9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2006 (3) TMI 67 - HC - Income TaxDTAA entered into with any country would override the provisions of the IT Act - dividend income earned in Malaysia is not liable to be taxed in the hands of assessee in India under IT Act - Tribunal was justified in recording a finding on an issue which was not raised by the assessee either before the AO or before the CIT (A) - Having dismissed the cross-objection filed by the assessee, Tribunal was justified to decide the issue raised by the assessee on merits in their favour
Issues Involved:
1. Taxability of dividend income from a foreign company under the Income-tax Act, 1961. 2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Malaysia. 3. Jurisdiction of the Income-tax Appellate Tribunal (ITAT) to consider new issues raised for the first time. 4. Dismissal of cross-objections by the ITAT on the grounds of limitation. Detailed Analysis: 1. Taxability of Dividend Income from a Foreign Company: The primary issue was whether the dividend income earned by the assessee from Pan Century Edible Oils SDN, BHD, Malaysia, amounting to Rs. 21,35,766, is liable to be taxed in India under any provisions of the Income-tax Act, 1961. The ITAT held that the dividend income would be taxed only in the Contracting State where such income accrued, as per the Double Taxation Avoidance Agreement (DTAA) between India and Malaysia. The High Court upheld this view, noting that the DTAA provisions would override the Income-tax Act if they are at variance. The court referred to the decision in CIT v. Vr. S. R. M. Firm [1994] 208 ITR 400 (Mad), which was affirmed by the Supreme Court in CIT v. P. V. A. L. Kulandagan Chettiar [2004] 267 ITR 654, confirming that the dividend income in Malaysia cannot be taxed in India. 2. Applicability of DTAA: The court emphasized that the DTAA between India and Malaysia, specifically Article XI, clearly states that dividends paid by a company which is a resident of a Contracting State may be taxed in the first-mentioned Contracting State. The court reiterated that tax treaties are considered mini-legislations and must be followed over the local tax laws where applicable. The decision in CIT v. Vr. S. R. M. Firm was pivotal, as it established that the DTAA provisions take precedence over the Income-tax Act, 1961, thereby exempting the dividend income earned in Malaysia from Indian taxation. 3. Jurisdiction of ITAT to Consider New Issues: The Department questioned whether the ITAT was justified in recording a finding on an issue not raised by the assessee before the Assessing Officer or Commissioner of Income-tax (Appeals). The court referred to Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, which allows the respondent to support the order appealed against on any grounds decided against them. The court also cited National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, affirming that the ITAT has wide powers to consider any question of law arising from the facts on record, even if not raised earlier. 4. Dismissal of Cross-Objections by ITAT: The assessee's cross-objections were dismissed by the ITAT on the grounds of limitation. However, the court noted that the ITAT had nonetheless considered the merits of the case and recorded a finding that the dividend income was not taxable in India. The court held that the ITAT should have allowed the cross-objection or considered it redundant in light of its decision on the merits. The court concluded that the ITAT's decision to dismiss the cross-objection while simultaneously ruling in favor of the assessee on the substantive issue was contradictory. Conclusion: The High Court answered all the questions against the Department and in favor of the assessee. It upheld the ITAT's decision that the dividend income earned in Malaysia is not taxable in India under the DTAA. The court also affirmed the ITAT's jurisdiction to consider new issues raised for the first time and criticized the ITAT's dismissal of the cross-objections on the grounds of limitation. The appeals were disposed of with no order as to costs.
|
