Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “E ” BENCH, MUMBAI
Before: SHRI RAJENDRA & SHRI C.N. PRASAD
आदेश / O R D E R PER C.N. PRASAD, JM:
2 C.O. No. 7/M/15 This appeal is filed by the Revenue and the cross objection is filed by the assessee against the order of the Ld. CIT(A) 11, Mumbai dated 22/8/2013 pertaining to Assessment Year 2004-05 arising out of the assessment order passed u/s. 143(3) r.w. Section 147 of the Act.
Brief facts are that the assessee is an individual and a tax resident of Switzerland filed return of income showing net taxable income at Rs. 1,38,66,905/-. In the return filed, the assessee claimed capital gains on transfer of units of Mutual funds as exempt from taxation in India in terms of the provisions of Article 13(6) of the Indo Swiss Tax Treaty. The interest income received by the assessee was disclosed as taxable income @ 10% in terms of Article 11 of the Indo Swiss Tax Treaty. The assessment was completed u/s. 143(3) on 28.12.2006 wherein the Assessing Officer did not accept the contention of the assessee that investment in mutual funds is exempt from taxation in India because according to the Assessing Officer investment in mutual fund was akin to investment in shares and the gain from alienation of shares was taxable in India in terms of Article 13(5)(b) of the Indo Swiss Tax Treaty. Accordingly, the assessment was completed by the Assessing Officer computing capital gains. The Assessing Officer also allowed indexation in computing the capital gains.
The assessee preferred an appeal before the Ld. CIT(A) and the CIT(A) by order dated 27.5.2009 held that the benefit of Indo Swiss Tax Treaty was available to the assessee, mutual funds are not akin to shares in terms of the provisions of Article 13(6) of the tax treaty, the 3 C.O. No. 7/M/15 capital gains arising on transfer of units of mutual funds were taxable only in Switzerland and not liable to tax in India. As the things stood thus, the assessment was reopened u/s. 147 of the Act and an order was passed on 23.12.2011 under section 143(3) r.w. Sec. 147 of the Act withdrawing the benefit of indexation allowed by the Assessing Officer in the original assessment proceedings while computing the capital gains on mutual funds. On appeal, the Ld. CIT(A) held that as the CIT(A) in original assessment proceeding decided that the capital gains is not liable to be taxed in India because of the benefit available to non-resident assessee under the relevant tax treaty and this decision was also affirmed by the Tribunal by order dated 14.8.2013 in ITA No. 4627/M/2009, the issue has been concluded in favour of the assessee, the addition by withdrawing indexation on the same account in the reassessment order will not be justified. He held that such addition should not have been made in the reassessment order and deleted the addition made by withdrawing the indexation by the Assessing Officer.
The Ld. Counsel for the assessee submits that the assessment u/s. 147 made by the Assessing Officer will not survive in view of the Tribunal’s order affirming the decision of the Ld. CIT(A) in holding that the capital gain arising on account of sale of mutual funds cannot be taxed in India as per the provisions of Article 13(6). The Ld. Counsel for the assessee places strong reliance on the order of the Tribunal.
The Ld. Departmental Representative vehemently supports the order of the Assessing Officer in reopening the assessment.
We have heard the rival submissions, perused the orders of the authorities below and the Co-ordinate Bench decision against 143(3) proceedings. In this case the original assessment was made u/s. 143(3) by the Assessing Officer assessing income from mutual funds in the hands of the assessee as taxable capital gain and while doing so the Assessing Officer computed the capital gains allowing indexation to the assessee. The assessment was reopened u/s. 147 subsequently on the ground that the indexation was erroneously allowed to the assessee while computing the capital gains. We find that the Tribunal while dealing with the issue of chargeability of capital gains to tax in India in the hands of the assessee, affirmed the order of the Ld. CIT(A) in holding that such capital gains is not chargeable to tax in India by observing as under:
“We have perused the records and considered the rival contentions carefully. The dispute is regarding taxability of capital gain arising on account of sale of mutual fund units in India by the assessee, who is a non resident based in Switzerland. The assessee has claimed the benefit of Indo Swiss tax treaty and argued that the capital gain is not taxable in India under the provisions of Article 13(6) of the IndoSwiss tax treaty. The said Article has been reproduced in para 3 of this order, which deals with taxability of capital gain arising on transfer of different types of assets Article 13(4) and 13(5) deal with gain arising from alienation of shares. As per Article 13(5) gain arising from alienation of share in a company which resident of India can be taxed in India. The AO had treated the units of mutual fund as shares of Indian company and has held that gain is taxable under Article 5 (b). The case of the assessee is that units of mutual funds are different from shares of Indian companies and have been given different treatment in the Income Tax Act. Reliance has been placed on the judgment of Hon'ble Supreme Court in case of Apollo Tyres (Supra) in which it has been held that units of UTI are not shares of companies. We have carefully perused the said
5 C.O. No. 7/M/15 judgment. In that case the revenue authorities had noted that u/s 32 (3) of UTI Act, trust had been deemed to be a company and any distribution received by unit holder from the trust had been deemed to be income by way of dividend. The revenue, therefore, argued that unit of UTI will have to be considered as shares and accordingly the provisions of Explanation to section 73 shall apply and the business of shares has to be considered as speculation business. Hon'ble Supreme Court observed that even though the section 32(3) had created the fiction to make the UTI a deemed company and distribution of income received by the unit holder a deemed dividend, the deeming provision had to be applied for the purpose for which it had been specifically created. It was confined only to deeming UTI a company and deeming the income from units as dividend. There were no specific provisions for deeming the units as shares. Hon'ble Supreme Court, therefore, upheld the view that units of UTI are not shares of companies. Though the said judgment had been rendered in the context of Explanation to section 73, therefore is also applicable to the present situation which involves the interpretation as to whether units can be considered as shares. In our view in the absence of any specific provision under the Act to deem the unit as shares, it could not be considered as shares of companies and, therefore, the provisions of Article 13 (5) (b) cannot be applied in case of units. We agree with the findings of CIT(A) that provisions of Article 13(6) are applicable in case of units as per which the capital gain cannot be taxed in India. The order of CIT(A) is accordingly upheld”.
Therefore, when once it was held that the mutual funds are not taxable in India, the question of computing capital gains and allowing or not allowing the indexation benefit to the assessee does not arise and it become only academic. In the circumstances, the reassessment made u/s. 143(3) r.w. Section 147 for withdrawing the indexation allowed in original assessment proceedings will not survive. Thus, we hold that the reassessment is invalid. We affirm the order of the Ld. CIT(A).
6 C.O. No. 7/M/15 8. Since we have affirmed the order of the Ld. CIT(A) and held that the reassessment will not survive, the Cross objection filed by the assessee challenging the reopening become infructuous and dismissed.
In the result, the appeal filed by the Revenue and the cross objection filed by the assessee are dismissed.