Case Law Details
RELEVANT PARAGRAPH
The application of 15 per cent rate of tax on the amount shown in the return of income would 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 had categorically stated in the note enclosed with the return of income that the returned income was not in the nature of `royalty’ within the meaning of article 12(7) of the DTAA between India and the USA but was 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 can be corrected under section 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 was a mistake in calculation of the amount of tax committed by the assessee, which could be corrected and would fall within the scope of section 143(1) while determining tax payable on the returned income, but whether the income returned was chargeable to tax or not, and if chargeable, what rate of tax was to be applied, or whether the income shown in the return of income was assessable as `royalty’ or `business profit’ or under any other head within the meaning of the DTAA between India and the USA were not covered by section 143(1). Further, the fact that the assessee had paid tax under section 191 could not be considered to be conclusive or binding upon the assessee while determining 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 was to be taxed as `royalty’ or not was a matter of deliberation after considering the assessee’s claim made out in the `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 the DTAA between India and the USA along with provisions of the Income-tax Act and that too, after providing an opportunity of being heard to the assessee. Thus, the fact that the assessee had paid certain amount of tax under section 191 could not 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). Accordingly, on the facts of the instant case, it was to be held that the Assessing Officer could not 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 the DTAA between India and the USA while acting under section 143(1). [Para 20]
In the light of the fact that the assessee had shown tax payable at nil under column No. 23 of the return of income and had 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 had also filed Form No. 30 along with return of income claiming the refund of tax and in the light of a `Note’ below 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 could not be classified as `royalty’ under the provisions of article 12 of the DTAA between India and the USA but was to be classified as `business profit’ under article 7 of the DTAA between India and the USA, and such business profit was not chargeable to tax in India in the light of the fact that the assessee had no PE situated in India. Hence, the Assessing Officer was unjustified in creating the demand by determining the tax at the rate of 15 per cent, treating the amount shown by the assessee to be in the nature of `royalty’ within the meaning of article 12 of the DTAA between India and the USA while making an intimation under section 143(1). It was further to be held that the Assessing Officer’s action in creating the demand in the manner as aforesaid was beyond the scope of section 143(1). Therefore, the intimation made by the Assessing Officer under section 143(1) was to be cancelled and the orders of both the lower authorities were to be set aside. [Para 21]
