9911796707
TMI Blog2016 (11) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... sulting in the order passed being bad in law. 2. In law and on the facts and circumstances of the case, the learned Principal Commissioner of Income-tax erred in his observation in the order that the issue of tax credit on dividend as per article25(4) of the Double Taxation Avoidance Agreement between Government of India and the Omani Government reflected lack of inquiry and non-application of mind by the Assessing Officer. Further, the learned Principal Commissioner of Income-tax also erred in doubting the intent and purpose of exemption granted on dividend income under the Omani tax laws ignoring the confirmation given by the Omani Tax Authorities. The order of the learned Principal Commissioner of Income-tax on this issue has been passed in complete disregard of the order of the jurisdictional Income-tax Appellate Tribunal in the case of Kribhco (I. T. A. No. 6785/Del/2015) [2016] 67 taxmann.com 138 (Del-Trib) on identical facts. 3. In law and on the facts and circumstances of the case, the learned Principal Commissioner of Income-tax erred in directing the Assessing Officer to examine the applicability of the proviso to section 36(1)(iii) regarding capitalisation of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011, declaring income of Rs. 577,15,94,117. The main reason for the variation in the total income as per the original return and revised return of income was that dividend income received by the appellant-society's Branch in Oman from OMIFCO, Oman amounting to Rs. 144,11,73,150 was excluded on the ground that the said income was earned by the permanent establishment of the appellant-society in Oman and as per the provisions of the Double Taxation Avoidance Agreement read with section 90 of the Income-tax Act, as interpreted by the honourable apex court in India, the said income was assessable only in Oman and not in India. 5. The case of the assessee was picked up for scrutiny and notices under sections 143(2) and 142(1) of the Income-tax Act, were issued by the Assessing Officer along with the detailed questionnaires. During the course of the assessment proceedings, detailed replies were filed along with supporting evidences and the authorised representatives of the assessee- society duly attended before the Assessing Officer from time to time as also acknowledged in the assessment order. All necessary details and particulars were duly furnished and the case was examined minu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses Rs. 60,70,000 Taxable income Rs. 753,37,73,380 2. The Assessing Officer computed the tax as per ITNS 150 (copy placed as annexure). The perusal of Income-tax computation form it is found that the Assessing Officer gave relief under section 90 of Rs. 41,52,45,771 and determined the demand of Rs. 18,27,23,245. The assessee moved an application under section 154. The Assessing Officer passed order under section 154 on March 18, 2014, and again computed income as per ITNS 150 and determined the tax on assessed income of Rs. 238,56,35,456 and gave credit of prepaid taxes and relief under section 90 of Rs. 228,72,86,443 and determined the demand of Rs. 17,44,89,190. Apparently the credit of prepaid taxes and relief includes relief under section 90 of Rs. 41,52,45,771. 3. The assessee went in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) passed order on March 9, 2015, and upheld the addition of Rs. 144,11,73,150 on account of dividend received from overseas joint venture OMIFCO (Oman). 4. As per order sheet entry the Assessing Officer conducted various hearings wherein Sh. Rawat and Sh. Atul Chhabra attended the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the territory of India.' The perusal of the notification shows that the agreement has been entered into in exercising powers conferred by section 90 of the Income-tax Act, 1961. The relevant part of section 90 is reproduced as under :- '90. Agreement with foreign countries or specified territories.-(1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both Income-tax under this Act and Income-tax in that country or specified territory, as the case may be, or (ii) Income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or.' 10. Section 90 clearly mentions that the relief is to be granted in respect of income on which have been paid both Income-tax under this Act and Income-tax and Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote economic development. The Assessing Officer failed to notice this vital difference. 16. The Assessing Officer failed to examine the fact as to whether article 25(4) of the Double Taxation Avoidance Agreement has been fully complied with by the assessee. It cannot be presumed that the exemption granted under article 8(bis) is meant for economic Development. There has to be strict interpretation of the statute. Article 8(bis) does not indicate that the exemption is designed for economic development. 17. Capitalisation of interest-36(1)(iii) proviso : The perusal of balance-sheet for the assessment year 2010-11 shows that the assessee has shown loan funds of Rs. 11,532.17 crores. Whereas the share capital and reserves and surplus figure is Rs. 4,270.50 crores. The total of the balance-sheet is Rs. 16,319.45 crores. This means the assessee is having only 26.16 per cent. own funds. The perusal of balance-sheet further shows that the assessee has shown capital work-in-progress of Rs. 333 crores. The assessee has not shown any figure of interest pertaining to capital work-in- progress. The schedule 6 (43rd annual report) showing capital work- in-progress does not show any intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such investments and how it is allowable under the business head, i.e., under section 36(1)(iii). The assessee has not established any nexus as regards the utilisation of funds from own sources or funds on which interest is paid by the assessee. 22. Rental income : The assessee has shown income from house property at Rs. 5,71,31,586 after availing of deduction under section 24 of Rs. 61,42,331. The assessee has shown rental income from IFFCO Tower, Gurgaon. From the details it appears that the assessee has rented out certain towers to the telecom companies like Bharti Airtel and M/s. BSNL. Apparently, renting of tower should not come under the head 'income from house property', as it should not come under the purview of property consisting of any buildings or lands appur tenant thereto (refer section 22). No enquiry has been made by the Assessing Officer on this aspect. 23. In view of the above, I am of the opinion that the order passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961, is erroneous in so far as it is prejudicial to the interests of the Revenue. You are given an opportunity of being heard and show cause as to why the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied that the assessee may be showing rental income from communication towers from telecom companies. If that is the case, then the case of the assessee would not fall under the head income from house property as these communication towers cannot be called as buildings or lands appurtenant thereto. 