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TMI Blog2023 (11) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... n dated 28th August 2008, issued by the Central Government. DR in addition to the judgment relied upon by the ld. AO and that of the ld. CIT(A) has also relied upon the judgment of the Bank of India Vs. ACIT [ 2020 (12) TMI 862 - ITAT MUMBAI] wherein the judgment and circular relied upon by the ld. AR of the assessee is discussed at length and even though the decision is given in the favour of the revenue by holding that as a result of the amendment w.e.f. 01.04.2004 by which section 3 to section 90 has been brought to tax in the statute from the assessment year 2004-05 there is a clear departure from the earlier position wherein the courts have interpreted the expression may be taxed in as much as now the central government which is one of the contracting state has been empowered to assign meaning to the various terms and expressions and used in the agreement. Once the tax is payable or paid in the country of source, then country of residence is denied of the right to levy tax on such income or the said income cannot be included in return of income filed in India, would no longer apply after the insertion of provision of sub-section (3) of section 90 w.e.f. 1st April, 2004, i.e. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1)(c) of the Income tax Act according to which global income of a resident is taxable in India. Accordingly AO made addition of rental income of Rs. 15,22,442/- by taking the amount of rent for the period 01.07.2017 to 30.06.2018 (Australian FY) as calculated at Pg 6-8 of the order. 4. Aggrieved from the order of the AO, assessee preferred an appeal before the ld. CIT(A)/NFAC. The Ld. CIT(A) from Pg 19 to 31 of the order after referring to section 90(3) of the Act, CBDT Notification No.91/2008 dt. 28.08.2008, decision of Mumbai ITAT in case of Essar Oil Ltd. Vs. Addl. CIT 42 taxmann.com 21 which is extensively quoted at Pg 20-28 of the order and the decision of Mumbai ITAT in case of Shah Rukh Khan Vs. CIT 79 taxmann.com 227 after distinguishing the decision of ITAT, Delhi Bench in case of Natasha Chopra Vs. DCIT 196 ITD 185 on the ground that this decision has not considered the decision of ITAT, Mumbai Bench in case of Essar Oil Ltd. and Shah Rukh Khan held that income from property in Australia is also liable to be taxed in India and thus upheld the order of AO. 5. Feeling dissatisfied from the ld. order of the ld. CIT(A) the assessee has preferred this appeal on the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed …… 3. From the close reading of above articles it can be noted that wherever the treaty intends to tax a particular income in both the contracting states, it has been specifically mentioned in the article. Thus the business profits, profit from operation of ships & aircrafts, dividend income and royalty income is taxable in both the contracting states by specifically providing it in the article. However, in Article 6 it is provided that income from real property may be taxed in the contracting state in which that property is situated but it is not provided that it may also be taxed in other contracting state of which the person is resident whereas such clause is specifically provided in Article 8, 10 & 12. Thus the rental income can be taxed only in the contracting state in which that property is situated and the same cannot be taxed in the contracting state of which the person is resident. 4. In this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as distinguished the above case only for the reason that the decision of Mumbai ITAT in case of Essar Oil Ltd. and Shah Rukh Khan has not been considered in this decision. However, in holding so it ignored the fact that the decision in case of Essar Oil Ltd. (PB 32-36) is in respect of DTAA between India and Oman/Qatar and the issue was with reference to Article 7 dealing with business profits and thus this case is not applicable. Similarly the decision in case of Shah Rukh Khan (PB 37-40) is in respect of DTAA between India and UAE and the issue was with reference to Article 6, i.e. Income from immovable property which provided that 'income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.' Thus this article specifically provides for taxation of the immovable property situated in other contracting state i.e. the contracting state of resident, whereas Article 6 of DTAA with Australia do not provide for taxation of income from immovable property in the contracting state of resident. Thus this decision is also not applicable on the assessee. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the contention of the Revenue that the expression "may be taxed in other State" gives the option to the other State and the State of residence is not precluded from taxing such income cannot be accepted. The reliance of the Revenue on art. 23 is also misplaced. It has been contented that art. 23 gives credit of tax paid in the other State to avoid double taxation in cases like the present one. Such provisions have been made in the treaty to cover the cases falling under the third category mentioned in the preceding para i.e., the cases where the income may be taxed in both the countries. Hence, the cases falling under the first or second categories would be outside the scope of art. 23 since income is to be taxed only in one State. Thus the articles of DTAA specifically provides for certain income which shall be taxed only in the state of resident, certain income to be taxed in other contracting state, i.e. state of income source and certain income which may be taxed in both the contracting states. In the present case, Article 6 of DTAA with Australia in respect of income from immovable property specifically provides that such income to be taxed in other contractin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra, the ld. DR submitted that once tax is payable or paid in the country of source then the country of resident denied of right to levy tax on such income or the said income cannot be included in the return of income filed in India would no longer apply after insertion provision of subsection 3 of section 90 with effect from 1st April, 2004 relevant to A.Y 2004- 05. The argument made by the assessee is not valid law and therefore, she relied upon late decision in the case of Bank of India vs. ACIT [2020] 122 taxmann.com 247 (Mumbai-Trib.) in addition to what has been detailed discussed in the order of ld. CIT(A) and therefore, relying on this decision find of ld. CIT(A). The ld. DR submitted that the appeal of the assessee is not maintainable. 