2021 (4) TMI 1198 - AT - Income Tax

Rectification u/s 154 - AO erred in taxing the same income of assessee twice, once at special rate of 15% under Double Taxation Treaty between UK and India as per Article 13 of the said treaty and again as normal business income at the rate of 40% being the rate applicable to foreign companies - HELD THAT - On perusal of the original as well as return of income filed in compliance to defective memo under section 139(9), we find that the assessee was having very casual approach towards filing returns of income. The return of income filed by the assessee on 30/09/2014 contains parts A and B. After these two parts, there is a verification by the assessee and thereafter different schedules are available in the return of income. In the part A-TI (computation of income), the assessee declared in the row 2(i) profit and gains from business other than speculative business at ₹ 26,43,090/-. The assessee also declared income chargeable to special rates as per schedule SI at ₹ 26,43,090/-. The Learned Counsel has claimed before us that income of the assessee was liable under section 44D has been but in the return of income filed on 30/03/2015 in the row 34(vi) (on page 58 of the paper-book) the income again section 44D reported as nil. Thus, definitely, return of income has been filed in negligent and casual manner with errors and omissions. On perusal of the order under section 143(1) dated 10/03/2016 , available on page 78 to 83 of the paper-book, we find that in row having serial No. 10, income chargeable to tax at a special rate has been reported NIL in both columns, i.e., as provided by the taxpayer as well as computed under section 143(1) of the Act. Despite nil income reported in both columns, against Serial No. 10, the Assessing Officer in serial No. 22 has computed tax at special rate of ₹ 3,96,464/- in both the columns for taxpayer as well as under section 143(1) of the Act. Thus, there is an apparent mistake of computing tax at a special rate without any income reported for tax at a special rate. This apparent mistake in the order under section 143(1), the finding of the Ld. CIT(A) that there is no mistake in the order of the Assessing Officer, is not correct. It is evident that the assessee is at fault for not reporting the income in proper columns, but the Assessing Officer, has also committed apparent mistakes of computing tax without considering the income for special rate. In view of the above observation and in the interest of the substantial justice, we set aside the order of the Learned CIT(A) on the issue in dispute and restore the matter back to the file of the Assessing Officer for deciding the rectification application of the assessee on merit keeping in view the cardinal principle that assessee cannot be taxed twice for the same income, one under the head profit and gain of business and profession and other under special rate specified in DTAA . It is needless to mention that the assessee shall be provided adequate opportunity of being heard. The grounds of the appeal of the assessee are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Taxation of income under Double Taxation Treaty and normal business income.
2. Rejection of rectification request under section 154 of the Income Tax Act.
3. Allegation of being taxed twice on the same income.

Issue 1: Taxation of Income under Double Taxation Treaty and Normal Business Income:
The appellant contested the tax treatment of its income, claiming that it was being taxed twice on the same income – once under the Double Tax Avoidance Agreement (DTAA) between the UK and India at a special rate of 15%, and again as normal business income at a rate of 40% applicable to foreign companies. The appellant argued that the DTAA provision was more beneficial, and thus, the income should be taxed at the lower rate. The Assessing Officer processed the return considering the income declared under both categories, resulting in a higher tax liability. The Tribunal observed errors in the filing of returns by the appellant and the processing by the Assessing Officer. The Tribunal set aside the order of the CIT(A) and directed the matter to be reconsidered by the Assessing Officer to rectify the apparent mistakes and ensure the correct tax treatment, emphasizing that the appellant should not be taxed twice for the same income.

Issue 2: Rejection of Rectification Request under Section 154:
The appellant had sought rectification of the order under section 143(1) before the Central Processing Centre, which was rejected. The Deputy Commissioner of Income-tax upheld the tax liability, leading to the appellant's appeal before the CIT(A). The CIT(A) dismissed the appeal, stating that any errors in the return could be corrected by filing a revised return, which the appellant could not do due to the expired time limit. The Tribunal found faults in the processing of the return by the Assessing Officer and the casual approach of the appellant in filing returns, leading to errors and omissions. The Tribunal set aside the CIT(A)'s decision, emphasizing the need for substantial justice and providing the appellant with a chance to rectify the mistakes.

Issue 3: Allegation of Being Taxed Twice on the Same Income:
The appellant contended that it was facing gross injustice by being forced to pay tax twice on the same income, resulting in an aggregate tax rate of 55%. The Tribunal acknowledged the appellant's concern and stressed the importance of ensuring that the appellant was not taxed twice for the same income. The Tribunal allowed the appeal for statistical purposes, highlighting the need for the Assessing Officer to reconsider the rectification application on merit and provide the appellant with a fair opportunity to present their case.

In conclusion, the judgment addressed the issues of tax treatment under the DTAA and normal business income, rejection of rectification request under section 154, and the allegation of being taxed twice on the same income. The Tribunal emphasized the need for correct tax treatment, rectification of mistakes, and ensuring that the appellant was not unfairly taxed twice for the same income.