1994 (4) TMI 25 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Article 9 of the Double Taxation Avoidance Agreement (DTAA) between India and the UK.
2. Jurisdiction and authority of the Income-tax Officer to levy tax and impose penalties on the petitioner-company.
3. Validity of the petitioner's claim of being a genuine company incorporated in the UK.

Summary:

1. Applicability of Article 9 of the DTAA:
The petitioners contended that the respondents should give effect to Article 9 of the DTAA between India and the UK, executed u/s 90 of the Income-tax Act, 1961. The Assistant Commissioner of Income-tax, Company Circle, Calcutta, issued a certificate stating that the entire shipping income of the petitioner-company is exempt from tax in India as per Article 9(1) of the DTAA. Despite this, the Income-tax Officer, Gandhidham, levied tax and imposed penalties on the petitioner-company, which was challenged in this petition. The court held that u/s 90(2) of the Income-tax Act, the provisions of the DTAA would prevail over the general provisions of the Income-tax Act, making the income from shipping operations in India non-taxable in India.

2. Jurisdiction and Authority of the Income-tax Officer:
The respondents argued that the provisions of section 172 of the Income-tax Act were applicable, as the petitioner-company was not a genuine shipping business. The court, however, found this argument without substance, stating that section 90(2) of the Income-tax Act provides that the provisions of the DTAA would override the general provisions of the Income-tax Act. The court cited Circular No. 333 issued by the Central Board of Direct Taxes, which clarified that specific provisions in a DTAA would prevail over the general provisions of the Income-tax Act. The court concluded that the Income-tax Officer had no authority or jurisdiction to assess the petitioners u/s 172 of the Income-tax Act.

3. Validity of the Petitioner's Claim of Being a Genuine Company:
The respondents contended that the petitioner-company was not genuine. The court dismissed this contention, noting that the petitioner had produced certificates from the H. M. Inspector of Taxes and other relevant authorities in the UK, confirming the company's incorporation and tax residency status. The court emphasized that the Income-tax Officer did not have the jurisdiction to question the genuineness of a company incorporated in the UK, especially when necessary certificates were provided. The court held that the Income-tax Officer's actions were contrary to the DTAA and the circular issued by the Central Board of Direct Taxes.

Conclusion:
The petition was allowed, and the order dated March 30, 1994, passed by the Income-tax Officer, Gandhidham, was quashed and set aside. The court ruled in favor of the petitioners, making the rule absolute in terms of paragraph 7A with no order as to costs.