8. Heard the parties, perused the material and judicial decision cited before us to drive home to the respective contentions so raised by the parties. In the instance case the only short grievance of the assessee is that the lower authority has erred in confirming the addition of Rs. 15,22,442/- under the head income from house property in respect of rental income received from two properties situated in Australia. On this issue the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Australian FY) as calculated at Pg 6-8 of the order. 8.4 In the first appeal the Ld. CIT(A) from Pg 19 to 31 of the order after referring to section 90(3) of the Act, CBDT Notification No.91/2008 dt. 28.08.2008, decision of Mumbai ITAT in case of Essar Oil Ltd. Vs. Addl. CIT 42 taxmann.com 21 which is extensively quoted at Pg 20- 28 of the order and the decision of Mumbai ITAT in case of Shah Rukh Khan Vs. CIT 79 taxmann.com 227 after distinguishing the decision of ITAT, Delhi Bench in case of Natasha Chopra Vs. DCIT 196 ITD 185 on the ground that this decision has not considered the decision of ITAT, Mumbai Bench in case of Essar Oil Ltd. and Shah Rukh Khan held that income from property in Australia is also liable to be taxed in India. Thus upheld the order of AO. 8.5 Now, the assessee has challenged the finding of the lower authority for single pointed issue that whether the rental income received from the properties situated at Australia on which income tax is paid in Australia could be also taxed in India or not. Here it is not under disputed that the assessee is tax resident of India. To decide this issue, we carefully considered the arguments of both the parties, persuad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprise which has branch offices abroad inasmuch as whatever we decide in this case of a public sector undertaking will have equal application in other cases of Indian companies having branch offices abroad in the countries with which India has entered into the double taxation avoidance agreements. The related grounds of appeal are as follows: "3. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing exclusion of profits of branches of the Appellant Bank situated in countries with whom India has entered into a Double Taxation Avoidance Agreement (DTAA) namely United Kingdom, France, Belgium, Kenya, Japan, United States of America, Singapore, China and South Africa (herein after referred to as "foreign branches of the Appellant Bank") aggregating to Rs. 1408,32,77,584 and the Hon'ble CIT(A) has erred in upholding the decision of the learned ACIT. The learned ACIT be directed to allow deduction for exclusion of profits of foreign branches of the Appellant Bank aggregating to Rs. 1408,32,77,584 and reduce the total income accordingly. 3A. Without prejudice to Ground no. 3 above, assuming without accepting that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to tax abroad, under article 7 of the applicable double taxation avoidance agreement, the same income cannot again be taxed in India. On the first principle, the merits of this argument, merit if there is any, could only be its simplicity, or naivety- to be more apt, in its approach. It proceeds on the fallacy that there is only one method of relieving double taxation of an income, due to inherent conflict of the source taxation vs residence taxation rule, and that method is exemption method, and that is the method of relieving double taxation of income in the Indian tax treaties as well. Nothing can be farther from the truth. Not only that credit method is an equally, even if not more, effective a method of relieving double taxation of income in a cross border situation, that is the method which is used in an overwhelming majority of the Indian tax treaties- including, of course, all the tax treaties that we are concerned about in this case. What essentially follows is that the so far income of the branches, which are subjected to tax abroad under the respective tax treaties, is to be included in the taxable income of the assessee, and so far as taxes paid abroad are concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that "according to many judicial precedents cited below, it has been held that under a tax treaty, it has been provided that tax 'maybe' charged in a particular state in respect of specified income, it is implied that tax will not be charged by the other state in respect of such income". As noted in the DRP's order, further at page 11, the contentions of the assessee have been that "it has been held that once an income is held to be taxable in a particular jurisdiction under a tax treaty, unless there is a specific mention that it can be taxed in the other jurisdiction as well, the latter is denuded of the powers to tax such income" and that "accordingly, income earned by the foreign branches in UAE and Qatar where the assessee was forming PE should not be liable to tax in India based on relevant tax treaties". The assessee has also relied upon a large number of judicial precedents, including the judicial precedents in the cases of PAVL Kulandayan Chettiar v. ITO [1983] 3 ITD 426 (Mad.) (SB), which has been upheld right upto Hon'ble Supreme Court P.V.A.L. Kulandayan Chettiar (supra) and a review petition has also been dismissed by H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 90, the law laid down by Hon'ble Supreme Court in the case of CIT v. PVAL Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC) will hold the field, and, therefore, income taxable in the source jurisdiction under the treaty provisions cannot be included in total income of the assessee. He hastens to add, and rather curiously so, that he