Usha Eswar Vs Rajeshwari Menon (Bombay High Court)
Bombay High Court held that different view by Authority of Advance Ruling (AAR) in case of another Applicant cannot be ground for reopening of assessment under section 147 of the Income Tax Act.
Facts- Petitioner is challenging the legality and validity of notices issued under Section 148 of the Income Tax Act, 1961 (the ‘Act’) issued by Respondent No.1 for Assessment Years 1997-98, 1998-99, 1999-200 and 2000-2001. It is Petitioner’s case that these notices had been issued without satisfying the jurisdiction condition necessary to make a re-assessment.
Notably, petitioner received notices for A. Y. 1997-98, 1998-99, 1999-2000 and 2000-2001 u/s. 148 of the Act by which Respondent No.1 stated there were reasons to believe that Petitioner’s income for the relevant Assessment Years has escaped assessment and, therefore, it was proposed to re-assess Petitioner’s income and Petitioner was called upon to file his return of income.
It is stated in the reasons that according to Respondent No.1, income has escaped assessment inasmuch as the benefits of the DTAA were wrongly given to Petitioner. Respondent No.1 has noted that the claim was made on the basis of the ruling made by AAR but according to Respondent No.1, ruling was only relevant to A. Y. 1995-96. Respondent No.1 has concluded that the ratio of the subsequent ruling would be applicable in the case of Petitioner and Petitioner would, therefore, not be entitled for the benefits applicable under the provisions of the DTAA. Soon after these notices were received, Petitioner filed this Petition.
Conclusion- Held that merely because the AAR in the case of another Applicant has taken a different view, cannot be sufficient basis on which Respondent No.1 could ever have any reason to believe that income chargeable to tax has escaped assessment.
Held that Respondent No.1 has not personally formed the belief that income liable to tax has escaped assessment and has abdicated her jurisdiction. The re-opening therefore is invalid. Respondent No.2 has plainly ignored the relevant provisions of law. We cannot hold that the Assessing Officer had any tangible material to come to the conclusion that there was an escapement of income. Hence, the power to re-open the assessment could not have been exercised.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
Petition was filed by the husband of the present Petitioner. Original Petitioner expired on 3rd December 2015. Pursuant to leave granted by the Court, Petition was amended. Reference herein to Petitioner refers to the original Petitioner.
2 Petitioner is challenging the legality and validity of notices issued under Section 148 of the Income Tax Act, 1961 (the ‘Act’) issued by Respondent No.1 for Assessment Years 1997-98, 1998-99, 1999-200 and 2000-2001. It is Petitioner’s case that these notices had been issued without satisfying the jurisdiction condition necessary to make a re-assessment.
3. Petitioner was a non-resident Indian and was regularly assessed to tax in India in respect of income that accrued or arose to him in India or arisen in India or received by him in India. Petitioner was a resident of Dubai for several years and was carrying on business as a sole proprietor of two concerns. He had invested in shares and debentures issued by Indian Companies as well as units issued by mutual funds registered in India. Petitioner was a resident of United Arab Emirates (UAE) within the meaning of the said expression in the Double Taxation Avoidance Agreement entered into between India and UAE (DTAA).
4 In order to ensure finality and certainty as to the taxability of income that he earned from sources in India, Petitioner made an application to the Authority for Advance Ruling (AAR), seeking a ruling to the taxability as well as the rate at which tax payable on income earned by him by way of dividends, interest and capital gains from sources in India. The application filed by Petitioner to the AAR was not made for any specific Assessment Year but was made seeking an answer to questions as to the taxibility of his income from dividends on shares in Indian Companies, interest and debentures received by him in India, income from units issued by mutual funds set up in India and capital gains in India from transfer of said assets.
5 AAR sought certain details which Petitioner provided. Documentary evidence was also submitted. AAR pronounced its ruling by order dated 13th December 1996. AAR came to the conclusion that Petitioner was resident of UAE in terms of article 4 of the DTAA. AAR also noted that Petitioner was not liable to any tax in the UAE since there was no levy of income tax on individual in the UAE. AAR following its earlier ruling in the case of Mohsinally A. Rafik1 concluded that Petitioner was a resident of UAE. In view of this conclusion, AAR applied the provisions of the Act and Articles 10, 11 and 13 of DTAA and held that taxability of capital gains on the transfer of movable assets set in India will be governed by Article 13 (3) of the DTAA and hence the same would not be taxable in India on or before 1st April 1994. AAR further held that in terms of Article 10 of the DTAA, the dividend income accruing to Petitioner from shares held in India would be taxed at the rate of 15% and the income accruing to Petitioner by way of interest on debentures and bonds as well as balance in the partnership firm could be taxable at the rate of 12.5% . The questions raised before the AAR and the answers thereto reads as under:-
“12. In the light of the above discussion, the Authority gives the following ruling on the questions raising in the application:
