2023 (11) TMI 1198 - SCH - Income Tax

Application filed u/s 154 - seeking tax on interest income at 15%/10% under the DTAA regime by virtue of the Notification No.11438 issued with France - contention of the assessee was also that although the assessee(s) was not having any contract as such during the relevant period it was nevertheless engaged in business in the country and therefore, it was entitled to the benefit of deduction insofar as the expenses incurred are concerned. HELD THAT - What is necessary to ascertain at this stage is the reason as to why the assessee(s) sought for rectification u/s 154 of the Act seeking a lesser rate of taxation to be imposed under the DTAA regime if the assessee(s) was not seeking to be taxed under the said regime. In response to the query of this Court, assessee(s) submitted that although such an application seeking rectification was made nevertheless the assessee(s) was being taxed under the provisions of the Act and was filing returns under the said Act. We direct the appellant/assessee(s) to produce the copy of the application or petition filed u/s 154 of the Act seeking rectification and also any other pleading or document which can enable this Court to come to a conclusion as to whether the assessee(s) intended to be taxed under the DTAA regime or under the provisions of the Income Tax Act. The order made by the Department u/s 154 of the Act also to be produced by the next date of hearing. List on 29.11.2023.

Summary

Issues involved:
The issues involved in the judgment are the application filed under Section 154 of the Income Tax Act seeking tax on interest income under the Double Taxation Avoidance Agreement (DTAA) regime, the eligibility of the assessee for deduction of expenses despite not having a contract during the relevant period, and clarification on the intention of the assessee to be taxed under the DTAA regime or the Income Tax Act.

Application under Section 154 of the Income Tax Act:
The Court examined the basis of the application filed under Section 154 of the Income Tax Act seeking tax on interest income at a specific rate under the DTAA regime with France. The assessee contended that despite not having a contract during the relevant period, they were engaged in business in the country and thus entitled to deduction of expenses. The Court sought clarification on why the assessee sought rectification for a lesser rate of taxation under the DTAA regime if they were not intending to be taxed under it.

Eligibility for Deduction of Expenses:
The assessee claimed entitlement to deduction of expenses even without having a contract during the relevant period, arguing that they were engaged in business in the country. The Court directed the appellant/assessee to produce the application filed under Section 154 of the Act seeking rectification, along with any other document to determine whether the assessee intended to be taxed under the DTAA regime or the Income Tax Act. The Department's order under Section 154 of the Act was also required to be produced for further evaluation.

Clarification on Tax Regime Intention:
In response to the Court's query, the counsel for the assessee clarified that despite filing an application seeking rectification under Section 154, the assessee was being taxed under the provisions of the Income Tax Act and filing returns accordingly. The Court directed the appellant/assessee to provide necessary documents by the next hearing date to ascertain whether the assessee intended to be taxed under the DTAA regime or the Income Tax Act. The case was listed for further proceedings on 29.11.2023.