would once again urge us not to decide the matter on merits and simply remit the matter to the file of the Assessing Officer. Learned Departmental Representative, on the other hand, vehemently relies upon the stand of the authorities below, and leaves the matter to us. 6. For the sake of completeness, we may also place on record that the fact that in assessee's own case for the assessment year 2012-13, the Dispute Resolution Panel has given relief of Rs. 10,81,17,104 on this issue, and likewise for the assessment year 2013-14, the Dispute Resolution Panel has given relief of Rs. 28,47,44,212 on the same issue. That is what probably explains the assessee's eagerness to go back to the assessment stage, and claim it as a covered issue before them. The reasoning adopted by the Dispute Resolution Panel, for example for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is deemed to be a resident of a Contracting State where his personal and economic relations are closer, then his residence in India will become irrelevant. The Treaty will have to be interpreted as such and prevails over sections 4 and 5 of the Act. Therefore, we are of the view that the High Court is justified in reaching its conclusion, though for different reasons from those stated by the High Court. 8. We are, at this stage, not concerned about how the above legal position was at some variance with the first principles and what impact the aforesaid decision had on the workability of the double taxation relief mechanism. It would appear that the very scheme of tax credit, as envisaged in the international tax treaties, was perhaps rendered redundant. There was no question of tax credits being granted in India in view of the fact that any income taxed by source jurisdiction abroad was held to be exempted from taxation in India, and if these tax credits were to be granted it would have resulted in plain and simple refund of the taxes paid abroad since the incomes relating thereto were held to be not at all taxable in India. A double dip of losses abroad, howsoever inappropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. 11. The effect of Hon'ble Supreme Court's judgment in Kulandagan Chettiar's case (supra) thus was clearly overruled by the legislative developments. It was specifically legislated that the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that "such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accordingly". On a similar note, under section 24 of the General Clauses Act, "Where any Central Act or Regulation, is, after the commencement of this Act, repealed and reenacted with or without modification, then, unless it is otherwise expressly provided any appointment notification, order, scheme, rule, form or bye-law, made or issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted……." The scheme of law is thus unambiguous. Its only when an notification issued under the old statutory provision, whether repealed or modified, is inconsistent with the corresponding new statutory provisions, that such an notification ceases to hold good in law. In a rather recent judgment in the case of Fibre Boards (P.) Ltd. v. CIT [2015] 62 taxmann.com 135/[2017] 376 ITR 596 (SC), Hon'ble Supreme Court has reiterated this principle, and, inter alia, observed as follows: 34. In CIT v. Venkateswara Hatcheries (P.) Ltd . [1999] 237 ITR 174/103 Taxman 503 (SC), this Court was faced with an omission and re-enac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration by the coordinate bench was pre 1st October 2009 situation, and the coordinate bench was of the view that "at least" for this period, the validity of notification cannot be called into question. As held by Hon'ble jurisdictional High Court in the case of CIT v. Sudhir Jayantilal Mulji [1996] 84 Taxman 205/[1995] 214 ITR 154 (Bom.), a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observations which find place therein". The issue regarding validity of notification after 1st April 2009 was not before the coordinate bench, and these observations thus have no relevance on the proposition being canvassed before us. The law laid down by Hon'ble Supreme Court, as analysed above, is against the plea advanced by the learned counsel. In any case, the argument of the learned counsel, howsoever absurd, destroys his own case. If all the notifications under the old section 90 are to be held to be not good in law under the present section 90, the assessee cannot claim the benefits of the related tax treaties either since these treaties were also notified prior to 1st April 2009. 15. Let us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no change in statutory provisions after the Kulangadan Chettiar's judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee's representative before the DRP, as indeed before us, is, would really be oblivious of the correct legal position and it was anything less than a calculated ignorance, before the DRP, on the basic legal position. Advising the correct legal position and then making whatever aggressive claim one makes is one thing, but not explaining the correct legal position and then hoping to succeed with the claim, by keeping the adjudicator in dark about the statutory developments, is quite another. The path chosen by the assessee could have fallen in the first category if submissions were made before the DRP about the amendment in law by way of Section 90(3) and notification thereunder, and yet the exemption claim was to be justified due to no fresh notification being issued after the substitution of section 90(3) with effect from 1st October 2009. That is not the case. In any case, the DRP deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28th August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The notification deals with connotations of the expression "may be taxed", appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor to do we see any justification for inferring the same. Learned counsel does not have any material whatsoever in support of the proposition canvassed by him, nor does this pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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