1991 (2) TMI 168 - AT - Income Tax

Summary

Issues Involved:
1. Grant of Double Taxation Avoidance (DTA) relief before assessment under section 172(7) of the Income-tax Act, 1961.
2. Rectification of DTA relief under section 154 of the Income-tax Act, 1961.
3. Interpretation of DTA Agreements between India and Germany/Greece.
4. Procedural versus substantive rights in tax reliefs.

Detailed Analysis:

1. Grant of Double Taxation Avoidance (DTA) Relief Before Assessment Under Section 172(7) of the Income-tax Act, 1961:
The primary issue was whether granting DTA relief at an earlier stage than the assessment under section 172(7) constituted a mistake apparent from the record, rectifiable under section 154. Non-resident ships earned profits from occasional shipping business in India and were assessed under section 172(4). The ITO initially granted DTA relief to these ships, but later withdrew it, citing that such relief should only be granted during regular assessment under section 172(7) as per CBDT instruction No. 915. The Tribunal concluded that the initial grant of DTA relief did not constitute a mistake apparent from the record.

2. Rectification of DTA Relief Under Section 154 of the Income-tax Act, 1961:
Section 154 allows rectification of any apparent mistake in the record. The Tribunal referenced the Supreme Court's decision in T.S. Balaram, ITO v. Volkart Bros., stating that a mistake must be "obvious and patent" and not involve a "long drawn process of reasoning." The Tribunal found that the initial grant of DTA relief was not an obvious mistake and could not be rectified under section 154, especially after the expiry of the period within which the non-residents could claim such relief under section 172(7).

3. Interpretation of DTA Agreements Between India and Germany/Greece:
The DTA Agreements with Germany and Greece provided a 50% rebate on tax for profits from shipping operations. The Tribunal noted that these agreements created substantive rights for the non-residents, which could not be defeated by procedural irregularities. The agreements specified that the relief should be granted during regular assessment under section 172(7), but the Tribunal held that this procedural requirement did not nullify the substantive right to relief.

4. Procedural Versus Substantive Rights in Tax Reliefs:
The Tribunal emphasized the distinction between procedural requirements and substantive rights. It held that the procedural irregularity in granting DTA relief at an earlier stage did not invalidate the substantive right to such relief. The Tribunal criticized the ITO's actions as arbitrary and an abuse of the process of law, stating that procedural sins do not cause the death of substantive rights.

Conclusion:
The Tribunal concluded that the orders granting DTA relief did not suffer from any mistakes apparent from the record. The substantive right to DTA relief, once vested, could not be taken away by rectification under section 154. The orders withdrawing the relief were deemed bad in law, arbitrary, and without jurisdiction. Consequently, all the appeals were allowed, and the DTA reliefs were reinstated.