1999 (4) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Malta for the assessment year 1996-97.
2. Justification for levying interest under section 234A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Malta for the assessment year 1996-97:

The assessee, a non-resident company registered in Malta and engaged in international shipping, filed a return for the assessment year 1996-97, claiming relief under the DTAA between India and Malta. The Assessing Officer disallowed this claim, stating that the DTAA became operative in India from the assessment year 1997-98. The Commissioner (Appeals) found the issue debatable and ruled that the Assessing Officer was not justified in making the disallowance as a prima facie adjustment under section 143(1)(a).

The Tribunal examined the DTAA and noted that Article 29 of the agreement stipulated that the provisions would take effect from the fiscal year beginning on or after the first day of April following the agreement's entry into force. The agreement was signed on 8-2-1995. The Tribunal acknowledged that two interpretations of the word "that" in Article 29(2)(a) were possible, leading to different effective dates. The Tribunal noted that the Directorate of Income-tax's publication indicated the DTAA was applicable from the assessment year 1996-97, and no public circular contradicted this. Given the ambiguity and the CIT(Appeals)'s favorable decision in a similar case, the Tribunal upheld the CIT(A)'s decision, ruling that the relief claim could not be denied as a prima facie adjustment under section 143(1)(a).

2. Justification for levying interest under section 234A of the Income Tax Act:

The revenue also contested the CIT(A)'s decision to delete the interest levied under section 234A for the delayed filing of the return. The assessee filed the return on 25-3-1997 under section 172(7), claiming a refund based on DTAA relief. The Assessing Officer levied interest, arguing the return was not filed within the time stipulated under section 139(1). The CIT(A) held that the return under section 172(7) was optional and not a statutory obligation, thus deleting the interest.

The Tribunal examined section 172, which pertains to the tax liability of non-residents from occasional shipping. The section is self-contained, with no provision for levying interest under section 234A. The Tribunal noted that the non-resident could opt for an assessment under section 172(7) before the assessment year's end, and if not exercised, the orders under section 172(4) would become final without any interest liability under section 234A. The Tribunal emphasized that the non-resident had no statutory obligation to file a return under section 139(1) and thus could not be penalized with interest under section 234A for a return filed under section 172(7).

The Tribunal also referred to Circular No. 730, which clarified that no interest under sections 234B and 234C is leviable for returns filed under section 172(7). The Tribunal concluded that since section 172 is self-contained and does not require filing under section 139(1), the interest under section 234A was not applicable. Consequently, the Tribunal upheld the CIT(A)'s decision to cancel the interest levied.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming that the relief under the DTAA for the assessment year 1996-97 could not be denied as a prima facie adjustment and that the interest under section 234A was not justified for the return filed under section 172(7).