ADIT (IT) 2(2), MUMBAI v. TELSTRA SUPER PTY LTD. AS TRUSTREE FOR TELSTRA SUPERANNUATION SCHEME, MUMBAI

ITA 3940/MUM/2010 | 2006-2007
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 394019914 RSA 2010
Assessee PAN AABTT1111C
Bench Mumbai
Appeal Number ITA 3940/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 15 day(s)
Appellant ADIT (IT) 2(2), MUMBAI
Respondent TELSTRA SUPER PTY LTD. AS TRUSTREE FOR TELSTRA SUPERANNUATION SCHEME, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 29-07-2011
Assessment Year 2006-2007
Appeal Filed On 14-05-2010
Judgment Text
1 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI PRAMOD KUMAR AM & SHRI VIJAY PAL RA O JM ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) THE DY DIRECTOR OF INCOME TAX(INT.TAXATION) 2(1) MUMBAI VS M/S TELSTRA SUPER PLY LTD AS TRUSTEE FOR TELSTRA SUPERANNUATION SCHEME C/O THE HSBC LTD CUSTODY AND CLEANING HSBC SUDAM KAL AHIR MARG WORLI - MUMBAI 400 030 (APPELLANT) (RESPONDENT) PAN NO. AABTT1111C ASSESSEE BY NONE REVENUE BY SHRI C G K NAIR DATE OF HEARING 7 TH JULY 2011 DATE OF PRONOUNCEMENT 29 TH JULY 2011 PER VIJAY PAL RAO JM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 29 TH JAN 2010 OF THE CIT(A) ARISING FROM THE PENALTY ORDER P ASSED U/S 271(1)( C) OF THE I T ACT FOR THE ASSESSMENT YEAR 2006-07. 2 BRIEFLY STATED FACTS OF THIS CASE ARE THAT THE AS SESSEE IS REGISTERED WITH SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) AS FO REIGN INSTITUTIONAL INVESTOR (FII). IT IS A COMPANY INCORPORATED IN AUSTRALIA AS A SUPERANNUA TION FUND AND IS ENGAGED IN THE ACTIVITY OF BUYING AND SELLING OF SHARERS AND S ECURITIES IN INDIA. THE ASSESSEE ENGAGES IN BUYING AND SELLING OF INDIAN SECURITIES OUT OF THE CONTRIBUTIONS RECEIVED BY IT TO MEET IT FUTURE BUSINESS OBLIGATIONS I.E. S ETTLING EMPLOYEE ENTITLEMENTS ON 2 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) TERMINATION OF EMPLOYMENT. THIS IS AN INTEGRAL PART OF IT BUSINESS AND SUCH TRANSACTIONS FORM IS SUBSTANTIAL PART OF THE SUPERA NNUATION BUSINESS OF THE ASSESSEE. 2.1 THE ASSESSEE WAS ASSESSED TO TAX BY THE ADIT (I NTERNATIONAL TAXATION) 2(2) MUMBAI U/S 143(3) OF THE I T ACT. FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 THE ASSESSEE FILED ITS RETURN OF INCO ME REPORTING DIVIDEND INCOME OF RS. 46 18 672/- AND CLAIMED THE INCOME OF RS. 65 806 9 65/- EARNED ON BUYING AND SELLING SHARES AND SECURITIES IN INDIA AS BUSINESS INCOME AND AS EXEMPT IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA. HO WEVER THE ASSESSING OFFICER HELD THAT THE SURPLUS GENERATED ON REALIZATION OF INVESTMENTS B Y FIIS IS LIABLE TO TAX AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. THE ASSES SING OFFICER OBSERVED VIEWED IN THE CONTEXT OF LEGAL PERSPECTIVE AS WELL AS FACTUAL MATRIX AS SET OUT ABOVE IT IS AMPLY CLEAR THAT SURPLUS ARISING FROM PURCHASE AND S ALE OF SECURITIES IN INDIA BY THE FIIS IS LIABLE TO BE ASSESSED AS CAPITAL GAINS U/S 115AD(1)B).. 