5. Your case is fixed for hearing on January 4, 2016, at 3:30 p.m., as already intimated in show-cause notice under section 263 dated December 22, 2015." 9. In response to the above show-cause notice, the assessee file a detailed reply dated January 11, 2016, as well as January 19, 2016, which are compiled in the paper book filed with us (pages 355-390). To summarise the assessee has raised the following contentions : * That the Assessing Officer has conducted detailed enquiries year after year and it was only after examination of all facts that the credit for deemed tax paid was allowed ; * That the Assessing Officer had examined the claim in the light of article 25(4) of India-Oman Double Taxation Avoidance Agreement as well as section 90 of the Income-tax Act, 1961 ; * That in light of the above fact the Assessing Officer had taken a plausible view which the learned Principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;. The statute has to be read with reference to what has been mentioned. There is no scope of going beyond what has been stated. In paragraph 13 of the letter dated March 10, 2016, it was especially mentioned that the word designed means that there would have to be some conscious effort. Paragraph 13 of the letter dated March 10, 2016, is again reproduced as under : '13. This is a general exemption for every person who so ever earns dividend income. It is not necessary that any shareholder who earns dividend would be promoting the economic development. It is mere investment in a particular company. A general exemption cannot be stretched to say that this is designed for economic development whereas article 25(4) clearly mentions that the incentive should be designed for economic development. You may kindly note even the word design which means there would have to be some conscious effort. The English meaning of design is to do or plan (something) with a specific purpose in mind. Giving a general exemption does not lead to a specific purpose in mind. General exemption does not show that there is a specific purpose. If that is so, then the same should have been incorporated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development. Had there been such intention the Royal Decree could have mentioned the word designed for economic development. In their wisdom they did not think it proper to use the same words as given in article 25(4). In the jurisprudence a particular expression cannot be deemed as covering any other expression. For example, in this case the 'exigency of public good' cannot be equated with 'designated for economic development'. Therefore the assessee cannot take any support from the words 'the exigencies of public goods'. The assessee on page 135 has placed the amendments to the law of Income-tax of company (placed as annexure 2). Article 2). Article 8(Bis) simply says as under : 'As an exception from the provisions of article (8) of this law, tax shall not apply to the following :- (3) Dividends received by the company from its ownership of shares, portions or shareholding in the share capital of any other company. (4) Profits or gains realised by the company from the sale or disposal of securities registered in Muscat Securities Market.' 29. The assessee has again relied upon a letter dated December 11, 2000 (placed as annexure 3) issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any officer, may be a very senior officer under the Omani tax law. The matter has to be settled by the two Governments and not by a single officer of the Omani tax law and that too in response to a letter of a company. 39. The tax credit can be given only with the strict interpretation as held by the apex court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC). 40. The honourable Income-tax Appellate Tribunal did not consider this aspect that the interpretation has to be with reference to the words used in the Act/Double Taxation Avoidance Agreement. The honourable Income-tax Appellate Tribunal, perhaps presumed that this is a letter issued by Sultanate of Oman. But the letters were issued by one officer of Oman who has no authority under the law to issue such clarification. If he has issued such clarification, at the most it could be considered as his opinion. The Department may file a miscellaneous application before the honourable Income-tax Appel late Tribunal pointing out that the said letters are just an opinion from the officers of the Department and there was some amendment in the law. This is apparent mistake of law as well as mistake on the face of fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also relied upon various judicial decisions. For the sake of clarity, the relevant portion of the submissions made by the learned counsel of the assessee from paragraphs 8.3 to 8.11, pages 24 to 72 of the paper book, is reproduced below : "8.3 For better understanding, these grounds have been divided into several categories as mentioned above and it would be convenient to proceed with further elaboration category-wise, in the following submissions : (a) Deemed tax credit on dividend income from OMIFCO : In response to the show-cause notice issued by the learned Principal Commissioner of Income-tax, the appellant-society filed a comprehensive written reply dated January 11, 2016, wherein the factual and the legal position was fully explained and it would be worthwhile to reproduce below the relevant part of this written reply : '3.1.2 On the facts in our case, as pointed out in the notice itself, the learned Assessing Officer had specifically enquired from the society the following questions at points 29 and 30 of the questionnaire issued as part of the scrutiny proceedings on September 30, 2013 : "29. In respect of any income covered in the Double Taxation Avoidance A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract investments. It also contained the working of the tax credit and judicial pronouncements in support of the claim. On the date of hearing on February 26, 2014, too, the issue of credit for deemed taxes paid in Oman and the rationale for such a provision was discussed at length with the learned Assessing Officer. 3.1.6 In the assessment order dated February 28, 2014, the learned Assessing Officer specifically records articles 25(2) and 25(4) of the Double Taxation Avoidance Agreement and, vide finding at paras 3.3 and 3.4, records that "in view of the above provisions", the tax credit for taxes which would have been payable is being allowed to the assessee. 