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TMI Blog2009 (10) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... on without appreciating the facts that the income chargeable to tax has escaped assessment within the meaning of Explanation 2( c )( ii ) to section 147 inasmuch as it has been taxed at too low rate. 2. That the ld. Commissioner of Income-tax (Appeals) has erred in law and on facts and circumstances of the case in holding that the rate of tax applied by the Assessing Officer as 55 per cent was not right." 3. In brief, the relevant and material facts relating to the issue involved in the grounds of the instant appeals of the revenue are that M/s. Hyundai Heavy Industries Co. Ltd. (HHICL) was incorporated under laws of Korea. The company entered into a contract with ONGC for carrying on the business of exploration of oil and other related activities. 4. In assessment years 1995-96 and 1996-97, the assessee filed original return on 29-11-1995 and 29-11-1996 declaring income of Rs. 13,61,70,540 and loss of Rs. 96,64,68,430 respectively. The assessment was completed on 26-3-1996 and 31-10-1997 on a business income of Rs. 18,98,21,584 and Rs. 1,27,83,750 and interest income of Rs. 2,10,56,040 and Rs. 72,30,780. The interest was taxed at the rate of 15 per cent while the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-4-1962. 9. The interest income of the assessee in these two years was assessed at Rs. 2,10,56,040 and Rs. 3,47,19,833. 10. For assessment year 1997-98, the Assessing Officer completed the assessment under section 148/143(3) of Income-tax Act on 28-3-2002 at a business income of Rs. 11,49,64,580 and interest income of Rs. 34,30,164. However, the Assessing Officer while computing the business income of the assessee applied a higher rate, i.e., rate of 55 per cent, which was applicable to foreign companies, in the same manner as while completing the assessments for assessment years 1995-96 and 1996-97. 11. Aggrieved the assessee filed appeals before the CIT (Appeals) that from assessment year 1986-87 to assessment year 1994-95, the assessee was taxed at the rate of 65 per cent, being a foreign company, in the orders passed under section 143(3) of Income-tax Act. The assessee had, how- ever, pleaded before the Assessing Officer that it was liable to tax at the same rate as prescribed for domestic companies in view of the DTAA between Government of India and Government of Korea notified vide Notification No. GSR 1111(E), dated 26-9-1986. In this connection, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is applicable to Indian Companies." 13. After receiving the clarification from the Board, the assessment orders for assessment years 1986-87 to 1994-95 were rectified under section 154/251 and the tax rates applicable to Indian Companies were applied. For assessment years 1995-96, 1996-97 and 1997-98, the tax rate applicable to Indian Companies were applied while passing the original orders under section 143(3). Subsequently, decision in the case of French Bank by Authority for Advance Ruling ABC, In re [1999] 236 ITR 103 (New Delhi) came to the notice of the Assessing Officer in which it was held that the provisions of section 90(2) does not say that DTAA will override the provisions of Finance Act. Tax rate fixed by Act of Parliament, according to AAR, cannot be whittled down by reference to the provisions of earlier agreement. 14. Based on the decision of the Authority for Advance Ruling (AAR), assessment was completed on 28-2-2001 by applying higher rate of 55 per cent applicable to foreign company. Based on these facts, it has been contended by the appellant that there was no escapement of income and applying higher rate amounts to change of opinion. 15. Finali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ruling from the Authority. The advance ruling given by AAR under Chapter XIX-B is binding only on the party applying for the ruling, CIT and the Officers subordinate to him and only on the issue referred to for the ruling. It does not lay down law of the land binding all the taxpayers. 16. Finally, the decision of AAR is against the well-settled law that provisions of DTAA supersedes the provisions of the Income-tax Act. Some of the decisions, in this connection, are as under : ( i ) CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal.); ( ii ) CIT v. R.M. Muthiah [1993] 202 ITR 508 (Kar.); ( iii ) CIT v. S.R.M. Firm [1994] 208 ITR 400 (Mad.). 17. Moreover, the Board vide Circular No. 333, dated 2-4-1982 have also clarified that provisions of DTAA supersede the provisions of the Income-tax Act. Therefore, belief of the Assessing Officer is based on erroneous view of law and the Gujarat High Court in the case of Desai Bros. v. Dy. CIT [1999] 240 ITR 121 has held that belief cannot be based on erroneous view of law. 18. For nine assessment years beginning with assessment years 1986-87 till 1994-95, the department first applied tax rate applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : "We have to bear in mind that the policy of law is that there must be a finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity." Every taxpayer expects Income-tax Department to be consistent with its own decisions in the past especially when there is no change in the facts of a particular case. The Supreme Court in the case of Denish Industries 271 ITR 340, relying on decision of Hindustan Graphite 243 ITR 48 has held that an assessee cannot be imputed with clairvoyance so as to make it responsible for duties which he could not have anticipated. When two interpretations are reasonably possible, one of the two possible interpretations which favours the assessee and which has been acted upon and accepted by the revenue for a long period should not be disturbed except for compelling reasons ( Birla Jute Works v. CBDT 248 ITR 216). The final decision regarding rate of tax applicable to the appellant was taken by CBDT, the highest authority, after examining the matter in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e about the validity of initiation. 7.4 For taking recourse to action under section 147, the Assessing Officer has also relied on the letter of the Board dated 4-3-2000 reproduced above. As can be seen from the letter, the Board s letter is general in nature and no particular information in the sense of a judicial pronouncement was available to the Assessing Officer. The Board s letter is not proclamation of law. Opinion expressed by the Board cannot constitute information on a point of law ( 119 ITR 996 SC). Information on a point of law is only that which flows from the changes in law made either by Legislature or by judicial decisions CIT v. H.D. Dennis [1982] 135 ITR 1 (Bom.). The Apex Court in 165 ITR 339 has held that an opinion expressed by the Board in a Circular does not constitute information as the same is not given in an appeal or other like proceedings. Thus, the Assessing Officer was not right in relying on the Board s letter dated 24-3-2000 for initiating action under section 147, read with section 148. Between the date of original assessment, i.e., 19-11-1997 and the date of issue of notice under section 148, i.e., 19-2-2001, there is no change of law. