2019 (7) TMI 708 - HC - Income Tax

Revision u/s 264 - payment of tax on FTS under the DTAA at wrong rate (20% instead 10%) - suo moto tax paid as per Indo Spain DTAA - maintainability of revision u/s 264 against intimation/order u/s 143 (1) - whether intimation/order is prejudicial even no tax is payable - rectification of mistake committed by the assessee is permissible to revise - HELD THAT - There are at least three High Court decisions, referred to by this Court in Vijay Gupta 2016 (3) TMI 977 - DELHI HIGH COURT which have taken an identical view, namely that an intimation u/s 143(1) is regarded as an order for the purpose of Section 264. Revenue has accepted all of the above decisions included in Vijay Gupta. Indeed for determining whether intimation u/s 143(1) should be construed as order the only limited context is that of Section 264. In the context of Section 147 and 148 it may have a different connotation. However, the fact remains that the consistent view of the High Court has been that for the purposes of Section 264 a revision petition seeking rectification of the return accepted by the Department in respect of which intimation is sent u/s 143(1) is indeed maintainable. This Court therefore disagrees with the view expressed by the CIT i.e. Respondent No.2 in the impugned order and holds that a revision petition u/s 264 would be maintainable vis-a-vis an intimation u/s 143(1), by the Assessee. Whether the intimation u/s 143(1) was prejudicial to the interest of the Assessee? - It must be noted here that although the tax calculated as payable in the return filed and accepted by the Department by sending intimation u/s 143(1) is nil, it cannot be said that no prejudice is caused to the Assessee thereby. Assessee has voluntarily paid tax at the rate of 20% in terms of the Indo Spain DTAA as tax on FTS and therefore there was no further tax to be paid at the time of filing of the return. However, it is not even denied by the Department that the Petitioner committed a mistake and should have paid tax at 10%. Even though, this extra 10% paid by the Petitioner was of its own volition, it was indeed prejudicial to the Assessee/Petitioner. Consequently, all the ingredients of Section 264 stand attracted. It is accordingly held that a revision petition under Section 264 of the Act by the Petitioner before the CIT against the intimation u/s 143(1) was maintainable. The Court fails to appreciate how the CIT could have declined to follow the decision of the jurisdictional Court i.e. this Court in Steria India Limited 2016 (8) TMI 166 - DELHI HIGH COURT Although, an SLP may have been filed against the said decision the fact remains that the operation of the said judgment is not stayed by the Supreme Court. Being the jurisdictional High Court, as far as the CIT who issued the impugned order is concerned, he was bound by the decision of this Court. Inclusion of surcharge and cess above DTAA rate - HELD THAT - Petitioner has sought a clarification regarding the erroneous payment of the surcharge. Indeed the Court finds that the payment of tax on FTS under the DTAA included surcharge and cess etc. There was no requirement that once the tax rate at the appropriate slab was paid, to separately pay the surcharge and cess. This Court quashes the impugned order passed by the Respondent No.2 and directs the Respondents to permit the Assesee to rectify its return by paying tax on FTS at 10%. The excess amount of tax, including the surcharge and cess paid shall be refunded to the Petitioner along with the interest due thereon, not later than eight weeks from today.

Summary

Issues involved:
1. Maintainability of revision petition under Section 264 of the Income Tax Act against an intimation under Section 143(1) of the Act.
2. Prejudice caused to the Assessee by the intimation under Section 143(1) of the Act.

Analysis:

Issue 1: Maintainability of revision petition under Section 264 against an intimation under Section 143(1):
The petitioner, a company incorporated in Spain, challenged the legality of an order dismissing its application under Section 264 of the Income Tax Act. The petitioner sought to revise its return of income for the Assessment Year 2014-2015, claiming a lower tax rate of 10% instead of 20% on earnings for management services provided to associated enterprises. The court noted that the intimation under Section 143(1) of the Act, accepting the return, could be considered an 'order' for the purpose of Section 264. Citing previous decisions, the court held that a revision petition under Section 264 was maintainable against such intimation, disagreeing with the respondent's view.

Issue 2: Prejudice caused to the Assessee by the intimation under Section 143(1):
Although the tax calculated and accepted by the department was nil, the petitioner voluntarily paid tax at 20% under the DTAA, realizing later that it should have been 10%. The court found that this additional payment, though voluntary, was prejudicial to the petitioner. Therefore, the court held that the intimation under Section 143(1) was indeed prejudicial to the petitioner's interest, meeting the requirements of Section 264. The court directed the respondents to allow the petitioner to rectify its return by paying tax at 10% and refund the excess amount paid, including surcharge and cess, with interest.

In conclusion, the court quashed the impugned order, emphasizing the maintainability of the revision petition under Section 264 against the intimation under Section 143(1) and acknowledging the prejudice caused to the petitioner by the higher tax rate paid initially.