3.1.7 From the above factual matrix, it is luminescent that the learned Assessing Officer had not only enquired about the tax credit claim in the hearing on February 20, 2014, but also analysed article 25(4) of the Double Taxation Avoidance Agreement (reproduced in the assessment order) in the light of our reply containing reasons for the claim as per the Royal Decree 68 of 2000 which amended article 8 of the Omani tax law. After having analysed our reply only, the learned Assessing Officer had allowed the tax credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law." (ii) The Delhi High Court in CIT-LTU v. Power Finance Corporation Ltd. [2015] 378 ITR 619 (Delhi) ; [2015-TIOL-2414- HC-DEL] following the co-ordinate Bench in CIT v. Honda Siel Power Products Ltd. [2011] 333 ITR 547 (Delhi) ; [2010-TIOL-468- HC-DEL] (page 558 of 333 ITR) : "From the aforesaid discussion, it is apparent that the expression 'prejudicial to the interests of the Revenue' appearing in section 263 has to be read in conjunction with the expression 'erroneous' and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent." In view of the above submissions, it is prayed that the initiation of proceedings under section 263 is not legally tenable and the same need to be dropped in the instant case since as amply evidenced by the record, the learned Assessing Officer has taken a valid legal stand on the issue of tax credit after full application of his mind. 3.1.10 Without prejudice to the above, it is further submitted that the issue of tax credit is part of the larger issue of the rights of the country of residence to tax income already subjected to tax under article 7 of the Double Taxation Avoidance Agreement in the country of source which is a subject-matter of appeal filed by the society before the honourable Income-tax Appellate Tribunal under section 253 of the Income-tax Act, 1961. The subject of exemption includes an interpretation to the entire treaty provisions which include article 25 too which is the subject-matter of the proposed revision. Hence, in view of Explanation 1(c) under section 263(1), the issue of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the show-cause notice looking down on the claim of tax credit without paying tax is erroneous in law as the relevant question is "chargeability/liability to tax" and not "actual payment of tax". 3.2.3 The question whether an income which is exempt is eligible to be classified as "chargeable/liable to tax" or not is no longer res integra as the issue has been decided by no less than the apex court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) (copy at annexure III). Interestingly in this case, the apex court was hearing an appeal by the Department against an order of the Delhi High Court which had upheld the plea by a bunch of petitioners that the treaty benefits should be denied if the Income-tax has not been paid in one of the contracting countries (Mauritius) and quashed the Central Board of Direct Taxes's Clarificatory Circular No. 789, dated April 13, 2000 ([2000] 243 ITR (St.) 57 ). After exhaustive arguments and analysis, the apex court upheld the plea of the learned Attorney General that merely because a source of income is exempt at a particular point of time, it cannot be construed that tax is not payable/liability from the charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty. It only suspends the levy and collection of customs duty, etc., wholly or partially, and subject to such conditions as may be laid down in the notification by the Government in 'public interest'. Such an exemption by its very nature is susceptible of being revoked or modified or subjected to other conditions. We are inclined to agree with the submission of the appellants that, merely because exemption has been granted in respect of taxability of a particular source of income, it cannot be postulated that the entity is not "liable to tax" as contended by the respondents." 3.2.4 Tax sparing credit-purpose : The United Nations Model Tax Convention (2011) defines tax sparing credit as credit granted by a developed country (capital exporting country-India in the instant case) in respect of tax "spared" by the incentive legislation in the developing country (capital importing country-Oman in the instant case). OECD's glossary of tax terms defines "tax sparing credit as- term used to denote a special form of double taxation relief in tax treaties with developing countries. Where a country grants tax incentives to encourage foreign investment and that company is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me which, in accordance with the provisions of this agreement, may be taxed in the Sultanate of Oman, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Income-tax paid in the Sultanate of Oman, whether directly or by deduction. Such deduction shall not, however, exceed that part of the Income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the Sultanate of Oman. . . 4. The tax payable in a Contracting State mentioned in paragraph 2 and paragraph 3 of this article shall be deemed to include the tax which would have been payable but for the tax incentives granted under the laws of the Contracting State and which are designed to promote economic development. 5. . . ." Before attempting to interpret the provisions of the Double Taxation Avoidance Agreement, it will be useful to refer to the following observations of the apex court in Azadi Bachao Andolan [2003] 263 ITR 706 (SC) on the principles to be kept in mind while interpreting a treaty (page 751) : "Interpretation of treaties The principles adopted in interpretation of treaties are not the same as those in interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the hands of the investor. 3.2.6 From the combined reading of article 25(2), 25(4) and section 90(1)(a)(ii), it is clear that actual payment of taxes is not a sine qua non for the claim of the tax credit. However, the following two conditions still need to be satisfied for the claim of the tax credit : A. The tax should have been "payable" and B. The tax is not actually paid on account of the tax incentive provisions aimed at promoting economic development. The satisfaction of both these conditions in the society's case is discussed below : A. Whether tax was "payable" by the society's permanent establishment in Oman ? (i) In the previous year relevant to the assessment year 2010- 11, the Omani tax law was governed by Royal Decree 47 of 1981. (relevant extracts at annexure IV). Some of the relevant provisions of this law are discussed below : Article 2(4) : The term company includes any permanent establishment in Oman which is supported by a foreign company. Article 2(17) : Tax means any tax payable under this law and includes penalty, interest . . . Article 2(19) : Taxable income means the total amount of gross income less any deductions allowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure-VI) issued by the Sultanate of Oman (which inserted article 8 (bis)) states that the amendments have been done "in exigencies of public good". In law, the preamble to a statute is a well recognised internal tool of interpretation of the statute. In accordance with the exigencies of public good means a demand for the economic good of the public. Public good corresponds to national needs and self-interest of a country. In a fiscal statute, amendment for public good clearly implies amendment through tax incentives to foster economic development/job growth through inflow of foreign capital. Thus, from the preamble itself it is clear that the exemption to dividends is a tax incentive measure aimed at fostering economic development. There is no other motive other than economic development which can be reasonably attributed to a tax