FEEDERTECH PTE LYD,NERUL, NAVI MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, NARIMAN POINT

On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in upholding disallowance made by Assessing Officer by failing to appreciate that the Appellant assessee's case is liable for relief under Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore on the freight income earned by the Appellant an therefore, the impugned addition of Rs. 3,41,77,870/- made by the Ld Assessing officer is illegal and bad in law and is liable to be deleted.

On the facts and in the circumstances of the case and in law the CIT(A) erred by failing to appreciate that the profits from the operation of ships in international traffic shall be taxable only in Singapore and therefore, the Appellant company has rightly offered the same for the Purpose of taxation in the juri iction of the Singapore.

On the facts and in the circumstances of the case and in law, the Learned CIT(A) failed to consider the fact that, assessee company is eligible to claim relief of the taxable profit under India Singapore treaty.

The Learned CIT did not recognise the fact that, the appellant had submitted all DIT certificates for which DIT exemption was claimed.

On the facts and circumstances of the case and in law, the learned CIT erred in levying interest under section 234B and section 234C of the IT Act despite the fact that the Appellant was not liable to pay any advance tax on the basis of 100% Double Income-tax Relief Certificate issued by the learned CIT.”

The assessee is a company registered under the domestic laws of Singapore and is engaged in the business of operation of ships in international traffic. The assessee earns income from freight from shippers/ customers from the vessel voyages performed. The assessee filed the return of income for AY 2018-19 on 10.09.2018. During the year under consideration, the assessee earned freight income of Rs. 45,57,04,930/- from the vessel voyages performed in the international traffic and claimed the relief under Article-8 of the Double Taxation Feedertech Pte. Ltd.

Ground No.1 pertains to the legal issue of the AO passing the final assessment order under section 143(3) of the Act without issuing the draft assessment order as is required under section 144C of the Act. The ld. AR submitted that the assessee is a non-resident and falls within the definition of eligible assessee under section 144C of the Act. The ld. AR in this regard drew our attention to the return of income filed by the assessee wherein the assessee has clearly mentioned the status as non-resident and in Schedule-FSI (page 66) has declared the details of income outside India and tax relief sought accordingly. The ld. AR further submitted that the assessee instead of treating the income as not Feedertech Pte. Ltd.

The ld. DR on the other hand relied on the order of the lower authority.

We heard the parties and perused the material on record. The primary legal contention of the assessee is with regard to the AO passing the final assessment order without passing the draft assessment order in case of the assessee who is "eligible assessee" within the definition of section 144C(15) of the Act. Therefore, before proceeding further let us look at the provisions of section 144C of the Act.

In assessee's case, it is not in dispute that the assessee is a non-resident foreign company and this fact is being recorded both in the assessment order as well as the CIT(A) order where the residential status of the assessee is being recorded as non-resident. From the perusal of the above provisions of section 144C(1) of the Act, it is clear that the AO should mandatorily issue the draft assessment order before passing the final assessment order in the case of the eligible assessee i.e. foreign company. From the perusal of fact, we notice that the AO has passed the final assessment order without passing any draft assessment order and the fact is not disputed by the Revenue. We notice that the Hon'ble Bombay High Court in the case of International Air Transport Association vs. DCIT [2016} 68 taxmann.com 246 (Bom.)] has considered a similar issue where it has been held that “5. However, it is pertinent to note that the order dated 7th October, 2015 of the DRP in paragraph (3) thereof records that "There is no dispute that the assessee is a foreign company". This position is undisputed even before us. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia mean any foreign company. Therefore, a draft assessment order under Section 144C(1) Feedertech Pte. Ltd.

In the above view, the assessment order dated 23rd March, 2015 passed by the Assessing Officer for the assessment year 2012-13 is completely without juri iction. This is so as it has not been preceded by a draft assessment order. Hence, the foundational/basic order viz. the assessment order dated 23rd March, 2015 is set aside and quashed as being without juri iction. Consequent orders passed on rectification application as well as on penalty are also quashed and set aside being unsustainable.”

Similar view has been expressed in many other judicial pronouncements. As already stated in assessee's case, the revenue has not disputed the fact that the assessee falls within the definition of "eligible assessee" as per the provisions of section 144C(15)(ii) and therefore the AO ought to have passed the draft assessment order before passing the final assessment order. It is relevant to mention that failure of passing of a Draft Order under Sec 144C (1) is not a curable defect since this a violation of a statutory right of the assessee to raise grievance that can be addressed before a final assessment order is passed and appellate proceedings invoked. Therefore, respectfully following the above decision of the Hon'ble Bombay High Court we hold that the final assessment order passed by the AO is liable to be quashed.

Since we have allowed the appeal in favour of the assessee on the above legal contention, the other submissions made on the issue of amendment to section 144C(1) being prospective and also on merits as to the eligibility of the assessee to Feedertech Pte. Ltd.

In result, the appeal of assessee is partly allowed.