1991 (6) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the return filed by the Indian company on behalf of the non-resident foreign company.
2. Treatment of the Indian company as an agent of the non-resident foreign company without notice under Section 163.
3. Applicable tax rate on the lump sum payment under Section 115A.
4. Consideration of the Double Taxation Avoidance Agreement between India and Italy.

Detailed Analysis:

1. Validity of the Return:
The primary issue was whether the return filed by the Indian company on behalf of the non-resident foreign company was valid. The return was signed by the Managing Director of the Indian company. The assessee argued that the return was invalid as it was not signed by the authorized person from the non-resident company, as required under Section 140 of the IT Act, 1961. The Tribunal agreed with this contention, stating that the return must be signed by the managing director or any director of the non-resident company. The Tribunal emphasized that the provisions of Section 140 are mandatory and non-compliance renders the return invalid and non est in the eye of law. The Tribunal rejected the argument that the defect was curable under Section 139(9) or that it could be overlooked under Section 292B, concluding that the assessment based on the invalid return was also invalid and liable to be quashed.

2. Treatment of the Indian Company as an Agent:
The Indian company contended that it could not be treated as an agent of the non-resident company without a notice under Section 163. The Assessing Officer and the CIT(A) held that since the Indian company voluntarily filed the return on behalf of the non-resident company, it was rightly treated as an agent. The Tribunal noted that the return was filed by the Indian company, which was not authorized to do so, and thus the assessment based on such return was invalid. Consequently, the question of treating the Indian company as an agent without notice became irrelevant.

3. Applicable Tax Rate:
The CIT(A) held that the tax on the lump sum payment should be charged at 20 percent under Section 115A(ii)(1), instead of 40 percent as initially charged by the ITO. The Revenue appealed against this decision. However, since the Tribunal annulled the assessment itself, the issue of the applicable tax rate became infructuous and was not further examined.

4. Double Taxation Avoidance Agreement:
The assessee raised an additional ground that the remittance of US $50,000 was not liable to tax in India under the Double Taxation Avoidance Agreement between India and Italy. The Tribunal admitted this ground for consideration but did not delve into its merits, as the assessment was annulled on the basis of the invalid return.

Conclusion:
The Tribunal annulled the assessment framed on the basis of the return filed by the Indian company on behalf of the non-resident foreign company, declaring the return invalid due to non-compliance with Section 140. Consequently, the cross-objection by the assessee was allowed to this extent, and the departmental appeal was dismissed as infructuous.