Case Law Details
RELEVANT PARAGRAPH
16. On the perusal of the return of income, the statement of total income alongwith notes thereto and form no. 30 claiming refund, filed alongwith the return of income, it is clear that though the assessee had shown total income at Rs. 5,11,68,95,840, the assessee claimed its total tax liability to be Rs. Nil for the reasons given in the notes, and claimed the refund of tax that was deducted at source and deposited under section 191 of the Act aggregating to Rs. 72,67,75,771. It makes it clear that the total tax liability has been computed by the assessee at Rs. Nil in the return of income tiled by it. However, on the other hand, the Assessing Officer has taken the total income at Rs. 5,11,68,95,840 as shown by the assessee in the return of income, but as against “Nil” tax liability shown by the assessee, the Assessing Officer computed the tax liability at Rs. 76,75,34,376 and added thereto the amount of interest charged under section 234A, 234B and 234C, raising a total demand at Rs. 11,1,34,27,096. The dispute in the present case is not with regard to the amount of total income shown by the assessee in the return of income and taken by the Assessing Officer in the intimation made u/s 143(1) of the Act, but the dispute is with regard to the matter as to whether there would be any tax payable by the assessee on the aforesaid amount of total income of Rs. 5,11,68,95,840. The assessee’s case as so made out in the note below to computation of income is that no tax is payable by the assessee on the aforesaid income of Rs 5,11,68,95,840. On the other hand, the Assessing Officer worked out the tax liability ft 15% on the aforesaid income of Rs. 5,11,68,95,840 while preparing the intimation u/s 143(1) of the Act. The Id. Commissioner (Appeals) has stated that the A.O. applied tax at the rate of 15 per cent as per DTAA, as so paid by the assessee under section 191 of the Act.
17. To resolve the controversy in hand, we find it necessary to refer the provisions contained m section 143(1) of the Act as effective from 01.06.1999.
The sub section (1) of section 143 reads as under: –
(1) “Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,-
(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee:
Provided that except as otherwise provided in this sub-section, the acknowledgement of the return shall be deemed to be intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him:
Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made].
Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 3lsl day of March. 2002. “
18. Under sub-section 1 of section 143 effective from 01.06.1999, the A.O, is required to compute tax or interest, which is due on the basis of such return, or to grant refund wherever due, after adjustment of pre paid taxes. Section 143(1) as substituted by the Finance Act, 1999 with effect from 01.06.1999 has dispensed with the intimation permitting prima facie adjustment, which was in vogue till 31st May 1999. The intimation under section 143(1) on or after 01.06.1999 have authorized the Assessing Officer to issue refund or raise a demand strictly on the basis of return furnished by the assessee. Thus, in the present case, we have to see whether the Assessing Officer has raised a demand of tax alongwith interest due thereupon strictly on the basis of the return furnished by the assessee.
19. From the return of income and computation of income alongwith note annexed thereto, it appears to us that the total income shown by the assessee under column “20” of the return of income has been claimed as not chargeable to tax, and, accordingly under the column No. “23” of the return of income, the assessee has shown the tax payable at “Nil”. Similarly, in the computation of income annexed to the return of income the tax payable has been shown at “Nil”. The Assessing Officer have proceeded on the basis of amount of total income shown by the assessee under column No. “20” ‘total income’, and has worked out the tax payable thereupon at the rate of 15 per cent by treating the total income shown by the assessee as “Royalty” chargeable to tax as per Article 12(7) of DTAA between India and U.S.A. In this respect, we find that the scope of section 143(1), as was prevailing at the relevant point of time, permitted the Assessing Officer without requiring the presence of the assessee or production by him of any evidence in support of the return, to deterrnine tax payable or refund due on the basis of return of income filed by the assessee. The return of income filed by the assessee, for the purpose of section 143(1), would include every part of the return of income, and the whole return of income alongwith relevant note, if any, filed explaining the assessee’s liability of tax payable on the amount of ‘income-shown in the-retivrn of mcome, should be read and considered by the Assessing Officer while exercising his power to determine the tax payable or refund due on the basis of return of income. The Assessing Officer must, therefore, determine the tax found due on the basis of the return and not otherwise, when in the return of income, the assessee has claimed that no tax is payable on the income shown therein, as mentioned in column No. 23 of the return of income and has given the reason thereof vide a note annexed to the return filed. All the columns of the return of income alongwith the said note filed alongwith the return must be treated as a part and parcel of the return when the Assessing Officer proceeds to make an intimation under section 143(1) of the Act. Upon considering the scope of section 143(1), we are of the opinion that when the Assessing Officer proposes to differ with the disclosure made in the return and proposes to levy tax at the rate of 15 per cent by treating the amount shown as ‘royalty’ within the meaning of Article 12 of DTAA between India and U.S.A. as against the assessee’s stand that the amount shown in the return is in the nature of business profits and not royalty based on the provisions of DTAA between India, and under Article 7 of DTAA the business profit was not chargeable to tax in India as the assessee did not have any PE in India, an opportunity of hearing to the assessee was required and, therefore, such matter can be gone into under section 143(3) serving notice under section 143(2) and not under section 143(1) of the Act. In other words, nature and character of income as disclosed in return of income cannot be changed to, or substituted by, another nature and character while determining tax payable on that income shown in the return of income, under section143(1) of the Act. The Assessing Officer’s jurisdiction under section 143(1) is limited confining to determine tax payable or refund due on the basis of return of income and not otherwise. The change of character of income from one to the other is not permitted within the powers under section 143(1). This could be done only in regular assessment by issue of notice under section 143(2) of the Act.
