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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI L. P. SAHU & SMT. BEENA A. PILLAI
ORDER
PER BEENA A. PILLAI, JM:
The present appeal has been filed by the assessee against order dated 21.03.2016 passed by Pr.CIT-6, New Delhi, under section 263 of the Act, on the following grounds of appeal:
(1) The order passed by the Principal Commissioner of Income Tax-6, New Delhi is arbitrary, biased and bad in law and in facts and circumstances of the case. (2) The Principal Commissioner of Income Tax-06 has grossly erred in assuming jurisdiction under section 263 of the Act without order of the Assessing Officer being erroneous and pre-judicial to the interest of revenue. (3) The Principal Commissioner of Income Tax-06 has grossly erred in holding that the income from house property of the appellant from properties owned by her in Australia and England was to be included in her Indian return of income. (4) The Principal Commissioner of Income Tax has grossly erred in assuming jurisdiction under section 263 ignoring that the Assessing Officer had adopted a possible view in the matter in view of which provisions of section 263 could not be invoked. (5) The Principal Commissioner of Income Tax has grossly erred in disregarding the provisions of Double Taxation Avoidance Agreement (DTAA) between India and Australia and India and UK to direct the Assessing Officer to re-examine the issue of taxability of income from properties held in Australia and England. (6) The appellant craves leave to add, alter or delete the above grounds of appeal at the time of hearing.
Assessee is an individual and had filed her return of income on 31.08.2012 declaring a total income of Rs. 2,55,38,539/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued, which was served upon the assessee. Notice under section 142(1) along with detailed questionnaire was sent to the assessee subsequently. In compliance to various notices issued representative of assessee attended assessment proceedings from time to time and filed replies/details as called for during the course of the assessment proceedings.
The assessing officer observed that assessee is a director in M/s N & N Chopra Consultants Pvt. Ltd., and was deriving salary and rental income from this company. It has been observed by Ld.AO that during the year under consideration assessee has also earned income from house property and income from other sources being bank interest.
After considering all the details as called for, assessing officer completed assessment proceedings under section 143(3) of the Act on 31.03.2015. The Ld. Pr. CIT issued show cause notice on 16.12.2015 under section 263 of the Act, to revise assessee’s income under the head income from house property. The notice issued by Ld. Pr.CIT is reproduced herein below:
“The Income Tax assessment records in your case for the Assessment Year 2012-13 were called for and examined. I have noticed that in your case the Assessing Officer, Circle-18(2), New Delhi while computing income from house property has not taken into account the let out value of the three properties which were owned by you and situated in U.K. and Australia which is in violation to provisions of Section 5 read with Section 22 of the Income Tax Act, 1961 and the provisions of Double Taxation Avoidance Agreement between Republic of India and the Government of Australia as well as the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland. In view of this, the order passed by the Assessing Officer u/s 143(3) of the Act on 31.03.2015 is not only erroneous in law but also prejudicial to the interest of Revenue. I, therefore, intend to exercise the powers vested with me under section 263 of the Income Tax Act, 1961 to pass an appropriate order. You are hereby required to show cause why an order under section 263 of the Income Tax Act 1961 should not be passed to revise the assessment order passed by the Dy. Commissioner of Income Tax, Circle 18(2), New Delhi on 31.03.2015 under section 143(3) of the I.T, Act 1961, For this purpose, you may attend my office at the above given address on 30.12.2015 at 10.30 AM for personal hearing.
It was submitted before Ld. Pr. CIT that all the relevant details regarding the income earned by the assessee from house property is located in UK and Australia have been declared in the income tax returns filed by her in the respective States. On a specific query being raised by the assessing officer, assessee filed replies dated 15.01.2016 and 03.02.2016 wherein it was submitted that all the details relating to the income received by assessee from immovable properties located in UK and Australia along with the return of income filed in the respective States were submitted before the Ld. AO.
Ld. Pr. CIT rejected the submissions made by assessee and held as under:
“15. For afore stated reasons, it is concluded that income from house property of the assessee from her properties located in Australia as well as United Kingdom was taxable under section 5(1)(c) r.w.s. 22 and 23 of the Act during year under consideration and India had right to tax the income as provided under section 90(3) and Notification No. 91/2008 issued u/s 90(3} read with Explanation 3 to section 90 of the Act. Since, income from the house property is not taxed under Income Tax Act of the respective countries and the assessee had not paid any taxes, the provisions of the DTAA are not applicable to taxation of the income from house property of the assessee and the right to tax the income from the house properties of the assessee located in Australia and United Kingdom is with India as provided in Notification No. 91/2008 dated 28.08.2008 issued u/s 90(3) read with Explanation 3 to section 90 of the Act The assessee has objected to the revision u/s 263 of the Act, of order passed by the AO u/s 143(3) dated 31.03.2015. In support of its claim, the assessee has relied upon various judicial pronouncements of different courts which have been considered. In view of the discussion in preceding paragraphs of this order it is clearly established that the order passed by the AO u/s 143(3) dated 31.03.2015 is not only erroneous in law and but also prejudicial to the interest of revenue and falls under the purview of the section 263 of the IT Act, 1961.
Aggrieved by the order passed by Ld. Pr.CIT, assessee is in appeal before us now.
