2016 (8) TMI 606 - AT - Income Tax

Denial of benefit of provisions of DTAA between India and Singapore - capital gain arising to resident of Singapore - Held that - The prima facie perusal of all the Articles suggest that capital gain arising to resident of Singapore may not be taxable in India. The assessee has furnished before us details of the capital gain showing that the entire amount of capital gain has been earned on account of sale of securities of mutual funds. Under these circumstances, we find it appropriate to send both the issues back to the file of the AO for their examination on merits. The AO shall give adequate opportunity of hearing to the assessee to submit requisite details and documentary evidences to demonstrate that assessee is eligible for the benefit of Article 13 of DTAA as has been claimed by him. Our observations on merits, with regard to prima facie applicability of the provisions of DTAA, were given just to enable us to dispose this appeal. But, AO is not bound by it and it should not have any bearing on the ultimate decision to be taken by the AO with regard to applicability of these provisions upon income of interest and short term capital gains. The AO shall decide this issue on merits afresh after taking into account all the facts and evidences on objective basis and after giving adequate opportunity of hearing to the assessee. The assessee shall extend requisite cooperation to the AO by submitting requisite details and documentary evidences as per law.

Issues Involved:
1. Rejection of rectification application under Section 154.
2. Powers of appellate authorities to entertain fresh claims.
3. Acceptance of income returned under Section 143(1).
4. Claim for relief under DTAA between India and Singapore.

Detailed Analysis:

1. Rejection of Rectification Application under Section 154:
The primary issue is the rejection of the rectification application filed by the assessee under Section 154 of the Income Tax Act, 1961. The assessee claimed relief under Section 90 of the Act based on the Double Tax Avoidance Agreement (DTAA) between India and Singapore. The CIT(A) upheld the AO's decision, stating that there was no apparent mistake since the relief was not claimed in the original or revised return. The assessee argued that the mistake was apparent from the record and should be rectified. The Tribunal noted that the assessee had filed a Tax Residency Certificate (TRC) of Singapore and had claimed the relief in subsequent years, which was allowed.

2. Powers of Appellate Authorities to Entertain Fresh Claims:
The CIT(A) held that appellate authorities could entertain fresh claims only if the assessment order is passed under Section 143(3) and not if the return is processed under Section 143(1). The Tribunal examined various judgments and circulars, including the judgment of the Hon'ble Kerala High Court in Upasana Hospital & Nursing Home vs. Commissioner of Income Tax, which allowed rectification based on the entire record of the assessee, not limited to a particular assessment year. The Tribunal emphasized that tax should be collected strictly within the four corners of the law, and genuine claims should not be ignored due to technical omissions.

3. Acceptance of Income Returned under Section 143(1):
The CIT(A) held that since the AO accepted the income returned by the assessee under Section 143(1), there was no mistake in the order that could be rectified. The Tribunal disagreed, stating that the AO should consider the entire record, including the TRC and DTAA provisions, to determine the correct tax liability. The Tribunal cited the Bombay High Court's judgment in Sanchit Software and Solution (P.) Ltd. v. CIT, which emphasized that the tax authorities should not take advantage of the assessee's ignorance and should ensure that only legitimate taxes are collected.

4. Claim for Relief under DTAA between India and Singapore:
The assessee claimed that interest income should be taxed at 15% under Article 11 of the DTAA and short-term capital gains should be exempt under Article 13. The Tribunal noted that the assessee's status as a non-resident and the TRC of Singapore were undisputed. The Tribunal referred to the relevant Articles of the DTAA, which support the assessee's claim. However, the Tribunal remanded the matter to the AO to verify the facts and determine the applicability of the DTAA provisions.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to examine the assessee's claims based on the DTAA provisions and the entire record, including the TRC. The AO was instructed to provide an adequate opportunity for the assessee to present requisite details and documentary evidence. The Tribunal emphasized fairness and transparency in tax administration, ensuring that genuine claims are not denied due to technical omissions. The order was pronounced on 29th June 2016.

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