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon by both the parties. 23. In assessment years 1995-96 and 1996-97, the only identical reason recorded by the Assessing Officer for reopening the assessment, with variation in the amounts involved, is that the interest income under section 244A has escaped assessment and to reassess the same under section 147 of the Act notice under section 148 of the Act was issued. While completing the assessment under section 143(3) read with section 148 the Assessing Officer applied a higher rate of tax, i.e., at the rate of 55 per cent, applicable to foreign companies on the business income instead of the tax rate applicable to domestic companies, against the rate applied in the original assessment. 24. It means that in assessment years 1995-96 and 1996-97, the Assessing Officer reopened the amounts under section 147/148 to bring to tax interest income which was not fully disclosed by the assessee. Undisputedly, the issue of application of higher tax rate applicable to foreign companies as against the lower tax rate applied originally by the Assessing Officer was not at all a reason for reopening the assessment under section 147/148. 25. Now, the question required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147 of the Act are initiated, the proceedings are opened only qua items of under assessments. The finality of assessment proceedings on other issues remains undisturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment under section 143(3) of the Act or on account of non-issue of a notice under section 143(2) of the Act within the stipulated period. The amendments made in sections 143 and 147 of the Act with effect from 1-4-1989 do not in any manner negate this proposition of law an enunciated by the Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297." 29. In Amrinder Singh Dhiman v. ITO cum AO [2004] 269 ITR 378 (Punj Har.), their Lordships held that the assessment reopened for claim under section 80HHC, the department could not seek information in respect of various other issues for which notice under section 148 had been issued. 30. From the ratio of the decisions ( supra ), it is clear that the department in assessment years 1995-96 and 1996-97 could not have made any addition by applying higher rate of tax to the business income of the assessee against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company . Article 25 of the DTAA between India and South Korea read as follows : Clause 1 : The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other, or more burdensome than the taxation and connected requirement to which nationals of that other State in the same circumstances are or may be subjected. Clause 2 : The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities . Therefore, in view of Article 25, the appellant could not be subjected to higher rate of tax. Unless Article 25 of DTAA was amended Explanation to section 90 of the Income-tax Act had no application. 8. As per the assessee, where there exists a provision to the contrary in the agreement, there is no scope for applying the law of any one of the respective contracting S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be extended to a foreign bank. In view of this settled legal position, respectfully following Chohung Bank ( supra ), we reject the grievance raised by the assessee. 10. In the result, all the appeals filed by the assessee are dismissed." 32. In order to maintain consistency in the approach of the Bench, judicial discipline and proprietary demands that we should respect and follow the decisions of the Tribunal passed earlier on identical issues which subsequently come up for consideration before the Tribunal in other cases/other cases of the assessee. It is not disputed by the learned AR for the assessee that the issue under consideration before the Tribunal in assessment years under consideration is identical to the issue decided by the Tribunal in the cases ( supra ) of the assessee. Hence, respectfully following the decision ( supra ) of the Tribunal, the issue of application of higher rate of tax to the business income of the assessee, i.e., the rate applicable to foreign companies, by the Assessing Officer while framing the assessment under section 147/148 in the assessment years under consideration is decided in favour of the revenue and against the assessee. 33. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : " Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1. Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-1997, at a lower rate of tax applicable to domestic companies, the amended provision of section 90(2) along with the Explanation was not available to the Assessing Officer for examining the applicability of rate of tax in the case of the assessee-company. The Assessing Officer, in the light of the amended provision, had reason to believe that the assessee has been assessed at a lower rate of tax and, therefore, issued a notice under section 148 on 14-5-2001. In these facts and on going through the provisions of section 147, it is clear that the case of the assessee falls within the meaning of Explanation 2 ( c )( ii ) to section 147, inasmuch as that the assessee has been taxed at a lower rate, which means, in issuing a notice under section 148 the Assessing Officer had fulfilled all the ingredients of section 147 as he had reason to believe that while framing the assessment under section 143 in the case of the assessee by applying lower rate of tax, income chargeable to tax had escaped assessment within the meaning of Explanation 2 ( c )( ii ) to section 147 of Income-tax Act. In this view, we find support from the decision of Apex Court in the case of Asstt. CIT v. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of framing assessment under section 143(3) the condition requisite for reopening the assessment under section 147 of Income-tax Act were fulfilled for assessment year 1997-98 under consideration and, therefore, the reopening of the assessment as per clause ( c )( ii ) of Explanation 2 to section 147 of Income-tax Act, 1961 was valid, as such assessment at a lower rate was deemed to be a case where income chargeable to tax had escaped assessment. 40. In view of our finding recorded hereinabove, the order of CIT (Appeals) in this regard is reversed and the order of Assessing Officer restored. 41. Now, regarding the second ground of appeal taken by the revenue, relating to the issue whether the Assessing Officer was justified in applying higher rate of tax, i.e., at the rate of 55 per cent, i.e., rate applicable to foreign companies, as against application of lower rate of tax, i.e., the rate applicable to domestic companies while framing the reassessment under section 147/148 in assessment year 1997-98, under consideration, we find that the same has already been decided by us in favour of the revenue and against the assessee in this very order while disp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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