Uttarakhand High Court Judgments — 2015

The High Court held that a review petition under Section 260A of the Income Tax Act can only be entertained on the ground of an error apparent on the face of the record. The Court found no such error apparent on the face of the record in the judgment sought to be reviewed. Regarding the first issue, the Court noted that the Assessing Officer and the first appellate authority had proceeded based on Article 5(2)(j). The Tribunal had declined to consider PE under Article 5(2)(a), (b), and (c) because the Revenue's case was based solely on the Mumbai address, and there was no evidence that business was carried on from that office, nor had the Revenue moved an application for additional evidence. The Court observed that the appeals were never admitted, and the question of law concerning Article 5(2)(a), (b), and (c) was not formulated by the Court. The Court concluded that the Revenue had not established an error apparent on the face of the record. The Review Petitions were dismissed. The second issue regarding interest income was not explicitly decided on merits as the review petitions were dismissed on procedural grounds.

The High Court held that the ITAT was correct in its view. The Court noted that while Section 37 of the Income Tax Act, 1961, has an explanation to prevent claims for revenue expenditure prohibited by law, no law was brought to its notice that prohibited the kind of activities the assessee engaged in. The Court found no illegality in the commission paid for liaison work, stating that illegal activity is one prohibited by law, and there was no infraction of any law. The Court reasoned that the payment of commission for liaison work, which ultimately led to securing a contract, cannot be faulted as prohibited by law. Therefore, the expenditure was considered legitimate business expenditure. The substantial question of law was answered against the appellant (Revenue).

The High Court held that the interest paid on refund to the assessee should be treated as business income and taxed at a higher rate, not 15% as contended by the assessee. The Court reasoned that Article 12(6) of the India-UK DTAA is applicable because the assessee, being a resident of the UK, carried on business in India through a permanent establishment, and the debt claim in respect of which interest was paid was effectively connected with such permanent establishment. As per Article 12(6), the provisions of Article 7 (Business profits) of the DTAA apply in such cases. The Court found no error in the Assessing Officer's assessment, which was upheld by the appellate authorities. Regarding Section 44BB of the Act, the Court held that the interest paid by the Income Tax Department does not fall within the scope of Section 44BB(2)(a) as it is not on account of the provision of services and facilities in connection with the supply of plant and machinery. The questions of law were answered against the appellant.

The High Court held that Section 44BB provides a special scheme for taxation of non-residents engaged in specific activities related to mineral oil exploration. The provision clearly states in sub-section (2) that amounts paid or payable (whether in or out of India) and amounts received or deemed to be received in India on account of services rendered or plant and machinery supplied in connection with mineral oil operations outside India are to be included for calculating the aggregate amount under Section 44BB. The Court found no merit in the appellant's contention that Section 5(2) would prevent the inclusion of income received outside India, as Section 44BB is a special provision designed to simplify the computation for such non-residents. The Court noted that the appellant had not invoked the benefit of sub-section (3) of Section 44BB, which allows for claiming lower profits by maintaining books of account. Therefore, the mobilization advance received outside India was rightly included for calculating income under Section 44BB. The questions were answered against the appellant.