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TMI Blog1987 (7) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... of which the particulars are as under : " NET LOSS FOR THE 7 MONTHS ENDED 31-3-80 ON INDIAN OPERATIONS Ind. Rs. Revenue from India 92,89,200 ------------------------- Systemwide revenue 15,15,55,533 ------------------------- Indian Stations fixed expenses 5,52,406 Allocated expenses on the basis of Indian revenue to overall revenue 9,289 209,855,800 x ------------------- 1.51,555= 1,28,62,330 ------------------------- 1,34,14,737 Less revenue from India 92,89,200 ------------------------- 41,25,537 " ------------------------- They also stated that the return filed originally needed revision in view of the bilateral agreement between the Governments of Sri Lanka and India exempting the whole of the income arising in India. They referred to a Gazette Notification of the Government of Sri Lanka dated 17-9-1982 in this regard and stated that Air Lanka Ltd., i.e., the assessee, was incorporated in Ceylon and its effective management originated from Ceylon only and, therefore, the entire income was taxable only in Ceylon. In view of the new Convention coming into force, it was stated the earlier Agreement on Double Taxation Avoidance stood termina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under section 143(3) on 30-3-1983 on a total income of Rs. 88,24,740 raising a demand of Rs. 66,40,617. As the company is a, non-resident incorporated at Sri Lanka having all its effective management at Sri Lanka, the whole of the income arising in India is exempt from tax in accordance with the convention between the two countries which came into force on 24-3-1983, communication in F. No. 501/1/77-ITD dated 19-4-1983 of the Central Board of Direct Taxes. Hence, the original assessment requires revision as follows : Taxable Income in India : NIL Reduction in demand Rs. 66,40,617." Thus, the demand of Rs. 66,40,617, which was held in abeyance, stood reduced to ' Nil ' by this order determining the taxable income at ' Nil '. Sometime later, the ITO noticed that in terms of Article 29(2) of the Convention between the Government of India and the Government of Sri Lanka for Avoidance of Double Taxation which was notified on 19-4-1983, the provisions of Article 29 on the basis of which the total income originally computed was reduced to nil and demand also was consequently reduced to nil, came into effect only from 1-4-1981, i.e., the assessment year 1981-82 and not the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or after 1 April, 1981." He submitted that in the first portion at least, there was a mention that the Article came into force in respect of assessments commencing from 1-4-1980 and, therefore, it applied to the assessment year 1980-81 and the order under sec. 154 cancelling the demand was, therefore, correct. 6. The learned Departmental Representative, on the other hand, stated that as far as the Gazette Notification published in India was concerned, Article 29(2) read as under :--- " 29.(2) The Convention shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect : (a) In Sri Lanka--- (i) In respect of income assessable for any year of assessment commencing on or after 1 April, 1980 ; (ii) In respect of capital assessable for any year of assessment commencing on or after 1 April, 1980. (b) In India--- (i) in respect of income assessable for any year of assessment commencing on or after 1 April, 1981 ; (ii) in respect of capital assessable for any year of assessment commencing on or after 1 April, 1980." He submitted that Article 29(2)(b)(i) clearly showed that the Convention applied in respect of income (othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from 1957 would prima facie have remained applicable for asstt. year 1980-81. Article III of the Schedule, in item 5(g) of such agreement reads as under :--- " (g) Transport by sea or air 100 per cent by the country Nil by in which the traffic the originates other " The percentage referred to is 100 per cent " of income which each country is entitled to charge under the Agreement ". 9. In the present case, the question of computation in terms of Double Taxation Avoidance Agreement between the two countries is involved. In Circular No. 333 (F. No. 506/42/81-ITD) dated 2-4-1982, issued by the Central Board of Direct Taxes, it has been stated as under :--- " It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the assessing officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961. 2. The correct legal position is that where a specific provision is made in the double taxation agreement, that provision will prevail over the general provisions contained in the Income-tax Act. In fact the double taxation avoidance agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possess plenary powers. In exercising his power, the Income-tax Officer should not act as a mere tax-gatherer but as a quasi-judicial authority vested with the power of mitigating hardship to the assessee. The Income-tax Officer should divorce himself from his position as the authority who made the assessment and consider the matter in all its facets, from the point of view of the assessee without at the same time sacrificing the interests of the Revenue. Says Viswanatha Sastri J. in Vetcha Sreeramamurthy v. ITO [1956] 30 ITR 252 (AP) : ' The Legislature has, however, chosen to entrust the discretion to them. Being to some extent in the position of Judges in their own cause and invested with a wide discretion under section 45 of the Act, the responsibility for taking an impartial and objective view is all the greater. If the circumstances exist under which it was contemplated that the power of granting a stay should be exercised, the Income-tax Officer cannot decline to exercise that power on the ground that it was left to his discretion. In such a case, the Legislature is presumed to have intended not to grant an absolute, uncontrolled or arbitrary discretion to the officer but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (See Direct Taxes Circulars by J.P. Bhatnagar, Vol. 1, P. 1,308) which runs as follows :--- " Section 220. When tax payable and when assessee deemed in default. 1020. MINUTES OF THE 8TH MEETING OF THE INFORMAL CONSULTATIVE COMMITTEE HELD ON 13TH MAY, 1969 IMPLEMENTATION OF ASSURANCE GIVEN REGARDING STAY OF RECOVERY IN CERTAIN CASES-ITEM 1(vi) One of the points that came up for consideration in the 8th meeting of the Informal Consultative Committee was that income-tax assessments were arbitrarily pitched at high figures and that the collection of disputed demands as a result thereof was also not stayed in spite of the specific provision in the matter in section 220(6) of the Income-tax Act, 1961. 2. The then Deputy Prime Minister had observed as under : ' Where the income determined on assessment was substantially higher than the returned income, say, twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeals provided there were no lapses on the part of the assessee.' 3. The Board desire that the above observations may be brought to the notice of all the Income-tax Officers working under you and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellate authority to grant stay until disposal of reference by the High Court or until such time as the appellate authority thought fit. But in the case the appellate authority acted without jurisdiction, then the decision of such appellate authority can be corrected by the High Courts by issuing appropriate writs under articles 226 and 227 of the Constitution." It is, therefore, clear that even if the decision of the Tribunal has gone against the assessee, it is still open to the assessee to seek for stay and it is the duty of the Tribunal to consider such request for stay in the light of the well-enunciated judicial principles notwithstanding that the decision of the Tribunal was adverse to the assessee and in appropriate cases to grant stay on terms or otherwise. Therefore, it becomes incumbent on us in the present case though the appeal had been decided by the first appellate authority against the assessee, to apply the well-enunciated principles to decide whether in the judicial exercise of discretion, stay should be granted or not. What these factors should be have been set out in the various judgments to which we have referred. In particular, we have set out the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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