incentive/exemption measure. Hence, the requirement of article 25(4) is fulfilled in the case of the society. (ii) The above conclusion is fortified beyond doubt by a clarificatory letter issued by the Secretariat General for Taxation, Ministry of Finance, Sultanate of Oman, dated December 11, 2000 (annexure- VII) issued in response to a letter written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistently. On the facts in our case, neither the law (Domestic Law/ Treaty) nor the facts have changed from the earlier years wherein the Revenue has allowed the claim of tax credit from assessment year 2006-07 to assessment year 2011-12. Hence, the settled position should be followed for the sake of consistency too.' In the light of the above it is prayed that the proposed revisionary proceedings are not sustainable in law or facts in view of the following: -On the legal issue of revisionary jurisdiction under section 263, in view of the specific enquiry by the Assessing Officer and detailed reply on the issue covering all the aspects of article 25(4). -On facts, based on the clear confirmation on chargeability of Omani tax both before the amendment to article 8(bis) and after the amendment to article 8 confirming the objective of the change in law by the Omani Secretariat General of Taxation. Hence, the proposed revisionary proceedings may kindly be dropped." (emphasis supplied) 8.4 The learned Principal Commissioner of Income-tax has considered the submissions made by the appellant-society vide letter dated January 11, 2016, relevant parts of which have been reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and appreciation of this honourable Tribunal : A1. As your honour is already aware, the Income-tax Appellate Tribunal has pronounced its judgment in the case of Krishak Bharti Co-operative Ltd.('KRIBHCO' for short) v. Asst. CIT (I. T. A. Nos. 6785 and 6786/Del/2015, vide its order dated March 9, 2016 [2016] 67 taxmann.com 138 (Delhi-Trib)). As rightly mentioned in your show- cause notice, each case law turns on its own facts. The Income-tax Appellate Tribunal has quashed the revisionary order both on the grounds of jurisdiction, consistency and on merits too. The facts in our case are on all fours covered by the said decision. Similar to KRIBHCO's case, in our case too, as submitted in our reply dated January 11, 2016 : * Detailed enquiry letters were issued by the Assessing Officer from the assessment year 2006-07 to the assessment year 2011-12 (including the assessment year 2010-11, being the year under proposed revision). * After discussion of article 25(4) of the Double Taxation Avoidance Agreement, article 8 (bis) of the Omani Law and the assessment orders in Oman which highlighted the objective of the dividend exemption implying proper application of mind, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Central Government. One such judicial member of the Tribunal is normally appointed as the President thereof. Any assessee aggrieved by the orders passed by the authorities as enumerated under clauses (a) to (c) of sub-section (1) of section 253 may appeal to the Tribunal. The Tribunal has power to pass such orders on such an appeal as it thinks fit. Sub-section (4) of section 254 attaches finality to the orders of the Tribunal subject to the provisions of section 256 (or section 260A). Needless to say the orders passed by the Tribunal are binding on all the Revenue authorities functioning under the jurisdiction of the Tribunal. Dealing with this very aspect of the matter, the Supreme Court in the case of Union of India v. Kamlakshi Finance Corporation Ltd., AIR 1992 SC 711 ; [1991] 55 ELT 433 (SC) emphasised (page 712 of AIR 1992 SC) : 'It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve as held by the Supreme Court in the matter of Asst. CCE v. Dunlop India Ltd. [1985] 154 ITR 172 (SC) ; AIR 1985 SC 330." A2. Point Nos. 14 and 15-Sanctity of letter not considered by the Income-tax Appellate Tribunal At point 14 of your office's letter dated March 11, 2016, it is stated that the Income-tax Appellate Tribunal in its order has not considered the sanctity of letter issued by the Secretary General of Taxation to a "single company". It is humbly submitted that at page 64 of the Order, clause 6(3) of the Omani law stating that "any document issued by the Secretary General shall be considered an official document if it carries its name" has been duly reproduced. At paragraph 13 on page 73, the order of the learned Income-tax Appellate Tribunal states that "we have considered the rival submissions and perused the relevant records available with us". The "Records" include the letters issued by the Secretary General of Taxation (SGT), Ministry of Finance in August and December, 2000. The "submissions" include the reference to article 6(3) of the Omani tax law. Further at paragraph 19, the Income-tax Appellate Tribunal states that interpretation of Omani tax laws c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at para 17 of the order, the honourable Income-tax Appellate Tribunal has also decided the issue on merits, it is prayed that the revisionary proceedings may be dropped following the jurisdictional Tribunal's order on the merits of the case too. A3. Points 6 to 9-Sanctity of letter issued by H.E SGT, Ministry of Finance, Oman Though as discussed above, the honourable Income-tax Appellate Tribunal in its wisdom has already decided the issue of validity of the letter issued by the SGT, Ministry of Finance, Oman, in response to the doubts in your office's letter dated March 11, 2016, we make the following additional submissions in continuation to our submissions dated January 11, 19, 2016, for your honour's kind perusal : (i) Each country is sovereign in deciding the branches of its Government, structure of its laws, conventions, extent of delegated legislation, etc. In India, as a matter of convention, the intent of changes in tax law are explained in the relevant year's memorandum explaining provisions in the Finance Bill. However, even in India, there is no constitutional/statutory requirement for intent of each and every change to be explained in the memoran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r bad faith nor abuse of power. This maxim is codified in section 114(e) of the Indian Evidence Act, 1872, too. Hence, the regularity/legal validity of the official letters should be respected. (iv) In the absence of any explicit limitation on the authority of the SGT in the Omani tax law and in view of the powers of the HE the SGT in the overall scheme of the Omani tax law, it is unjust and unfair to call it "mere opinion of an officer". Such an interpretation would imply that no investor would believe the authorities of any country and the tax sparing credit provision enshrined in article 25(4) of the Indo-Oman Double Taxation Avoidance Agreement read with section 90(1)(a)(ii) would be rendered otiose. A.4. Point Nos. 10 to 12-Non mentioning of "Economic Development" in article 8(bis) (i) It is stated in your office's letter that the intent of Economic Development is not explicitly written in article 8(bis) and the assessee is trying to insert economic development in the same. It is humbly submitted that there is no such attempt by us. The intent of law may or may not be mentioned in a legal provision depending upon the individual practices/conventions of each country. