2012 (8) TMI 729 - AT - Income Tax

Rectification or order - typographical error - omission of not in the sentence PE or no PE - held that - PE or no PE since entire repairs and overhauling is carried outside India the profits arising to assessee from such repairs can not be taxed in India - error corrected. - Decided in favor of assessee. Rectification in respect of consideration for use of replacement components - held that - By no stretch of logic our direction constitutes a mistake apparent on record liable to be rectified under section 254(2) even if that be a mistake. In any event there is no mistake in remitting the matter to the file of the C1T(A) for fresh adjudication because none of the authorities below had an occasion to deal with the application of Article 13 of Indo UK tax treaty on the facts of this case. It is not open to us to revisit our conclusion and place limitations on the powers of the CIT(A which were not placed in the original order. - Decided against the assessee.

Summary

Issues: Rectification of mistakes in the order dated 21-5-2010 related to taxability of profits arising from repairs and overhauling carried outside India, and the scope of taxability under Article 7(1) of the India UK Double Taxation Avoidance Agreement.

Analysis:

1. The applicant sought rectification of mistakes in the order, pointing out errors related to the taxability of profits arising from repairs carried outside India. The first mistake highlighted a typographical error in a sentence, emphasizing the omission of the word "not," which significantly altered the intended meaning. The second mistake pointed out an inherent contradiction in the Tribunal's findings regarding the taxability of payments made by the airlines to the assessee company. The Tribunal was directed to adjudicate on the taxability of the entire payments, whereas the applicant argued that the examination should have been limited to the consideration for the use of replacement components, which is distinct and separate.

2. During the hearing, the bench observed a mistake apparent from the record concerning the interpretation of Article 7(1) of the India UK tax treaty. The Tribunal's finding regarding the taxability of profits arising from repairs carried outside India was deemed contrary to the plain wording of the treaty. The Tribunal acknowledged the mistake in its observation and decided to rectify it.

3. The learned counsel opposed the bench's initiative for rectification, arguing that the Tribunal's finding on the force of attraction rule was final and should not be revisited. However, the Tribunal clarified that the rectification under section 254(2) could be exercised either suo motu or at the instance of the parties involved, with the affected party being entitled to be heard on the proposed rectification.

4. The Tribunal acknowledged missing the precise wording of Article 7(1) of the India UK Double Taxation Avoidance Agreement and the significance of the term "indirectly" in determining the taxability of profits. The Tribunal recognized that its observation on the force of attraction rule was a mistake apparent from the record, even though it did not impact the appeal's outcome.

5. The bench rectified the typographical error in the sentence concerning the taxability of profits from repairs carried outside India. However, regarding the second error pointed out by the counsel, the Tribunal maintained its position that the matter had been remitted to the CIT(A) for fresh adjudication without limitations on the scope of examination for taxability under Article 13.

6. The Tribunal rejected the counsel's contention that the direction to consider the taxability under Article 13 in relation to the consideration for use of replacement components was a mistake. The Tribunal emphasized that the scope of section 254(2) was limited to patent and glaring errors apparent on record, and the direction to remit the matter to the CIT(A) for fresh adjudication was deemed appropriate.

7. Ultimately, the rectification petition was partly allowed, with the typographical error corrected, and the second error regarding the examination of taxability under Article 13 upheld as not warranting rectification.