2022 (8) TMI 1189 - AT - Income Tax

Tax liability confirmed while processing of return of income by CPC - wrong reporting of income - whether relief could be claimed only by filing revised return for which statutory timeline has already expired? - whether service receipts are not even taxable in the hands of the Appellant by applying the beneficial provisions of Article 12 of the India-USA Double Taxation Avoidance Agreement? - HELD THAT - As per India US Tax Treaty, the service rendered by the assessee do not specify the make available clause of India US Tax Treaty . It is also emerges from the record that for the Assessment Year 2018-19 a similar adjustment i.e. taxing a service receipt 40% was levied by CPC, Bangalore in the case of assessee s group company i.e. Heidrick and Struggles Pvt. Ltd. Singapore, Heidrick and Struggles Pvt. Ltd. UK, the said assessee has preferred an application for rectification wherein the rectification applications have been allowed by the CPC on 27/02/2020 and 30/01/2020. It is not in dispute that as per India US Tax Treaty the impugned income is not chargeable to tax as per the provisions of Article 12 of India USA Tax Treaty. As in the case of Madhabi Nag 2016 (1) TMI 684 - ITAT KOLKATA Tribunal held that the revenue authorities ought not to have rejected the application u/s 154 of the Act on the ground that the assessee has not filed the revised return of income. Further in the case of CIT v. Bharat General Reinsurance Co. Ltd. 1970 (12) TMI 5 - DELHI HIGH COURT the Hon ble High Court held that merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. In our opinion, the addition has been made only due to wrong reporting of income by the assessee which cannot be sustained. Therefore, in our opinion, the Ld.CIT(A) has committed an error in dismissing the appeal filed by the assessee. Accordingly, we allow the Assessee s Grounds of Appeal No. 1 and 2. Directing the CPC to brand TDS Credit - As assessee submitted that the assessee is eligible for claiming TDS credit amounting to Rs. 2,78,10,114/- as appearing in the Form No. 26AS of the Company. During the recall order dated 24/10/2019, the assessee was granted TDS credit of Rs. 2,55,55,337/- only vis- -vis the TDS Credit claim in the assessee return of income Rs. 2,78,10,114/-. In our opinion, the issue involved in Ground No. 3 deserves to be set aside to the file of CPC, Bangalore with a direction to grant eligible TDS credit in accordance with law. Accordingly, Ground No. 3 is allowed for statistical purpose.

Summary

Issues Involved:
Appeal against assessment order for AY 2018-19 - Disregard of natural justice, tax liability on service receipts, denial of TDS credit, application of tax treaty provisions.

Analysis:
1. Disregard of Natural Justice and Statutory Timelines:
The assessee challenged the order of the ld. Commissioner of Income Tax (Appeals) for AY 2018-19, contending that relief could be claimed without filing a revised return as the statutory timeline had expired. The assessee argued that the CIT(A) erred in disregarding the principles of natural justice, the CBDT circular, and Article 265 of the Constitution of India. The tribunal noted that the relief sought by the assessee was not found in the original return, and the CIT(A) rightly held against the assessee, emphasizing the importance of adhering to statutory timelines for revising returns under Section 139(5) of the Act.

2. Tax Liability on Service Receipts and Tax Treaty Provisions:
The dispute arose from the tax liability imposed on service income received by the assessee from Heidrick and Struggles India Pvt. Ltd. The CPC, Bangalore, raised tax demands based on the service receipts, considering them as taxable at 40%. The assessee argued that the service receipts were not taxable under the India-USA Double Taxation Avoidance Agreement, Article 12. The tribunal observed that a similar adjustment had been allowed in the case of the assessee's group companies under the tax treaty provisions. The tribunal held that the income in question was not chargeable to tax as per the provisions of the tax treaty, thereby allowing the assessee's appeal on this ground.

3. Denial of TDS Credit:
The assessee contended that the CPC, Bangalore, had denied TDS credit amounting to INR 27,810,114, leading to increased tax demands. The tribunal acknowledged the discrepancy in TDS credit granted and the claim made by the assessee. It directed the CPC to grant the eligible TDS credit in accordance with the law, setting aside the issue for further consideration. Consequently, the tribunal allowed the appeal on this ground for statistical purposes.

In conclusion, the tribunal allowed the assessee's appeal on the grounds related to tax liability on service receipts and directed the CPC to grant eligible TDS credit. The judgment highlighted the importance of adhering to statutory timelines for revising returns and upheld the principles of natural justice in tax proceedings.