2.2 THE ASSESSING OFFICER INITIATED PENALTY PROCEED INGS U/S 271(1) C) OF THE I T ACT VIDE ORDER DATED 30.6.2009 AND LEVIED PENALTY OF RS . 173 83 542/-. 3 THE ASSESSEE CHALLENGED THE LEVY OF PENALTY BEFOR E THE CIT(A) WHO HAS DELETED THE LEVY OF PENALTY VIDE IMPUGNED ORDER. 4 WE HAVE HEARD THE LD DR AS NOBODY APPEARED ON BEH ALF OF THE RESPONDENT ASSESSEE WHEN THE CASE WAS CALLED FOR HEARING. THE NOTICE OF HEARING SENT THROUGH RPAD RETURNED BACK WITH REMARKS LEFT. THEREFORE WE DID NOT HAVE THE PRIVILEGE TO HEAR THE ASSESSEE; ACCORDINGLY WE PROPOSE TO DISPO SE OF THE APPEAL EX-PARTE. 3 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) 4.1 THE LD DR HAS SUBMITTED THAT THE ASSESSEE WAS ALLOW ED BY THE GOVERNMENT OF INDIA TO DO ONLY INVESTMENT IN INDIAN SECURITIES. THE LD. DR HAS ALSO REFERRED THE ORDER PASSED U/S 271(1)( C ) AND SUBMITTED THAT THE ASSESSEE WAS PERMITTED TO INVEST IN THE INDIAN SECURITIES MARKET. THUS ONCE THE NATURE OF ACTIVITY WAS PERM ITTED ONLY TO DO INVESTMENT IN INDIAN SECURITIES THEN THERE CANNOT B E ANY SECOND OPINION ABOUT THE NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSEE AS PER THE PERMISSION. THE PERMISSION WAS SUBJECT TO THE PROVISIONS OF SECURITIES EXCHANGE BOARD OF INDIA ACT 1992 ALONG WITH THE FOREIGN INSTITUTIONAL INVESTORS REGULATION 1995 AS WELL AS THE CONDITIONS STIPULATED BY THE RBI IN THEIR LETTER GRANTING RE NEWAL OF PERMISSION UNDER FOREIGN EXCHANGE MANAGEMENT ACT 2000. THUS THE PROFIT ON THE PURCHASE AND SALE OF SECURITIES IS ONLY IN THE NATURE OF CAPITAL GAIN ON INVESTMENT. HE HAS STRONGLY RELIED UPON THE ORDERS PASSED U/S 271(1)( C ) OF THE ACT. HE HAS RELIED UPON THE DECISION OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF A M SHAH & CO VS CIT REPO RTED IN 238 ITR 415 AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS ZOOM COMMUNICATIONS P LTD DELHI REPORTED IN 327 ITR 5 10. 5. HAVING CONSIDERED THE CONTENTIONS OF THE LD AR A ND CAREFUL PERUSAL OF THE RELEVANT RECORDS AND THE ORDERS OF THE LOWER AUTHOR ITIES WE FIND THAT THE ASSESSEE RAISED CERTAIN PRELIMINARY OBJECTIONS BEFORE THE CI T(A) REGARDING VIOLATION OF NATURAL JUSTICE AS THE ASSESSEE WAS NOT GIVEN PROPER OPPORT UNITY OF HEARING AND VARIOUS SERIOUS MISTAKES IN THE PENALTY ORDER. THE OBJECT IONS RAISED BY THE ASSESSEE BEFORE THE CIT(A) IN THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER; 4 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) 1. NO OPPORTUNITY OF BEING HEARD : THE PENALTY SHOW CAUSE NOTICE DATED JUNE 16 209 WAS RECEIVED BY THE APPELLANT ON JUNE 3 0 2009 WHEREIN THE ATTENDANCE WAS REQUIRED WITHIN FIVE DAY OF RECEIPT O F THE NOTICE. HOWEVER THE APPELLANT WAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD AND THE PENALTY ORDER DATED JUNE 30 209 WAS PASSED. 