2021 (1) TMI 210 - AT - Income Tax

Rectification of mistake - ITAT has inadvertently mentioned that the ratio of CLC to TLC should not be more than 7.5% instead of 4% - HELD THAT - The plea of the assessee applicant is indeed correct. The Assessing Officer himself had adopted 4% as CLC/TLC ratio, and the same was, as noted by us required to be adopted this year as well. The mention of 7.5% as adjusted CLC/TLC ratio, in paragraph 7, was clearly an inadvertent error. We, therefore, deem it fit and proper to recall the matter on this point, and refix the matter for adjudication afresh on that point. The Registry is directed to refix the matter for the above purposes, before the regular bench on 29.01.2021. Order accordingly. In the result, the rectification petition is allowed in the terms indicated above.

Summary

Issues:
Rectification of an inadvertent mistake in the order dated 31st January 2020 regarding the ratio of CLC to TLC for computing taxable income.

Analysis:
The applicant, a company incorporated in the USA, sought rectification of an error in the order of the Hon'ble Income-tax Appellate Tribunal (ITAT) regarding the computation of income from airline activities attributable to third party aircrafts. The applicant, governed by the India-USA Tax Treaty, claimed that income from airline activities should be exempt from tax in India as per Article 8(1) of the treaty. The dispute arose when the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) calculated the income using different ratios of Commercial Linehaul Charge (CLC) to Total Linehaul Charge (TLC). The applicant argued that the ratio should be restricted to 4%, in line with the methodology prescribed in the Mutual Agreement Procedure (MAP) resolution for previous assessment years. However, the ITAT inadvertently mentioned a 7.5% ratio in the order, which was a mistake. The ITAT acknowledged this error and directed a fresh adjudication on the correct ratio of 4%.

The ITAT recognized that the AO had previously accepted a 4% ratio for CLC/TLC and that the applicant's argument for maintaining this ratio was valid. The ITAT admitted the mistake in mentioning a 7.5% ratio in the order and decided to recall the matter for reevaluation based on the correct 4% ratio. The rectification petition was allowed, and the matter was scheduled for re-adjudication before the regular bench to ensure the correct application of the methodology prescribed under the MAP resolution. The ITAT's decision to rectify the error and reconsider the correct ratio of CLC to TLC demonstrated a commitment to uphold the principles of tax treaties and ensure fair treatment for the taxpayer. The rectification order provided clarity and rectified the inadvertent mistake in the original order, emphasizing the importance of accurate computation of taxable income in accordance with established procedures and agreements.