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt suffered a tax cost on their return on investments. The tax treatment under the above mentioned article 5 had the negative impact on investments in tax exempt project. The Company Income-tax Law of 1981 was, therefore, recently amended by Royal Decree No. 68/2000 by the insertion of a new article 8(bis), which is effective as from the tax year 2000. As per the newly introduced article 8(bis) of the Company Income-tax Law, dividend distributed by all companies, including the tax exempt companies would be exempt from payment of Income-tax in the hands of the recipients. In this manner, the Government of Oman would achieve its main objective of promoting economic Development within Oman by attracting investments. We presume from our recent discussions with you that the Indian investors in the above project would be setting up permanent establishment in Oman and that their equity investments in the project would be effectively connected with such permanent establishments. On the above presumption, we confirm that tax would be payable on dividend income earned by the permanent establishments of the Indian investors, as it would form part of their gross income under article 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economic development but we cannot lose sight of the fact that receipt of dividend is a consequence of investment. Economic development takes place qua investment and not qua dividend receipts. It is the act of investment which promotes economic development directly by means of generation of employment and indirectly by its effects on other sectors of the economy having linkages with the industry. For instance, due to the OMIFCO Fertiliser Project coming in Oman, not only people employed in the company but also its vendors, contractors, etc., would earn income which would obviously help in development of Oman economy. From the investor point of view, any prudent investor comparing investment options before making a final decision will obviously compare the "post tax returns" on its investments among various competing countries/investment options. The post tax returns would necessarily take into account the tax on projected dividends in source country and home country based on the respective domestic tax laws and the provisions of the Double Tax Avoidance Agreements. The relevance of the Double Taxation Avoidance Agreement's as a means of encouraging cross border trade and inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any amendment made in the Omani tax law and also demonstrated the inextricable link between investment and economic development on the one hand and between the post tax returns for an investor and investment on the other hand. The learned Principal Commissioner of Income- tax has merely assumed that the relevant letters issued by the Secretary General of Taxation can be considered as letters/opinion issued by an officer which have no sanctity in the eyes of law. It is respectfully submitted that the Secretary General of Taxation, Oman is acting under the authority of the sovereign State of Sultanate of Oman and he is fully competent to issue a clarification whenever there is any doubt raised by the affected company/foreign investors regarding the purpose of any amendment brought about in the Omani tax law. The learned Principal Commissioner of Income-tax has considered the various submissions made on behalf of the appellant-society and has recorded his findings on the relevant issue at paras 20 to 50 of his order. First of all, at para 21 he has made the following sweeping remark. "21. In my opinion, the Assessing Officer did not make any verification/enquiries as regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Sultanate of Oman through its agency can issue clarification. There is no question of the two countries sitting together on this particular issue. 8.6 At paragraph 24 the learned Principal Commissioner of Income-tax has referred to the honourable Supreme Court decision in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) and at para 25, the learned Principal Commissioner of Income-tax has also reproduced the following part of the honourable Supreme Court's order (page 726) : "The niceties of the OECD model of tax treaties or the report of the Joint Parliamentary Committee on the Stock Market Scam and Matters Relating thereto, on which considerable time was spent by Mr. Jha, who appeared in person, need not detain us for too long, though we shall advert to them later. This court is not concerned with the manner in which tax treaties are negotiated or enunciated ; nor is it concerned with the wisdom of any particular treaty. Whether the Indo-Mauritius DTAC ought to have been enunciated in the present form, or in any other particular form, is none of our concern. Whether section 90 ought to have been placed on the statute book, is also not our conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that with due respect, this is unjustified and is in ignorance of the legislative process. There is no Constitutional/legal requirement in the Sultanate of Oman (or for that matter even India) for the intent of the law to be mentioned in the law itself. The intent has to be gathered by the courts as part of the interpretation/construction process having regard to context, history of the law, mischief sought to be remedied and various internal/external aids to construction of statutes. The mere fact that the intent of the change in law was not mentioned in the Royal Decree cannot be held against the appellant. 8.8 At paragraph 30, the learned Principal Commissioner of Income-tax has again repeated that the letter issued by the Secretary General of Taxation is merely an opinion of an officer of Oman which cannot be accepted. The learned Principal Commissioner of Income- tax has refused to accept detailed submissions made before him that the Secretary General of Taxation, Oman is fully competent and authorised to issue any clarification regarding the purpose of any provision of Omani tax law. 8.9 At para 33, the learned Principal Commissioner of Income-tax has concluded that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onformity with logic and equity. But the language of sections 2(6A)(e) and 12(1B) is clear and unambiguous. There is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. To us, there appears no justification to depart from the normal rule of construction according to which the intention of the Legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. in Cape Brandy Syndicate v. IRC [1921] 1 KB 64 (KB) at page 71, that : ". . . . in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be." (emphasis supplied) We are again at a loss to unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be extensive or intensive. It is extensive when there is increase of overall wealth and intensive when there is increase of per capita wealth. (http://definitions.uslegal.com/e/ economicdevelopment%20/) When the intent is to incentivise foreign investment in all the sectors of the economy, a general dividend exemption can be given as a tax incentive across all sectors. Such an exemption would not lose its attribute of encouraging economic development just because it applies across all sectors. If the intention in the Double Taxation Avoidance Agreement was to restrict its meaning to certain specified sectors, suitable qualifiers would have been inserted before the words "economic development" in article 25(4). 