2 MISTAKES IN THE PENALTY ORDER : THERE ARE VARIOUS MISTAKES APPARENT FROM THE RECORD IN THE PENALTY ORDER AS LISTED HERE UNDER: A) THE PENALTY ORDER STATES THAT THE ASSESSMENT ORDE R WAS DATED AS NOV 24 208. HOWEVER THE ASSESSMENT ORDER IS DATED AS DECEMBER 30 2008 B) THE PENALTY ORDER MENTIONS THE FILING OF THE REVISE D RETURN OF INCOME BY THE APPELLANT. HOWEVER THE APPELLANT HAS NOT FI LED ANY REVISED RETURN OF INCOME. C) ALSO THERE HAS BEEN A MENTION OF THE PROVISION OF DOUBLE TAX AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND USA WHE REAS THE APPELLANT IS BASED IN AUSTRALIA. D) THE PENALTY ORDER MENTIONS THAT THE APPELLANT IS PROVIDING INVESTMENT ADVISORY AND MANAGEMENT SERVICES WHICH I S NOT THE CASE. HOWEVER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAD INFORMED VIDE SUBMISSION DATED DEC 23 2008 TH AT IT HAS NOT ENTERED NOT ANY MANAGEMENT CONTRACTS WITH ANY PERSON . E) PAGE 12 OF THE PENALTY ORDER MENTIONS THAT THE INC OME FROM SHORT TERM CAPITAL GAINS EARNED BY THE APPELLANT AMOUNTS T O RS. 34 042 244/-. HOWEVER THIS AMOUNT DOES NOT MATCH WITH THE AMOUNT S DISCLOSED BY THE APPELLANT IN ITS RETURN OF INCOME. 5.1 WE FURTHER NOTE THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER RECORDED THE FACTS OF FILING THE ORIGINAL RETURN OF INCOME IN PARA 2.1 AS UNDER: 2.1 THE ASSESSEE IN ITS ORIGINAL RETURN AHS CLAIMED T HAT ITS INCOME IS IN THE NATURE OF BUSINESS INCOME. IT NEEDS TO B FIRST AS CERTAINED WHAT IS THE CHARACTER OF THE INCOME EARNED BY THE ASSESSEE IN IN DIA THAT IS WHETHER IT IS BUSINESS INCOME OR CAPITAL GAINS. TO ASCERTAIN THIS THE RELEVANT FACTORS ARE AS UNDER. 5.2 IN CONTRARY TO THE ABOVE RECORDED FACT THE ADI T(IT) HAS NARRATED THE FACTS AT PAGE 1 OF THE ORDER PASSED U/S 271(1)( C) AS UNDER: M/S TELSTRA SUPER PTY LTD AS TRUSTEE FOR TELSTRA SUP ERANNUATION SCHEME (THE ASSESSEE) IS FUND REGISTERED AS A FOREIGN INTUITIONAL INVESTOR (FII) WITH SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI. 5 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) THE ASSESSEE IN ITS ORIGINAL RETURN HAS CLAIMED THAT ITS INCOME IS IN THE NATURE OF BUSINESS INCOME WHILE IN THE REVISED RETURN IT CL AIMED THAT ITS INCOME IS OF THE NATURE CAPITAL GAINS. THE ASSESSEES CONTENTIO N WAS AS FOLLOWS THE FUND HAD IN THE ORIGINAL RETURN OF INCOME OFFERED TO TAX THE INCOME EARNED ON SALE OF SECURITIES IN INDIA AS CAPITAL GAINS AND PAID TA XES THEREON. HOWEVER AS THE FUND HAD BEEN CARRYING ON BUSINESS AS INVESTMENT TRUS T THE SHARES AND SECURITIES WERE HELD BY FUND AS BUSINESS ASSETS THE PROFITS FROM PURCHASE AND SALE OF SHARES ARE IN THE NATURE OF BUSINESS INCOME. THE FACT THAT THE FUND IS CARRYING ON THE BUSINESS OF DEALING IN SHARES AND SE CURITIES IS ALSO EVIDENT FROM THE OBJECT O THE FUND AS SEEN FROM ITS CHARTER DOCUME NTS THE REGISTRATION WITH SEBI AS FOREIGN INSTITUTIONAL INVESTOR AND THE ENORMITY AND FREQUENCY OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND SEC URITIES BY THE FUND. FURTHER IN VIEW OF THE PROVISIONS OF DTAA BETWEEN I NDIA AND SA THE BUSINESS PROFITS COULD BE TAXED IN INDIA ONLY IF THERE IS A PERMANENT ESTABLISH (PE IN INDIA. AS THE FUND