2024 (5) TMI 222 - HC - Income Tax

Applicability of provisions of Section 144C - AO proceeded to frame a Draft Assessment Order to form the opinion that the income as shown was liable to be taxed at the rate of 20% as per the provisions of Section 115A - assessee chose not to file any objections before the DRP against the aforesaid order, thus Final Assessment Order came to be framed - ITAT noticed that Respondent was an eligible assessee in terms of Section 144C(15)(b)(ii) - HELD THAT - As has been noticed by the ITAT, and which fact remained uncontested even before us, there was no variation in the income as returned. The only point of disputation was with respect to whether the respondent was entitled to claim the benefits under Article 11 of the DTAA. It was that claim of the respondent which alone came to be negated by the AO. Accordingly, while the income offered became subject to tax at the rate of 20%, the total income as declared remained unvaried. As we read Section 144C of the Act as it stood at the relevant time, it would have empowered the AO to frame a Draft Assessment Order only if a variation in the income returned was suggested. This was clearly not the case which obtained. No error in the view as expressed by the ITAT. The appeals thus raise no substantial question of law.

Summary

Issues:
The Commissioner of Income Tax - International Taxation challenges the judgment of the Income Tax Appellate Tribunal [ITAT] and presents questions of law for consideration in two appeals.

ITA 606/2023:
1. The ITAT's decision on the Final Assessment Order's limitation and the eligibility of the assessee for benefits under the India Cyprus Double Taxation Avoidance Agreement [DTAA] are disputed.
2. The ITAT's failure to consider the legislative intent behind Section 144C of the Income Tax Act, 1961, is also contested.

ITA 607/2023:
1. Similar issues as in ITA 606/2023 regarding the Final Assessment Order's limitation and the eligibility for DTAA benefits are raised.

Judgment Details:
For the purpose of brevity, the facts of ITA 607/2023 are highlighted. The assessee filed a Return of Income in 2014, which was selected for scrutiny. An international transaction led to Transfer Pricing Officer involvement, resulting in an order on Arm's Length Price. The Draft Assessment Order taxed the income at 20%, rejecting the DTAA benefits claimed by the assessee. The Final Assessment Order upheld the tax rate despite no change in total income. The CIT(A) allowed the appeal, granting DTAA benefits. The ITAT accepted the assessee's objection that Section 144C did not apply due to no impact on the income returned.

The ITAT noted that the assessee was eligible under Section 144C of the Act but emphasized the wording change in the provision post-amendments. It clarified that only a variation impacting the income returned would trigger Section 144C, which was not the case here. As there was no variation in the income returned, the AO lacked authority to frame a Draft Assessment Order. The High Court upheld the ITAT's decision, finding no substantial question of law in the appeals and dismissing them.