2019 (4) TMI 667 - AT - Income Tax

Condonation of delay - Delay in filing of an appeal as assessee pursuing relief before the wrong forum - assessment order u/s 143(3) - assessee filed rectification application u/s 154 - exclusion/ inclusion of time spent in pursuing the remedy under section 154 - CIT(A) has summarily dismissed the appeal as time barred - HELD THAT - Given the nature of grievance of the assessee, it was reasonable to expect that the remedy will be available under section 154 as well. There are large number of decisions holding that cess and surcharge can be levied on tax charged at the rate prescribed in the tax treaties, and in our humble understanding, that is an open and shut issue in favour of the assessee. That was perhaps the reason that at the stage of hearing of appeal itself, though with the consent of the parties- which they extended graciously, this appeal was picked up for out of turn hearing here and now. In these circumstances, the approach of the assessee in filing a rectification petition against the levy of cess and surcharge, in addition to the tax rate prescribed under the India UAE Double Taxation Avoidance Agreement, in our humble understanding, cannot be said to be lacking bonafides. Viewed thus, the CIT(A) was clearly in error in not condoning the delay in filing of appeal which was, in our humble understanding, a result of a bonafide, even if overoptimistic and erroneous, assessment about efficacy of section 154 to seek redressal of his grievance in question. The assessee had followed an inappropriate course, and, with the benefit of hindsight, there is no dispute about this error. The delay in filing of appeal before the CIT(A), against the assessment under section 143(3), therefore, indeed deserves to be condoned. We reverse the stand of the CIT(A) on this point. The order of the CIT(A) thus stands vacated. In this view of the matter, it is not even necessary to examine whether the time spent by the appellant in pursuing the remedy under section 154 is required to be excluded, under section 14(1) of the Limitations Act, in computation of time limit, and whether when that period is so excluded, whether the appellant can be found to be at fault so far as limitation aspect is concerned Levy of surcharge and cess on the tax rates prescribed under the tax treaties - assessee is a company fiscally domiciled in, and tax resident of, the United Arab Emirates - India UAE DTAA - HELD THAT - SEE CAPGEMINI SA C/O. KALYANIWALLA & MISTRY 2016 (7) TMI 712 - ITAT MUMBAI , THE BOC GROUP LIMITED 2016 (1) TMI 414 - ITAT KOLKATA , EVEREST INDUSTRIES LIMITED VERSUS JCIT RANGE-1 AND DCIT CIRCLE-1 VERSUS EVEREST INDUSTRIES LIMITED 2018 (4) TMI 426 - ITAT MUMBAI , SUNIL V. MOTIANI 2013 (12) TMI 1105 - ITAT MUMBAI No contrary decision was cited before us nor any specific justification assigned for the levy of surcharge and education cess. The provisions of the India UAE Double Taxation Avoidance Agreement are in pari materia with the provisions of India Singapore DTAA which was subject matter of consideration in DIC Asia Pacific s case 2012 (6) TMI 686 - ITAT, KOLKATA . We, therefore, have no reasons to take any other view of the matter than the view so taken by the coordinate benches. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to delete the levy of surcharge and education cess on the facts of this case. Once this relief is allowed, the taxes payable by the assessee are the same as taxes deducted at source and no other grievances survive.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal before CIT(A).
2. Levy of surcharge and education cess on tax rates prescribed under the tax treaties.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal Before CIT(A):

The assessee filed an appeal against the order dated 11th September 2018 by CIT(A), which summarily dismissed the appeal as time-barred and declined to condone the delay. The assessment order under section 143(3) was passed on 31st March 2016. The assessee filed a rectification petition under section 154, which was rejected, and subsequently, the appeal was filed before CIT(A) on 27th December 2017. CIT(A) declined to condone the delay citing that the assessee had the best possible professional advice and that ignorance of law is not an excuse.

The Tribunal emphasized the statutory powers under section 249(3) for condoning the delay if there is sufficient cause. It referred to Section 14 of the Limitation Act, 1963, which allows the exclusion of time spent in bona fide proceedings in a court without jurisdiction. The Tribunal noted that the assessee was pursuing a bona fide legal option under section 154 and that the delay should be condoned. The Tribunal reversed the CIT(A)’s decision, vacated the order, and condoned the delay in filing the appeal.

2. Levy of Surcharge and Education Cess on Tax Rates Prescribed Under the Tax Treaties:

The assessee, a company tax resident in the UAE, earned royalty and interest income from an Indian company, which was taxed at the rates prescribed under the India-UAE Double Taxation Avoidance Agreement (DTAA). The Assessing Officer levied an additional 2% surcharge and 3% education cess on the tax computed, which the assessee contested.

The Tribunal referred to Article 2(2) of the India-UAE DTAA, which includes "income-tax including any surcharge thereon" and any identical or substantially similar taxes imposed after the agreement. The Tribunal cited the decision in DIC Asia Pacific Pte Ltd Vs ADIT, which held that education cess is an additional surcharge and thus covered under the DTAA. The Tribunal noted that the education cess introduced by the Finance Act, 2004, is in the nature of an additional surcharge and falls within the scope of Article 2 of the DTAA.

The Tribunal upheld the assessee’s plea, directing the Assessing Officer to delete the levy of surcharge and education cess, as these were not permissible under the DTAA. Consequently, the taxes payable by the assessee were the same as the taxes deducted at source, and no other grievances survived.

Conclusion:

The appeal was allowed, and the stay petition was rendered infructuous. The Tribunal pronounced the judgment in the open court on 29th March 2019, allowing the appeal and dismissing the stay petition.