8.9 At para 38 the learned Principal Commissioner of Income-tax has again referred to the honourable Delhi Income-tax Appellate Tribunal decision in the case of KRIBCHO and he has assumed that probably the honourable Income-tax Appellate Tribunal has "misinterpreted" the letter dated December 11, 2000 issued by the Secretary General of Taxation to be issued by the Sultanate of Oman. He has again repeated that the letter only contains an opinion of the Secretary Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y appeal against the aforesaid order of the honourable Tribunal but this does not detract from the merits of the order passed by the honour able Tribunal which must be accepted by the lower authorities till such order is reversed or stayed by a superior appellate forum. 8.11 At paragraph 41 of the order the learned Principal Commissioner of Income-tax has set aside the assessment order on this issue and has restored the matter to the file of the Assessing Officer with the following directions : "The Assessing Officer would refer the matter to the concerned authorities who are responsible for entering into Double Taxation Avoidance Agreement. The Assessing Officer, through proper channel, would write a letter to the officers of the Department perhaps FTD who may request the Omani Government as regards the interpretation of article 25(4) of the Double Taxation Avoidance Agreement with particular emphasis on the word designed for economic development. The Assessing Officer would narrate all the facts and also send a copy of the order under section 263 passed by me wherein I have made certain observations as regards the interpretation. It is quite possible that both the Governments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o conclude on the issue implies that as on the date of passing of the order, the revisionary authority is unsure as to the basis on which the assessment can be held as erroneous. This is clearly not permissible within the four corners of section 263 as interpreted by various courts including jurisdictional Delhi High Court in the case of Globus Infocom Ltd. v. CIT [2014] 369 ITR 14 (Delhi), relevant extracts from which are reproduced below (page 24) : "Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous . . . . The matter cannot be remit ted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lify for article 25(4) benefit as it exists across board with no exceptions in Oman and it is merely a feature of Oman's Tax Law- Whether clause (4) of article 25 of Double Taxation Avoidance Agreement between India and Oman lays down that tax payable shall be deemed to include tax which would have been payable but not paid because of certain tax incentive granted under laws of contracting State designed to promote economic developments-Held, yes- Whether as per letter of Oman, Ministry of Finance exemption granted under article 8(bis) of Omani tax laws was to promote economic developments in Oman and to attract investment, hence, assessee would be entitled to tax credit in respect of deemed dividend tax which would have been payable in Oman-Held, yes (paras 19 and 20) (in favour of assessee) Facts * The assessee, a co-operative society, was primarily engaged in manufacture of fertilizers like urea and ammonia. It entered into a joint venture with Oman oil company to form a fertilizer company OMIFCO and got the same registered under Omani Laws. The assessee held 25 per cent. shares in OMIFCO and the fertilizers manufactured by OMIFCO were purchased by the Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11, 2000, issued by the Sultanate of Oman, Ministry of Finance, Secretariat General for Taxation, Muscat. (Para 18) * From the perusal of clarifications there remains no doubt regarding the purpose of granting exemption to dividend income. The interpretation of Omani tax laws can be clarified only by the highest tax authorities of Oman and such interpretation given by them must be adopted in India. Further, in the tax assessments made in Oman in respect of the permanent establishment of the assessee-society it is clearly mentioned that the dividend income which is included in the gross total income is, however, exempt in accordance with article 8(bis) and such exemption is granted with the objective of promoting economic developments within Oman by attracting investments. In view of the facts stated above, on merits also the assessee-society is entitled to tax credit in respect of deemed dividend tax which would have been payable in Oman. Therefore, the Commissioner was not justified in directing the Assessing Officer to withdraw the aforesaid tax credit. Further such credit was allowed by the Assessing Officer during several preceding assessment years and, therefore, when there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er extension of five years subject to decision of Financial Affairs and Energy Resources Council. If this letter dated August 6, 2000, was before Assessing Officer, then an Assessing Officer knowing nuances of Income-tax would definitely ask the material, including decision of Financial Affairs and Energy Resources Council, to be produced to satisfy (the Assessing Officer) that the said exemption of tax by Oman Government was valid for the assessment year under consideration. 5.1 The assessment order does not make any enquiry regarding the issue of credit of tax paid in Oman, directly. In fact the reference in the assessment order about the issue is in the context of dealing with the claim of assessee that the dividend income received from OMIFCO is exempt all together. 5.2 Ref. of dealing about the issue of credit of tax paid in Oman case in assessment year 2006-07 does not help the assessee because a bare reading of relevant portion of the assessment order (of assessment year 2006-07) will show that it is an example of non- application of mind as well as violation of principles of natural justice." 