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2023 (3) TMI 211 - AT - Income TaxValidity of the order passed u/s 143(3) r.w.s 144C (3) - period of limitation - HELD THAT - As for AYs before the amendment, which has come into effect from 01.04.2020 in Section 144C of the Act, the cases in which no variation in the return income or loss were proposed, the draft assessment orders were not required to be issued. Accordingly, no extended period for concluding assessment. In the case in hand admittedly there was no proposal for variation in the return income. The assessment order should have been passed by 31st December, 2018 while the impugned assessment order has been passed on 21.02.2019. Thus, impugned assessment order is beyond statutory time lines provided u/s 153(1) of the Act. Ld. CIT(A) has taken into account judgment of Hon ble Madras High Court in World Part Ltd 2019 (9) TMI 390 - MADRAS HIGH COURT however , in that case since the assessee had the alternate remedy available by way of appeal before Ld. CIT ( A ) the writ petition before High Court was disposed, without no findings on merits. Thus, the Bench is of considered opinion that the ground no. 1 goes to the root exercise of jurisdiction of passing assessment order barred by limitations , therefore, the same along with sub grounds stands allowed.
Issues Involved:
1. Validity of the order passed under Section 143(3) read with Section 144C(3) of the Income Tax Act, 1961. 2. Denial of the benefit of beneficial ownership under Article 11 of the India-Cyprus Double Tax Avoidance Agreement (DTAA). 3. Applicability of the DTAA between India and UAE regarding the taxability of interest income. 4. Taxability of accrued interest under the India-Cyprus DTAA. Issue-wise Detailed Analysis: 1. Validity of the Order Passed Under Section 143(3) r.w.s 144C(3): The Assessee contended that the assessment order dated 21.02.2019 was barred by limitation as there was no variation in the income, thus, the provisions of Section 144C were not applicable. The First Appellate Authority (FAA) upheld the validity of the assessment order, relying on the observation of the Hon'ble Madras High Court in the case of M/s World Part Ltd vs CIT, which stated that the Assessing Officer (AO) has the power to make draft and final assessment orders in cases where the rate at which tax is to be paid by the assessee is put to issue. However, the Tribunal observed that for assessment years before the amendment effective from 01.04.2020, where no variation in the returned income or loss was proposed, the draft assessment orders were not required, and thus, the extended period for concluding the assessment was not applicable. Consequently, the assessment order dated 21.02.2019 was held to be beyond the statutory timelines provided under Section 153(1) of the Act, rendering it void. 2. Denial of Benefit of Beneficial Ownership Under Article 11 of India-Cyprus DTAA: The Assessee argued that the Commissioner of Income Tax (Appeals) - 42, Delhi erred in upholding the AO's findings that the Assessee was not the "beneficial owner" of the interest income earned on Compulsorily Convertible Debentures (CCDs), thus denying the tax treaty relief under Article 11 of the India-Cyprus DTAA. The Tribunal noted that the AO had applied a 30% tax rate instead of the 10% rate under the DTAA, based on the view that the Assessee was not the beneficial owner. The Tribunal found that the FAA did not appreciate the plethora of evidence provided by the Assessee and upheld the AO's findings with preconceived notions and subjective opinions. The Tribunal emphasized the necessity of cogent evidence to prove that the Assessee was not operating from Cyprus or had no beneficial interest in the said country, which was not provided by the AO. 3. Applicability of DTAA Between India and UAE: Without prejudice to the earlier grounds, the Assessee contended that the FAA erred in not giving the benefit of the DTAA between India and UAE, despite holding that the holding company of the Assessee, A.W. Rostamani Holding Co. (LLC.), a resident of UAE, is the beneficial owner of the interest income earned from CCDs. The Tribunal did not provide a detailed analysis on this issue as the primary grounds were sufficient to set aside the impugned orders. 4. Taxability of Accrued Interest Under India-Cyprus DTAA: The Assessee argued that as per the provisions of the India-Cyprus DTAA, only interest income paid to the non-resident is taxable in India, and the amount of interest shown as accrued by the payer was not taxable in AY 2016-17 as it had not been received by the Assessee. The Tribunal did not delve deeply into this issue, given that the primary ground regarding the validity of the assessment order was sufficient to allow the appeal. Conclusion: The Tribunal concluded that the assessment order dated 21.02.2019 was beyond the statutory timelines and thus void. The appeal of the Assessee was allowed, and the impugned orders of the Tax Authorities below were set aside. The Tribunal emphasized the importance of adhering to statutory timelines and the necessity of substantial evidence to deny treaty benefits. The order was pronounced in the open court on 2nd March 2023.
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