2014 (10) TMI 831 - AT - Income Tax

Rectification of mistake - Taxability of dividend income @ 20% - Held that - Assessee himself has offered the dividend income and paid the tax @ 15%. Assessing Officer has not considered this income while making the order u/s 143(3) on 28.03.2006. Thus, there was an apparent and patent mistake in the order passed u/s 143(3) of the Act. This mistake was apparent from the records available with Assessing Officer. Therefore, we sustain order passed u/s 154 of the Act to the extent the dividend income is taxable @ 15% - Decided partly in favour of Revenue.

Summary

Issues involved:
1. Whether the CIT (A) erred in quashing the order u/s 154 regarding the addition of dividend income to be taxed at 20%.
2. Whether the CIT (A) erred in holding that the dividend income was not effectively connected with the Permanent Establishment (PE) and taxable at 20%.
3. Whether the Assessing Officer made a mistake in not considering the dividend income while making the assessment u/s 143(3) of the Income-tax Act.

Analysis:
1. The appeal by the Revenue was against the order of the CIT (Appeals) for the Assessment Year 2003-04. The Revenue contended that the CIT (A) erred in quashing the order u/s 154, which added dividend income to be taxed at 20%. The CIT (A) held that to apply Article 10(4) of the DTAA, it must be proven that the dividend is effectively connected with the PE. The CIT (A) stated that no material was available u/s 143(3) to ascertain this connection. The Tribunal found that the Assessing Officer had not considered the dividend income while making the order u/s 143(3). It was concluded that there was a clear mistake in the order u/s 143(3), and the mistake was apparent from the available records. The Tribunal upheld the order passed u/s 154, stating that the dividend income should be taxed at 15%, allowing the Revenue's appeal partially.

2. The second issue revolved around whether the dividend income was effectively connected with the PE and taxable at 20%. The CIT (A) held that there was no mistake apparent from the record regarding this connection. However, the Tribunal found that the Assessing Officer had indeed made a mistake by not considering the dividend income during the assessment u/s 143(3). It was established that the mistake was evident from the records available with the Assessing Officer. Consequently, the Tribunal sustained the order passed u/s 154, affirming that the dividend income should be taxed at 15%. The Revenue's appeal was allowed to that extent only.

3. The third issue addressed the Assessing Officer's failure to consider the dividend income while making the assessment u/s 143(3) of the Income-tax Act. The Tribunal determined that this omission constituted an apparent and patent mistake in the order passed u/s 143(3). It was highlighted that the mistake was evident from the records accessible to the Assessing Officer. Consequently, the Tribunal upheld the order passed u/s 154, specifying that the dividend income should be taxable at 15%. The Revenue's appeal was partly allowed based on this conclusion.