14. We have carefully considered the rival contentions and perused the record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the honourable jurisdictional High Court in the case of CIT v. Escorts Ltd. [2011] 338 ITR 435 (Delhi), the relevant part of which reads as under (headnote) : "Where a fundamental aspect of a transaction is found to have permeated through different assessment years and this fundamental aspect has stood uncontested then the Revenue cannot be allowed to change its view taken in earlier assessment years unless it is able to demonstrate a change in circumstances in the subsequent assessment year. Held, that the Commissioner's order did not contain a finding to the effect that the stand taken by the assessee that the units purchased from the Unit Trust of India had actually been physically delivered along with executed transfer deed was false. Without such a finding the allegation that the transactions were speculative could not be sustained. The fundamental nature of the transactions was examined year after year more importantly in the assessment year 1986-87 it was specifically considered by the Commissioner (Appeals) and it remained the same. Given the fact that the assessee had been engaged in these transactions in the preceding assessment years, the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and examine the assessment records. (ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite. (iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of the principles of natural justice or is passed without application of mind, that is, is stereo-typed, inasmuch as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with 'undue haste'. (iv) The expression 'prejudicial to the interest of the Revenue' while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. (v) Every loss of tax of the Revenue cannot be treated as being 'prejudicial to the interest of the Revenue'. For example, when the Assessing Officer has recourse to one of the two course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incentive granted under the laws of the contracting State and which are designed to promote economic developments. Thus, the crucial issue to be examined is whether the dividend income was granted exemption in Oman with the purpose of promoting economic development. The exemption has been granted under article 8(bis) of the Omani tax laws. The said provision has been clarified and explained vide letter dated December 11, 2000 issued by the Sultanate of Oman, Ministry of Finance, Secretariat General for Taxation, Muscat. The text of this letter has already been reproduced (supra). From this letter, the following points emerge : (a) Under article 8 of the Omani tax laws, dividend forms part of gross income chargeable to tax. (b) As a result, investors in tax exempt companies that undertake activities considered essential for the country's economic development suffered a tax cost which had the negative impact. (c) The Company Income-tax Law of 1981 was therefore amended by Royal Decree No. 68/2000 by insertion of a new article 8(bis). (d) Thereby the Government of Oman would achieve its main objective of promoting economic development by attracting investments. (e) Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that in the assessment year only 10 per cent. of the funds have been utilised out of the total own funds of Rs. 8,171 crores but without establishing the nexus. Similarly if there is working progress, it cannot be presumed that only own funds have been utilised. The working progress ultimately becomes that asset. The assessee has himself admitted that there are interest bearing borrowings for fixed assets. As per section 36(1)(iii) proviso, there has to be date-wise calculation as the law is clear. The relevant section is reproduced as under :- 67. As per section 36(1)(iii) proviso the interest is to be capitalised for the period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was put to use. If the assessee himself showing working progress, then it is clear that the said asset has not been put to use. There can be instances that the assessee acquires/purchases the asset and many a times advance payment is to be made for the acquisition of asset. In that case there would be capitalisation of interest till the assessee acquires the asset and also put to use. The interest would start from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarding the capital work- in-progress, the manner in which the depreciation was claimed and the details of secured as well as unsecured loans. Replies of the above queries are also compiled at page 392 of the paper book. Further, the learned counsel referred to the audited financial statements of the assessee which was also compiled before us in the paper book. Reference to page 231 of the paper book comprising significant accounting policies was made wherein the auditor has certified that all indirect expenditure are incurred during the period up to the date of commercial production attributable to the construction of the project was capitalised on proportionate basis. Further, reference was also made to the Significant Accounting Policies in the auditors' report compiled at page 235 of the paper book in respect of the borrowing cost which is reproduced hereunder for the sake of brevity :- "13. Borrowing cost.-Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as part of cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is attributable to the construction of the project, is capitalised on proportionate basis.' (b) At page 87 of the annual report under Sr. No. 13 the following statement is made :- '13. Borrowing cost.-Borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalised as part of cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are recognised as an expense in the period in which they are incurred.' (c) At page 89 of the annual report containing the balance-sheet as on March 31, 2010, the value of capital work-in-progress as on March 31, 2010, is shown at Rs. 333 crores whereas the same was Rs. 290 crores as on March 31, 2009. Thus there is accretion of only Rs. 42.02 crores. Further, it is notable that the total value of fixed assets as on March 31, 2010 is Rs. 7531.28 crores as against Rs. 7552.95 crores as on March 31, 2009 which proves that the value of fixed assets has actually gone down and there has been no accretion whatsoever. (d) At page 90 of the annual report containing the profit and loss account for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as discussed below : (i) CIT v. Rajendra Brothers [2014] 52 taxmann.com 334 (Guj) The headnote of this case is reproduced below for ready reference : * Both the Commissioner (Appeals) as well as the Tribunal have recorded concurrent findings of fact to the effect that the assessee was also running a sarafi business and the funds obtained from the bank had got merged with the funds of other businesses. Having regard to the total funds available from the sarafi business, the Tribunal has found no reason to believe that bank funds have been diverted as interest-free/ lower interest advances. Moreover, no material has been brought on record by the Revenue either to demonstrate that the sarafi business was bogus or to establish diversion of interest bearing funds as low/interest-free advances. * The Revenue is not in a position to point out any material to the contrary so as to dislodge the concurrent findings of fact recorded by the Commissioner (Appeals) and the Appellate Tribunal. From the facts noted hereinabove, it is apparent that the Tribunal has based its conclusion on the concurrent findings of fact recorded by it upon appreciation of the evidence on record. