2018 (8) TMI 854 - AT - Income Tax

Reopening of assessment - Taxability of deemed interest income on deposits - DTAA between India and Singapore - it is claimed that, operations of the said banking company had been wound up in December 2003 - further, the amount on which interest was earned was in the nature of a fixed deposit and not a loan prescribed as per Article 11(2)(a) of the India-Singapore DTAA . Held that - once the reopening has been held to be invalid and the revenue chooses not to challenge the same, the adjudication on merits is a purposeless reason. Hence, this appeal filed by the Revenue is dismissed. - Decided against the revenue.

Summary

Issues:
1. Whether the assessee was a banking company eligible for a tax rate of 10% on interest income under the DTAA between India and Singapore.
2. Validity of reopening the assessment by the Assessing Officer.
3. Taxability of interest income earned by the assessee at the rate of 10% or 15% under the India-Singapore DTAA.

Analysis:
1. The first issue pertains to the tax rate applicable to the interest income earned by the assessee. The Assessing Officer contended that the income should be taxed at 15% under Article 11(2)(b) of the India-Singapore DTAA, as the assessee was not a banking company and the interest was earned on fixed deposits after the banking operations were wound up. However, the Commissioner of Income Tax (Appeals) ruled in favor of the assessee, citing consistency in previous years' decisions and held that the interest income should be taxed at 10% under Article 11(2)(a) of the DTAA. The ITAT upheld this decision, dismissing the Revenue's appeal on the merits.

2. The second issue revolves around the validity of the assessment reopening by the Assessing Officer. The Commissioner of Income Tax (Appeals) quashed the reopening, stating that it amounted to a change of opinion, which is impermissible as per legal precedent. The ITAT concurred with this view, declaring the reopening unjustified and incorrect, leading to the annulment of the Assessing Officer's order.

3. The third issue concerns the taxability of the interest income at the rate of 10% or 15% under the India-Singapore DTAA. The Assessing Officer initially taxed the income at 15%, but the Commissioner of Income Tax (Appeals) and subsequently the ITAT held that the income should be taxed at 10% based on the provisions of Article 11(2)(a) of the DTAA. The ITAT dismissed the Revenue's appeal, emphasizing that since the reopening was invalidated, the adjudication on merits became unnecessary, resulting in the dismissal of the appeal filed by the Revenue.

In conclusion, the ITAT upheld the Commissioner's decision in favor of the assessee, determining that the interest income should be taxed at 10% under the India-Singapore DTAA. The invalidation of the assessment reopening by the Assessing Officer played a crucial role in the final outcome of the case, leading to the dismissal of the Revenue's appeal.