DIRECTOR INCOME TAX INTERNATIONAL TAXATION vs. M/S HYUNDAI HEAVY INDUSTRIES CO. LTD.

Facts

The Revenue appealed against a common order dated May 29, 2009, passed by the Income Tax Appellate Tribunal (ITAT) for assessment years 1997-1998 to 2004-2005. The appeal challenged the ITAT's findings regarding the interpretation of Article 5 of the Double Tax Treaty Agreement and the computation of presumptive income under Section 44BB of the Income Tax Act. The Revenue argued that the ITAT erred in holding Article 5(3) as a special provision overriding Clauses (1) & (2) of Article 5, and that the assessee's Bombay office constituted a Permanent Establishment. Additionally, the Revenue sought to raise a new contention regarding the deduction of sub-contractor payments in computing presumptive income under Section 44BB, which was not raised before lower authorities.

Held

The High Court held that the contention regarding the deduction of payments to sub-contractors under Section 44BB of the Income Tax Act, raised for the first time during the hearing of the appeal, was impermissible. The Court distinguished the present case from precedents cited by the Revenue, noting that in those cases, the issues were either raised before lower authorities or were pure questions of law. The Court found that the assessment order regarding income arising within India had attained finality and that the issue was not raised before the CIT(A) or ITAT, nor was it part of the grounds of appeal before the High Court. Therefore, it was not a pure question of law unrelated to facts that could be raised for the first time under Section 260A. The Court saw no reason to entertain the appeal on this question. The appeal was dismissed.

Key Issues

1. Whether the Tribunal's finding that Article 5(3) of the Double Tax Treaty Agreement is a special provision overriding Clauses (1) & (2) of Article 5 is perverse, and if the assessee's Bombay office constitutes a Permanent Establishment, thereby making one percent of its total receipts arising outside India attributable to it (Section 5 of the Income Tax Act, Article 5 of the DTAA). 2. Whether the Revenue can raise a new contention for the first time during the appeal regarding the deduction of payments made to sub-contractors while computing presumptive income under Section 44BB of the Income Tax Act. Assessee's Arguments: - The Revenue had not raised the issue of income arising outside India before the ITAT, and since Section 260A appeals are limited to substantial questions of law, the Revenue cannot raise this issue for the first time. - The assessment order regarding income arising within India had attained finality, and this issue was not raised before the CIT(A) or ITAT, nor was it part of the grounds of appeal before the High Court. It is not a pure question of law. Revenue's Arguments: - The Tribunal's finding on Article 5(3) is perverse, and the Bombay office is a Permanent Establishment. - The Revenue sought to raise the issue of sub-contractor payments under Section 44BB for the first time, relying on Supreme Court and High Court judgments that allow raising new contentions in certain circumstances, even if not raised before lower authorities.