of the case and that once the guarantee money was remitted, it was not possible for the assessee to deduct tax at source. However, since this plea was neither raised nor considered by the Director, the matter was remanded for fresh consideration.

Issue 3: Nature of the Authorization as an Order
The Tribunal found that the authorization issued by the Income-tax Officer u/s 195(2) is a quasi-judicial order and not merely an administrative or ministerial act. Therefore, it is subject to revision u/s 263 if it is erroneous and prejudicial to the interests of the Revenue.

Issue 4: Tax Liability on Guarantee Money
The Director held that the guarantee money was income liable to tax and that tax should have been deducted therefrom. The Tribunal, following the decision in Pilcom v. ITO [2001] 77 ITD 218 (Cal), agreed that the guarantee money paid to foreign cricket boards for matches played in India is taxable and subject to deduction of tax at source.

Issue 5: Binding Nature of the Board's Instruction Dated May 17, 1996
The Tribunal concurred with the Director that the Central Board of Direct Taxes (CBDT) letter dated May 17, 1996, was not a binding instruction but merely an internal correspondence. It was not issued u/s 119 and thus did not have the authority to override the quasi-judicial function of the Assessing Officer.

Issue 6: Applicability of the Double Taxation Avoidance Agreement with Australia
The Director's finding that the Double Taxation Avoidance Agreement (DTAA) with Australia did not cover the payment of guarantee money was upheld. The Tribunal noted that the DTAA did not exempt such payments from tax, and thus, the guarantee money was subject to Indian tax laws.

Issue 7: Validity of the Director's Findings Canceling the Authorization
The Tribunal found that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue due to non-application of mind and lack of proper examination. However, since the guarantee money had already been remitted, the Tribunal set aside the Director's order and remanded the matter for fresh consideration, directing the Director to examine the submissions and documents afresh.

Conclusion:
The appeal was treated as allowed for statistical purposes, with the matter remanded to the Director for fresh consideration in light of the Tribunal's observations.

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