Revisional Jurisdiction cannot be Invoked on ground of Uncertain Issue of Entitlement of Treaty Benefit: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that revisional jurisdiction could not be invoked on the ground of uncertain issue of entitlement of treaty benefit.

Assessee Tata NYK Shipping Pte. Ltd. is a non-resident corporate entity incorporated in Singapore and a tax resident of Singapore. They engaged in the business of owning, operating and chartering of ships to carry dry bulk and break bulk cargo, including coal, iron ore, bauxite and steel products Etc.Assessee Company was a joint venture with other companies.

In the course of the scrutiny assessment the assessment officer noticed that the assessee had entered into international transactions with its Associated Enterprises (AEs), the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) to examine the arm’s length nature of such transactions.

After considering the order of the Transfer Pricing Officer  passed under section 92CA(3) of the Income tax Act 1961 , the Assessing Officer ultimately completed the assessment accepting the income declared by the assessee.Therafter the Commissioner Of Income Tax (CIT)conclude that the order passed by the assessing officer was erroneous and prejudicial to the interest of revenue and he initiated proceedings as per section 263 of Income Tax Act 1961 and passed order. Against this order assesse filed an appeal before the (ITAT)

Ajay Vohra counsel for the assessee submits that CIT has committed gross jurisdictional error in invoking powers under section 263 of the Income Tax Act, 1961 in respect of issues which are beyond the scope of limited scrutiny for which the assessment proceedings were initiated

Fuhrer is a tax resident of Singapore having valid TRC, Assessing Officer’s decision in allowing exemption in respect of income from shipping business in international traffic under Article 8 of the Treaty could not be said to be erroneous and prejudicial to the interest of Revenue.”

Gangadhar Panda counsel for the revenue observed that the treaty benefits are available to a person who is a tax resident of either of the two contracting states. Referring to Article 4(1) of India–Mauritius treaty, also it observed that the resident of a contracting State shall be the one who is liable to tax under the laws of that State.

Moreover Income from shipping activity is exempt from tax in Singapore as per the domestic law of the country. Therefore, the assessee could not be treated as a tax resident of Singapore as it was not liable to tax in Singapore. Thus, the assessee is not entitled to any tax treaty benefit.

Once the treaty benefits are not available, the receipts of the assessee have to be taxed under the Income Tax Act by applying the source rule as per section 5(2) read with section 9 of the Income Tax Act, 1961

After considering the contentions of the both parties the division bench of the ITAT comprising Saktijit Dey, (Judicial Member) and Pradip Kumar Kedia, (Accountant Member) allowed the appeal filed by the assessee and observed that,

In the course of hearing, the Departmental Representative has made extensive arguments on the issue of treaty shopping, non-reporting of transactions with AEs in Form 3CEB report and various other issues. we are not able to take cognizance of such arguments as such issues were neither dealt with by learned CIT in the show-cause notice, nor in the revision order, hence, are extraneous for the purpose of adjudicating the validity of the order passed under section 263 of the Income Tax Act,1961.

Further the bench determined that, “CIT was not justified in assuming jurisdiction under section 263 of the Income Tax Act, 1961 to revise the assessment order as the assessment order cannot be considered to be erroneous and prejudicial to the interest of revenue.”

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