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2010 (7) TMI 533 - AT - Income TaxDTAA Reassessment Assessee claimed the credit for tax deduction deducted on the dividend in the UK and also relief under DTAA between India and UK - Held that - as per the law applicable for the assessment years from 2000-01 to 2004-05 if the assessee is desiring to get the benefit of the tax credit as available as per U.K. Law then he will be treated at par with the resident of the UK and the amount received by the assessee is then deemed to increase by 1/9th of dividend received from the U.K. Company for the purpose of taxation under Indian Income Tax Act and tax credit can only be adjusted against his tax liability in India but he can not claim refund if any in case his tax credit is more than his tax liability. The tax is not deducted at the time of payment of the dividend. There is a corporation tax which the company is liable to pay. But the corporation tax paid by the company has no implication on the amount received by the assessee. In our opinion the purpose of Article 24 is totally different in the sense that the Article 24 comes to aid where the same profit or income is taxed in sourcing country as well as in another Contracting State. So far as sec. 91 is concerned the said section has no application to the assessee s case as admittedly there is an existing Treaty between India and UK and the said section applies where there is no treaty or agreement under sec 90 of the Income Tax Act. We therefore direct the AO to assess the dividend after increasing by 1/9th tax credit as discussed herein above on deemed gross basis in the hands of the assessee and also allow the tax credit as per Article 11 (2) for the A. Yrs. 2000-01 to 2004.
Issues Involved:
1. Legality and validity of reassessment proceedings under Section 147 for AYs 1999-2000 to 2003-04. 2. Issuance of notice under Section 143(2) for AY 1999-2000. 3. Taxation of dividend received from HSBC Holding PLC, UK on a gross or net basis. 4. Entitlement to tax credit under the Double Taxation Avoidance Agreement (DTAA) between India and the UK. Detailed Analysis: 1. Legality and Validity of Reassessment Proceedings under Section 147: The assessee challenged the reassessment proceedings initiated by the AO under Section 147 for AYs 1999-2000 to 2003-04. The assessee argued that there was no material before the AO to form the belief required to invoke Section 147. The AO relied on CBDT Circular No. 369 dated 17.9.1983, which directed that dividends received from foreign companies should be taxed on a gross basis. The Tribunal held that the AO had sufficient material to form the belief required under Section 147, thus the reassessment proceedings were valid. 2. Issuance of Notice under Section 143(2) for AY 1999-2000: The assessee contended that no notice under Section 143(2) was issued before passing the order under Section 143(3) read with Section 147 for AY 1999-2000. The Tribunal noted that the issuance of notice under Section 143(2) is mandatory, as established by the jurisdictional High Court in the case of CWT vs HUF of H H Late J M Scindia (300 ITR 193). Consequently, the assessment for AY 1999-2000 was held invalid and quashed. 3. Taxation of Dividend on Gross or Net Basis: The core issue was whether the dividend received by the assessee from HSBC Holding PLC, UK should be taxed on a gross or net basis. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of Ambala Kilachand, which held that dividends received from UK companies should be taxed on a net basis. However, the Tribunal also considered the DTAA between India and the UK, which came into effect after the judgment in Ambala Kilachand. The Tribunal concluded that the dividend should be increased by 1/9th of the amount received to be treated as gross dividend for taxation purposes under Indian law. 4. Entitlement to Tax Credit under DTAA: The Tribunal examined Article 11 of the DTAA between India and the UK, which provides that an individual resident in India receiving dividends from a UK company is entitled to the same tax credit as a UK resident. The Tribunal held that the assessee is entitled to tax credit, which can be adjusted against the tax liability in India but cannot claim a refund if the tax credit exceeds the tax liability. Conclusion: - The reassessment proceedings under Section 147 for AYs 1999-2000 to 2003-04 were held valid. - The assessment for AY 1999-2000 was quashed due to the non-issuance of notice under Section 143(2). - Dividends received from HSBC Holding PLC, UK should be taxed on a gross basis by increasing the amount by 1/9th of the dividend received. - The assessee is entitled to tax credit under the DTAA, which can be adjusted against the tax liability in India. Final Orders: - The appeal for AY 1999-2000 filed by the assessee is allowed, and the revenue's appeal for AY 1999-2000 is dismissed. - The appeals for AYs 2000-01, 2001-02, 2002-03, 2003-04, and 2004-05 filed by both the assessee and the revenue are partly allowed.
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