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TMI Blog2011 (4) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. TYAGI, D.C. AGRAWAL, JJ. S.N. Soparkar for the Appellant. Shelly Jindal for the Respondent. ORDER D.K. Tyagi, Judicial Member. This is assessee s appeal against the order of Commissioner of Income-tax, Gandhinagar passed under section 263 of the Income-tax Act 1961 dated 22-1-2009. 2. The assessee has taken the following grounds:- "The learned CIT has grossly erred in law and on facts in assuming jurisdiction under section 263 of the Act on the erroneous ground that the impugned assessment order is erroneous insofar as it is prejudicial to the interest of the revenue. 2. Ld. CIT grossly erred in not appreciating that in order to invoke section 263 two conditions must be fulfilled viz., the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, Ld. Assessing Officer has accepted that the appellant received Fees for Technical Services (FDTS) and since the appellant was a person ordinarily resident of South Africa, he was granted the benefit of DTAA addition therefore there was no error in the impugned assessment order so as to justify action under section 263 of the Act. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the company was accepted by Assessing Officer and he accepted the income declared by assessee at Rs. 44,68,206. Subsequently Ld. CIT on going through the case record of assessee noticed that Assessing Officer s order dated 20-11-2006 was erroneous and prejudicial to the interest of revenue. According to him, the assessment order in question has been passed in cavalier fashion and without making relevant enquiry especially with reference to the method of accounting adopted by assessee for the purpose of working out its taxable profit. He therefore issued following show-cause notice dated 8-12-2008 for the purpose of initiating proceedings under section 263 of the Act:- "On examination of your assessment record for the accounting period relevant to assessment year 2004-05 reveals that the assessment order passed by the ITO Ward-3, Gandhinagar under section 143(3) on 20-11-2006 is erroneous and prejudicial to the interest of revenue for the reasons mentioned hereinafter. The return of income was filed on 23-9-2004 in the status of non-resident declaring total income of Rs. 44,68,206. The assessee paid tax @ 10 per cent on the income derived in India on the basis of Double Taxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in South Africa;" There is nothing on record to establish that the aforesaid conditions are being fulfilled by the assessee. Similarly, Article 12 lays down the definition of Royalties and Technical Service; as under: 1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of the State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services." The assessee was engaged by a company established in America and was to be paid in American Dollars. It is, therefore, evident that the said Agreement was not with South Africa and the assessee. There is nothing on record to establish that the assessee had obtained the approval of the Competent Authority in India viz., the Ministry of Finance, Department of Revenue in his individual capacity for availing of the benefit under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uth Africa The Professional Agreement provides for following compensation: l Professional fees at the rate of US$ 35 per hour of input subject to a maximum of US$ 7,000 per month. l Hotel accommodation 20,000 Indian Rupees per month (receipts required) shall be reimbursed to the Professional or Sheladia shall provide appropriate housing facility. l 10,000 Indian Rupees per month while on project. The assessee filed return of income (copy enclosed) declaring gross receipts of Technical Consultancy Fee of Rs. 44,68,206 as his total income. In notes filed with the return, the assessee declared as under:- l Assessee is a South African and is technical consultant to M/s. Sheladia Associates Inc., USA for their World Bank aided road project in Gujarat being undertaken by the Government of Gujarat. l In view of the Double Tax Avoidance Agreement (DTAA) in force between India and South Africa, tax has been calculated at special rate of 10 per cent as per sub-clause 2 of Article 12 of the said DTAA on gross amount technical fees received. No expenses have been claimed while calculating the total income. l TDS certificate of Rs. 4,91,503 is enclosed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ii) There is nothing on record that assessee had obtained approval of the Competent Authority in India which is Ministry of Finance, Department of Revenue for availing the benefit under the DTAA for the remuneration earned by him from the American company. (iii) The assessee has also not established that the income earned by him had suffered tax in South Africa so as to entitle him to be taxed in India @ 10 per cent of the gross technical fees received by him. It is submitted that the proposed revision of the order under section 263 of the Act is not called for in this case for the following reasons - (i) The assessee is a South African national earning technical fee from consultancy on a project in India. His country of residence is South Africa and country of source of technical fee is India. His income is, therefore, liable to tax in South Africa on the basis of residence and India on the basis of source. Therefore, the Double Tax Avoidance Agreement between India and South Africa is applicable in respect of the income earned by him from consultancy fee in India. The conditions of Article-4 of DTAA between India and South Africa are fulfilled in this case. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate specified in Article 11 of the Agreement. In the light of the aforesaid decision of the Authority for Advance Ruling (supra) it is quite evident that there was no income-tax on individuals in any of the Emirates. On the other hand, in the case of Double Taxation Avoidance Agreement between India and South Africa, there is tax on individuals in both the countries on the basis of residence, domicile, etc. In other words, the income should be subject to tax in the Contracting State, i.e., South Africa. In the present case, the income of the assessee has not been subject to tax in South Africa. (ii) The assessee is not ordinarily resident in South Africa nor does he have any place of effective management in South Africa. (iii) The assessee had been engaged by a company, namely, M/s. Sheladia Associates Inc., situated in the USA. He was to be paid in American Dollars. In other words, the provisions of the Double Taxation Avoidance Agreement between India and South Africa would not be applicable in this case unless it has been subjected to tax in South Africa so as to enable him to be taxed in India at the rate of 10 per cent on the gross amount of the technical fee received. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received is based on a fallacious, mistaken approach. Apart from the above, the status has been taken as resident as against the non-resident status claimed by the assessee. Nature of business has also been mentioned wrongly in the assessment order as salary income. 13. Accordingly, the order passed by the then Assessing Officer is erroneous and prejudicial to the interest of revenue. The said assessment order is cancelled with a direction to make a fresh assessment by correctly verifying the facts of this case by affording reasonable opportunity to the assessee." 4. Aggrieved by this order of Ld. CIT now assessee has filed this appeal before us. 5. At the time of hearing arguments advanced by Ld. Counsel for the assessee were two fold. Firstly, he argued that before accepting the return income of the assessee Assessing Officer has made proper inquiries by issuing show-cause notice as to why the technical consultancy services should not be treated as salary income which is clearly evident from the assessment order itself. Assessing Officer after taking into consideration the submission of assessee has taken a permissible view on this subject and therefore Ld. CIT was not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of these facts, it cannot be said that assessment order was passed by Assessing Officer without making the relevant enquiries or it has been passed in cavalier fashion. The law is well settled that if Assessing Officer after making enquiries has taken a permissible view on a issue while passing the assessment order and if on the same facts Ld. CIT has a different opinion revisionary proceedings under section 263 cannot be initiated by him. Therefore, in our considered opinion it was not a fit case for initiating proceedings under section 263. On merits also we find that since assessee is a citizen of South Africa and there exist a DTAA between South Africa and India he will be governed by the provision of DTAA in terms of section 90 of Income-tax Act and those provision of DTAA will overrule the provision of Income-tax Act which are beneficial to the assessee. Since in this case, Assessing Officer has done the same his action cannot be said to be erroneous and prejudicial to the interest of Revenue. 7. In view of the above facts and circumstances of this case, we are of the considered opinion that order passed by Ld. CIT under section 263 is not sustainable in law and s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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