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was unable to prove nexus between borrowed funds and advances given-Whether, on facts, notional interest disallowed by Assessing Officer was to be deleted-Held, yes (paras 16 and 17) (in favour of assessee).' (emphasis supplied) (iv) Pranik Shipping and Services Ltd. v. Asst. CIT [2013] 21 ITR (Trib) 489 (Mum) ; [2012] 19 taxmann.com 107 (Mum) The headnote of this case is reproduced below for ready reference : 'Facts-I During assessment proceedings, the Assessing Officer observed that the assessee had given interest-free advances aggregating to Rs. 50.29 lakhs to its sister concerns whereas substantial amount of interest was paid on the funds borrowed. On being show caused as to why the proportionate disallowance of interest be not made, the assessee justified its claim by stating that it had share capital, reserves and surplus and unsecured loans amounting to Rs. 3544.64 lakhs on which no interest was payable. The Assessing Officer, however made disallowance under section 36(1)(iii) by applying 15 per cent. rate of interest. The Commissioner (Appeals) upheld the disallowance. On assessee's appeal : Held-I The assessee has share capital of Rs. 15.25 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Appeals) or the Income-tax Appellate Tribunal erred in holding in favour of the assessee. In this regard, the submission of Mr. Mistry, the learned senior counsel appearing on behalf of the assessee, that this issue is squarely covered by a judgment of this court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) ; [2009] 178 Taxman 135 (Bom) is well founded.' (emphasis supplied) (vi) CIT v. Gujarat State Fertilizers and Chemicals Ltd. [2013] 358 ITR 323 (Guj) The headnote of this case is reproduced below for ready reference : 'Held, that the dividend income earned was Rs. 1,14,43,040 and the estimate of expenditure was assessed at the rate of 10 per cent. of the total income. Had the Department been successful in establishing that the assessee had incurred the expenses to earn the dividend income from the borrowed funds, the entire discussion of application of section 14A of the Act could be understood. However, when both the Commissioner (Appeals) and the Tribunal had noted that the assessee had sufficient funds available with it, which were more than the amount it invested for earning the dividend income, the authorities had corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed under section 36(1)(iii) of the Act is concerned, the learned Tribunal has observed that the assessee was having interest-free funds available with it. The learned Tribunal has observed that the advances were given by the assessee to various parties to the extent of Rs. 2,62,48,341 during the financial year 1996-97. The learned Tribunal has also found that even the assessee was having interest-free funds to the extent of Rs. 3,93,65,572 as on March 31, 2002. It is required to be noted that in the earlier preceding year no disallowance was made out of the interest claimed by the assessee. Considering the aforesaid facts and circumstances of the case, the learned Tribunal has rightly deleted the disallowance on interest expenses. We are in complete agreement with the view taken by the learned Tribunal . . .' (empha sis supplied) (ix) CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) ; [2009] 178 Taxman 135 (Bom) The relevant part of the headnote of this case is reproduced below for ready reference : 'Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal on this issue as raised before the Tribunal has been challenged before the Supreme Court . . . 14. The only basis for proceeding on the basis that there is a conflict between the two decisions of this court which emerges from the impugned order is that in petitioner's own case in HDFC Bank Ltd.(supra), reliance was placed upon the decision of this court in Reliance Utilities and Power Ltd. (supra) to conclude that where both interest-free funds and interest bearing funds are available and the interest-free funds are more than the investments made, the presumption is that the investment in the tax-free securities would have been made out of the interest-free funds available with the assessee. Though, the decision of this court in Reliance Utilities and Power Ltd. (supra) was rendered in the context of section 36(1)(iii) of the Act, it was consciously applied by this court while interpreting section 14A of the Act in HDFC Bank Ltd. (supra) . . .' The above ratio has also been recently followed by the Karnataka High Court in the case of CIT v. Microlabs Ltd. reported at [2016] 383 ITR 490 (Karn). The consistent view held in the above cases is that if the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e apex court * Alternatively, deduction allowable under section 57(iii) even if presumption of own funds and business nexus is applied against the assessee. Interest cannot be added to "cost" as suggested by the learned Principal Commissioner of Income-tax in view of express provisions to the contrary in the Income-tax Act. Further, there is abundant evidence that all these issues pertaining to section 36(1)(iii) were thoroughly examined by the Assessing Officer and there was full application of mind by him during the course of the assessment proceedings and therefore the learned Principal Commissioner of Income-tax has no jurisdiction to invoke his powers under section 263 of the Income-tax Act. For these reasons, it is humbly submitted that, the impugned order passed by the learned Principal Commissioner of Income-tax under section 263 on this issue may kindly be held as bad in law and quashed." 15.4 Against the aforesaid contentions of the assessee's counsel, the learned Departmental representative has filed the following further submissions during the course of the hearing : "6. On the issue of 36(1)(iii) and 36(1) proviso, there is case of non- enquiry and non-appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the parties at length. We find that the Assessing Officer had made detailed inquiries and examined the entire block of fixed assets. A brief note on capital work-in- progress was also filed and queries regarding the manner in which the depreciation was claimed was also raised. Further the assessee is following a settled accounting policy/principle for capitalisation of expenses including interest expenses to both the fixed assets as well as capital work-in- progress. This method was forming part of the audited financial statements which were filed before the Assessing Officer as well. We also find that the free reserves were also more than sufficient to cover up the investment in fixed assets/capital work-in-progress. Further the assessee-society has generated sufficient internal cash flows to meet with the cost of fixed assets as well as capital work-in-progress. In spite of this fact the assessee has capitalised a sum of Rs. 7.09 crores in the books of account. The learned Principal Commissioner of Income-tax has also not disputed that the total investments were merely 10 per cent. of the interest-free funds available with the assessee-society. We also find that a consistent vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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