The Ld.AR submitted that Ld. Pr. CIT has erred in observing that assessing officer has allowed the claim of assessee without verifying whether income from house property from aforesaid properties was actually taxed in the contracting States and without examining the relevant legal provisions that gave the option to the assessee to choose the country of taxation. He further submitted that assessing officer was furnished with the copies of the income tax returns filed by the assessee in these contracting States (placed at page 3 to 38 of paper book), and had submitted explanation for not including such income of properties held outside India in the return of income filed by assessee for the year under consideration in India. He submitted that vide letter dated 27/03/2015, all these details were provided to ld.AO, which is placed at page 39 to 41 of the paper book.
Ld. AR further submitted that Article 6 of DTAA between India and UK and India and Australia permits the country where property is situated, to tax the income from such property. The phrase “may be taxed”, itself suggests that assessee has an option to include such income received from properties located in the other contracting State, in the tax returns filed therein. Ld.AR submits that language of treaty in clause (1) of Article 6, uses phrase “may be taxed”, which also means that once the income is taxed in a particular state, there is an automatic exclusion for taxing the same income in the other contracting state. He referred to and relied upon various decisions of Hon’ble Supreme Court and High Courts, wherein it has been laid down that while referring to an obvious position, such enabling language has to be liberally used and the same cannot be taken advantage of by the revenue to claim for it a right to bring to assessment such income covered under such clauses in the agreement.
Ld. AR placed is reliance upon the decision of Hon’ble Delhi High Court in the case of NTPC Ltd. vs. CIT reported in (2014) 106 DTR 0073, wherein it has been held that:
“22. The expression “error of law” resulting in prejudice to the interests of the revenue are not to be given wide connotation, as is sought to be urged by the Revenue here. Where two views are possible, the Commissioner should not exercise his power under Section 263; Leisure Wear (supra) aptly summarizes this power as not enabling a revisional interdict on the mere existence of another view which conflicts with what was adopted by the Income Tax Officer; so long as the latter’s opinion is a plausible one, exercise of power would be unwarranted. The fulfillment of both preconditions, i.e. error of law, and prejudice to revenue is essential, else the revenue would have wide ranging powers to oversee and re-open almost every assessment order. In the present case, the court is satisfied that the AO’s order was made after appropriate inquiry; the absence of discussion regarding downward revision of sales figures in this case did not make it any less vulnerable to correction under Section 263. The view taken by him is one which is endorsed by law, as the CERC Regulations left the NTPC with little choice to make such revision awaiting a final determination in regard to the whole period after the expiry of the assessment in that instance.”
Ld. AR submitted that Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., reported in 243 ITR 83, has held that assumption of jurisdiction under section 263 is valid only where the order of assessing officer is erroneous as well as prejudicial to the interest of revenue’s. He also referred to and relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd., reported in 203 ITR 108, wherein Hon’ble Court held that, CIT cannot revise order merely because he disagrees with the conclusion arrived at by AO.
On the contrary, Ld. DR contended that the assessee being a resident in India, his income from whatever source is liable to be taxed India. He submitted that as per subsection (3) and section 90, any term that has been used but not defined in this act or in the agreement referred to in subsection (1) shall unless the context otherwise requires, and is not inconsistent with the provisions of this act or agreement, have the same meaning as assigned to it in the notification issued by Central government in the official Gazette on this behalf. Ld. DR relied upon Notification No. 91/2008 dated 28/08/2008. He submitted that CBDT why this notification had defined the term “may be taxed” to mean that any income arising from another contracting state would be taxable in India.
Ld. DR relied upon the decision of Ld. Pr. CIT.
We have perused the arguments and submissions advanced by both the parties in the light of the records placed before us. There is no dispute with reference to the fact that assessee is receiving income from rentals from properties situated at Australia and UK. It is further not been disputed by the authorities that such income from rentals have been offered to tax in the country where it is situated. It was accordingly assessed by A.O. Ld.ITO in this case had made enquiries regarding to the nature of income earned by assessee from immovable property located in UK and Australia. Assessee had given explanation, in writing along with the proof of taxes being paid on such rental income in the other contracting state. All these are part of case records. Evidently, the claim was allowed by Ld.AO, on being satisfied with the explanation of assessee. Such decision of Ld.AO cannot be held to be "erroneous". Moreover, in the instant case Ld.Pr.CIT himself, even after initiating proceedings for revision and hearing assessee, could not say that assessee has failed to pay any taxes in the other contracting state. Further there is no apprehension regarding the disclosure made.
Further Article 6 of India –UK and India –Australia DTAA reads as under; “Income from immovable property may be taxed in the Contracting State in which such property is situated.”
Result of clause 1 of Art. 6 of Double Taxation Avoidance Agreement between India UK and India Australia Agreement is that the income from immovable property in these contracting states, may be taxed in the contracting state in which it is situated. The Agreement thus operates as a bar on the power of the Indian Government in the instant case.
The power of suo motu revision under sub-s. (1) of s. 263 is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. An order cannot be termed as erroneous unless it is not in accordance with law.
Even on merits, we are of the opinion that the order of A.O. is neither erroneous nor prejudicial to the interests of Revenue so as to revise the same under section 263. Assessee has offered to tax the rental incomes from the property’s situated outside India in the other contracting state. As per the DTAA agreement with both these countries, income from house property may be taxed in the country where the properties are situated. Accordingly, we are inclined to set aside and quash the order passed by Ld. Pr. CIT.
In the result the appeal filed by the assessee stands allowed.
Order pronounced in the open court on 16th December, 2016.