2003 (5) TMI 220 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing cross-objections.
2. Taxability of dividend income received from a Malaysian company under the Double Taxation Avoidance Agreement (DTAA) between India and Malaysia.
3. Credit for deemed tax deducted at source on dividend income.
4. Interest under section 244A relating to tax deemed to have been deducted at source on dividend income.

Detailed Analysis:

1. Condonation of Delay in Filing Cross-Objections:
The assessee filed cross-objections late by 1623 days. Initially, no substantial reasons were provided for the delay. The Tribunal noted that the delay was not explained adequately and thus could not be condoned. The Tribunal emphasized that while a liberal approach should be adopted for condonation of delay, the existence of a "sufficient cause" is mandatory. The Tribunal cited several judicial precedents, including the Supreme Court's observation that courts should not extend the period of limitation on equitable grounds alone. The Tribunal concluded that the assessee's failure to provide a reasonable explanation for the delay indicated negligence, and thus, the delay could not be condoned.

2. Taxability of Dividend Income Received from a Malaysian Company:
The assessee argued that the dividend income received from a Malaysian company should not be taxed in India based on the DTAA between India and Malaysia. The Tribunal agreed with the assessee, citing Article XI of the DTAA, which states that dividend income can only be taxed in the Contracting State where it is declared. The Tribunal referenced the Madras High Court's decision in V.R.S.R.M. Firm's case, which held that dividend income received by an Indian assessee from Malaysia is not taxable in India. Consequently, the Tribunal held that the dividend income received by the assessee-company is not taxable in India.

3. Credit for Deemed Tax Deducted at Source on Dividend Income:
The assessee claimed credit for deemed tax deducted at source on dividend income from the Malaysian company under Article XXII of the DTAA. The Tribunal noted that the proviso to clause 2(b) of Article XXII required an agreement between the two Contracting States regarding the scope of the benefit accorded by the deemed tax credit. Given that the Investment Incentive Act, 1968 (Malaysia) was repealed and replaced by the Promotion of Investment Act, 1986, the Tribunal held that a new agreement was necessary to accord the benefit of deemed tax credit. The Tribunal further emphasized that since the dividend income was held to be non-taxable in India, no credit for deemed tax paid in Malaysia should be allowed.

4. Interest Under Section 244A Relating to Tax Deemed to Have Been Deducted at Source on Dividend Income:
The revenue challenged the CIT(A)'s direction to allow interest under section 244A on the deemed tax deducted at source on dividend income from the Malaysian company. The Tribunal, referencing the Supreme Court's decision in CIT v. Narendra Doshi, decided this issue against the revenue. However, the Tribunal noted that since no credit for deemed tax paid on the dividend income was to be allowed, no interest could accrue on the same.

Conclusion:
- The cross-objections filed by the assessee were dismissed due to the failure to condone the delay.
- The dividend income received from the Malaysian company was held to be non-taxable in India under the DTAA.
- The claim for credit for deemed tax deducted at source on the dividend income was disallowed.
- The issue of interest under section 244A was decided in favor of the assessee, but no interest could accrue due to the disallowance of the deemed tax credit.