2012 (7) TMI 585 - AT - Income Tax

Penalty u/s 271(1)(c) - Penalty levied on both Principal and Agent - shipping profits were claimed exempt from tax in India - DTAA between India and Mauritius - Held that - Section 160(1)(i) provides that in respect of income of the non-resident, the agent of such non-resident is to be treated as representative assessee. Thus, the assessment should have been either made in the case of the representative assessee i.e. the agent or to non-resident itself. The department cannot make the assessment on both the persons on agent as well as principal. Similarly, the penalty under Section 271(1)(c) for the same income cannot be levied in the case of both the persons. In the return of income, the assessee had duly disclosed the freight receipts, the income from such freight receipts under presumptive provisions of Section 44B and also the tax payable on such income. Based on this, DIT relief certificate by the AO in India and tax residency certificate by the authorities of Mauritius, tax exemption has been sought in the return of income - as department itself on the one hand, gives certificate for 100% tax relief and on the other hand, treats the same to be provisional in nature, cannot frame the charge of concealment of income or furnishing of inaccurate particulars of income - nowhere it has been found that the assessee was not acting bonafidely - no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false as mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars - in favour of assessee.

Issues Involved:
1. Penalty proceedings under Section 271(1)(c) for the assessment years 2000-2001 and 2001-2002.
2. Treaty benefit under Article 8 of the DTAA between India and Mauritius.
3. Effective place of management of the assessee.
4. Double jeopardy in taxing the same income in the hands of both the principal and the agent.
5. Bonafide belief and disclosure of income particulars.
6. Validity of penalty orders issued to both the principal and the agent.

Detailed Analysis:

1. Penalty Proceedings under Section 271(1)(c):
The penalty proceedings were initiated under Section 271(1)(c) for the assessment years 2000-2001 and 2001-2002. The assessee, RL, claimed tax relief under the DTAA, which was initially accepted by the Assessing Officer. However, upon reassessment, the Assessing Officer determined that the effective place of management was in India, leading to the issuance of penalty notices to both RL and its agent, JMCPL.

2. Treaty Benefit under Article 8 of the DTAA:
RL, a tax resident of Mauritius, claimed benefits under Article 8 of the DTAA, which exempts profits from the operation of ships in international traffic from Indian taxation. The Assessing Officer initially granted an exemption certificate but later reassessed and denied the benefit, asserting that RL's effective management was in India.

3. Effective Place of Management:
The Assessing Officer found that RL's effective place of management was not in Mauritius but in India, based on the shareholding pattern and lack of evidence of board meetings in Mauritius. This led to the reassessment and subsequent penalty proceedings.

4. Double Jeopardy:
The same income was assessed and taxed in the hands of both RL and JMCPL, leading to a situation of double jeopardy. The CIT(A) and ITAT found this approach legally incorrect, emphasizing that the department can only tax either the principal or the agent, not both.

5. Bonafide Belief and Disclosure of Income Particulars:
The assessee argued that it had a bonafide belief in claiming tax relief based on the exemption certificate and tax residency certificate from Mauritius. The CIT(A) and ITAT accepted this explanation, noting that all income particulars were disclosed in the return, and there was no concealment or furnishing of inaccurate particulars.

6. Validity of Penalty Orders:
The penalty orders were challenged on the grounds that two penalties cannot be levied for the same income on both the principal and the agent. The ITAT upheld this argument, canceling the penalty on JMCPL and dismissing the department's appeal. The ITAT also found that the penalty on RL was not justified, as the claim for exemption was based on a bonafide belief and all particulars were duly disclosed.

Conclusion:
The ITAT dismissed all three appeals of the revenue, holding that the penalty under Section 271(1)(c) was not sustainable in both the principal and agent's cases. The decisions emphasized the principle of not taxing the same income twice and recognized the bonafide belief of the assessee in claiming treaty benefits. The ITAT upheld the CIT(A)'s deletion of penalties, concluding that there was no concealment or furnishing of inaccurate particulars by the assessee.

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