2024 (7) TMI 1182 - AT - Income Tax

Tax on income of certain domestic companies u/s 115BAA - Rate of tax charged @ 40% OR 22% when the assessee has exercised the option u/s 115BAA(5) - denial of benefit of lower rate of tax provided u/s 115BAA on the ground that the assessee has not opted for falling under this scheme by filing Form 10IC - HELD THAT - Sub-section (5) of section 115BAA provides that nothing contained in section 115BAA of the Act shall apply if the option is exercised by the person in the prescribed manner on or before the due date specified under section 139(1) for furnishing the return of income for any previous year relevant to the assessment year commencing on or after 1st April, 2020 and it is also provided that such option once exercised shall apply to subsequent years. 2nd proviso to section 115BAA(5) provides that once the option has been exercised for any previous year, then it cannot be subsequently withdrawn for the same or any other previous year. Now in the instant case, the fact is not disputed at the end of revenue authorities that the assessee opted for section 115BAA for the first time for A.Y. 2020-21 and Form 10IC filed on 07.02.2021 and further the assessee was allowed the option exercised for lower tax rate for A.Y. 2020-21. Once the assessee has validly opted for 115BAA of the Act for A.Y. 2020-21 and revenue authorities having not found any error in such valid claim and has allowed the option exercised for lower tax rate for A.Y. 2020-21, then in my humble understanding, the assessee was not required to exercise the option for the subsequent assessment year under the provision of section 115BAA(5) of the Act, unless the first option is rendered invalid due to violation of any condition contained in sub-clause (ii) or sub-clause (iii) of clause (a) or clause (b) of section 115BAB(2) of the Act. Since there is no violation at the end of assessee for A.Y. 2020-21 and the valid option has been exercised u/s 115BAA for A.Y. 2020-21, the assessee is eligible for lower rate of tax for the subsequent assessment years also subject to the other conditions provided under the Act. Assessee appeal allowed.

Summary

Issues:
Interpretation of section 115BAA of the Income Tax Act, 1961 regarding the eligibility of a domestic company for a lower tax rate of 22%.
Determining whether a domestic company is required to opt for the lower tax rate under section 115BAA for each assessment year or if a valid option for a previous year suffices.

Analysis:
The appeal addressed the disagreement over the tax rate charged to the assessee, set at 40% by the CPC instead of the lower rate of 22% under section 115BAA of the Income Tax Act, 1961. The assessee claimed to have opted for the lower rate but did not file a separate form for the relevant assessment year. The CIT(Appeals) upheld the higher tax rate, citing the failure to opt for the provision under section 115BAA for the year in question. The Tribunal was tasked with determining the assessee's eligibility for the lower tax rate.

Upon reviewing section 115BAA of the Act, which allows for a reduced tax rate for certain domestic companies, the Tribunal noted that the assessee had validly opted for the lower rate for the preceding assessment year. The Tribunal analyzed sub-section (5) of section 115BAA, which specifies that once the option is exercised for a previous year, it applies to subsequent years unless invalidated due to specific conditions. Since the assessee had correctly opted for the lower rate for the prior year without any violations, the Tribunal concluded that there was no need to re-opt for subsequent assessment years under section 115BAA(5) unless the initial option was invalidated. Therefore, the Tribunal set aside the CIT(Appeals) decision and directed the Assessing Officer to calculate the tax liability at the 22% rate provided under section 115BAA for the assessee.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing the validity of the initial option for the lower tax rate and the continuous applicability of that option to subsequent assessment years as per the provisions of section 115BAA of the Act.