20. The application of 15 per cent rate of tax on the amount shown in the return of income will not fall under the category of determination of tax payable on the returned income on the basis of return of income under section 143(1) when the assessee has categorically stated in the note enclosed with the return of income that the returned income is not m the nature of royalty within the meaning of Article 12(7) of DTAA between India and U.S.A. but a business profit not liable to be taxed in India in the absence of any PE in India. There may be a case where the nature of income and rate of tax chargeable thereupon is not disputed but while calculating the tax payable on the returned income there is an error or mistake which could be corrected under this clause, i.e. 143(1). In other words, while calculating the tax as per the rate on the returned income admitted by the assessee in the return of income, there is a mistake in calculation of the amount of tax committed by the assessee, which could be corrected and will fall within the scope of section 143(1) of the Act while determining tax payable on the returned income, but-whether the income returned is chargeable to tax or not, and if chargeable, there what rate of tax is to be applied, or whether the income shown in the return of income is assessable as ‘royalty’ or ‘business profit’ or under any other head within the meaning of DTAA between India and U.S.A. are not covered by section 143(1) of the Act. Further, the fact that the assessee has paid tax under section 191 of the Act cannot also to be considered to be conclusive or binding upon the assessee while detennining the tax payable on the returned income under section 143(1) inasmuch as whether the income shown by the assessee in the return of income is to be taxed as royalty or not is a matter of deliberation after considering the assessee’s claim made out in a ‘Note’ annexed to the return of income and after examining and verifying all the facts and materials relating to the issue, and after examining the relevant provisions of DTAA between India and USA alongwith provisions of Income Tax Act and that too after providing an opportunity of being heard to the assessee. Thus, the fact that assessee has paid certain amount of tax under section 191 of the Act cannot also be a basis to create a demand by treating the returned income to be in the nature of royalty while processing the return of income under section 143(1) of the Act. Accordingly, on the facts of the present case, we hold that the Assessing Officer cannot create a demand by treating the income shown in the return of income to be in the nature of royalty within the meaning of Article 12(7) of DTAA between India and U.S.A. while acting under section 143(1) of the Act.
21. In the light of the fact that assessee has shown tax payable at “NIL” under column No. 23 of the return of income and has claimed the amount of tax already paid as refundable to the assessee under column No. 36 of the return of income, and that the assessee has also filed form No. 30 alongwith return of income claiming the refund of tax and in the light of a Note below to the computation of income enclosed with the return of income claiming that the amount or income received by the assessee and shown in the return of income cannot be classified as royalty under provisions of Article 12 of DTAA between India and USA but is to classified as business profit under Article 7 of DTAA between India and USA, and such business profit is not chargeable to tax in India in the light of the fact that assessee had no PE situated in India, we are of the considered view that the Assessing Officer is unjustified in creating the demand by determining the tax at the rate of 15 per cent treating the amount shown by tie assessee to be in the nature of royalty within the meaning of Article 12 of DTAA between India and USA while making an intimation under section 143(1) of the Act. We further hold that Assessing Officer action in creating the demand in the manner as aforesaid is beyond the scope of section 143(1) of the Act. We, therefore, cancel the intimation made by the Assessing Officer under section 143(1) of the Act and set aside the orders of both the authorities below.
