CIT Vs Indian Overseas Bank (Madras High Court)
Summary: The Madras High Court considered appeals filed by the Revenue challenging a common order of the Income Tax Appellate Tribunal (ITAT) that had set aside the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Years 2006–07 and 2007–08. The Tribunal had confirmed the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted the penalty imposed by the Assessing Officer.
The dispute arose from the assessee, a nationalised bank, claiming the benefit of the Double Taxation Avoidance Agreement (DTAA) between India and China in respect of income earned by its branch located in Hong Kong. The Revenue argued that the DTAA between India and China could not be extended to Hong Kong because Hong Kong had become a Special Administrative Region (SAR) of China from 1 July 1997. According to the Department, Section 90 of the Income Tax Act, as it stood at the relevant time, allowed the Central Government to enter into agreements with foreign countries but did not permit treaties with SARs. The provision enabling agreements with “specified territories” was inserted only with effect from 1 October 2009. India subsequently entered into a DTAA with Hong Kong on 21 December 2018. Therefore, the Revenue contended that treaty relief could not have been claimed by the assessee prior to that date. It was further argued that the disallowance made in the quantum assessment had been confirmed by the CIT(A) and accepted by the assessee, thereby indicating that the claim was incorrect. On this basis, the Department argued that the penalty for concealment of income or furnishing inaccurate particulars under Section 271(1)(c) was justified.