DOES NOT HAVE AN OFFICE A PLACE OF BUSINESS OR A DEPENDENT AGENT IN INDIA IT DOES NOT HAVE A PE IN INDIA AND THEREFORE THE BUSINESS INCOME ON SALE OF SCURRILITIES WOULD NOT B E TAXABLE IN INDIA. IN THE REVISED RETURN IT WAS CLAIMED THAT THE INCOME EARNED BY THE ASSESSEE FROM DEALING IN INDIA SECURITIES IS ITS BUSINESS INC OME AND IN VIEW OF ARTICLE 7 READ WITH ARTICLE 5 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND USA SUCH BUSINESS INCOME IS NOT T AXABLE IN INDIA AS THE ASSESSEE DOES NOT HAVE A PERMANENT ESTABLISHMENT (P ?E) IN INDIA. THE ASSESSEE IN TAKING THIS STAND RELYING ON THE DECISIO N OF AUTHORITY FOR ADVANCED RULING (AAR) IN THE CASE OF XYZ/ABC EQUITY FUND (25 0 ITR 194) AND FIDELITY ADVISORY SERIES VII; FIDELITY ADVISOR EMERGING ASIA (2 71 ITR 001) THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DATED 24 TH NOV 2008 HOWEVER DID NOT ACCEPT THE CONTENTIONS F THE ASSESSEE AND T HE INCOME OF RS. 34042244/- WAS BROUGHT TO TAX. DURING THE COURSE OF ASSESSMENT PROCEEDING PENALTY PROCEEDING U/S 271(1)( C) READ WITH EXPLANAT ION I OF THE SAID SECTION OF THE I T ACT HAS BEEN INITIATED. THERE IS NO DOUBT IN MY MIND THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME AS WELL AS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE FACTS OF THE CASE ARE AS FOLLOWS: CHARACTERIZATION OF INCOME: THE ASSESSEE ITS ORIGINAL RETURN HAS CLAIMED THAT ITS INCOME IS OF THE NATURE CAPITAL GAINS WHILE IN THE REVISED RETURN I T CLAIMED THAT ITS INCOME IS IN THE NATURE OF BUSINESS INCOME IF THE INCOME IS CHA RACTERISED AS CAPITAL GAINS UNDER ARTICLE 13 OF THE INDO AUSTRALIA. DTAA INDIA HAS A RIGHT TO TAX THE SAME IF THE INCOME ARISES IN INDIA. HOWEVER IF THE INCOME IS CHARACTERISED AS BUSINESS INCOME ITS TAXABILITY IN INDIA WILL DEP END ON WHETHER THE ASSESSEE HAS A PE IN INDIA OR NOT. ACCORDINGLY IT WAS ASCERTA INED WHETHER THE 6 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) CHARACTER OF THE INCOME EARNED BY THE ASSESSEE IN IN DIA IS BUSINESS INCOME OR CAPITAL GAINS. FOR ASCERTAINING THIS THE RELEVANT FACTORS AS ORDER WERE CONSIDERED 5.3 THUS BY COMPARING THE FACTS RECORDED BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER AND THE FACTS STATED BY THE ADIT(I T) IN THE PENALTY ORDER IT EMERGES A GLARING CASE OF NON APPLICATION OF MIND AND CONSIDERING EXTRANEOUS AND WRONG FACTS BY THE ADIT(IT) WHILE PASSING THE ORDE R U/S 271(1) C). THE CIT(A) WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE HAS OBSERVE D IN PARA 3.13 AND 3.14 AS UNDER: 3.13 NOW IT NEEDS TO BE ASCERTAINED WHETHER SUCH REL IANCE OF THE APPELLANT ON JUDICIAL PRECEDENTS FOR CHARACTERISING ITS INCOME WOULD QUALIFY FOR IMPOSING PENALTY ON THE APPELLANT ON GROUNDS OF CONCEALMENT A ND FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THIS REGARD THE J UDICIARY IS UNANIMOUS THAT WHEN THE DIFFERENT INTERPRETATIONS EXITS IN THE FLAN KS OF THE ASSESSING MACHINERY AND COURTS IT WOULD BE UNREASONABLE TO HOLD THAT T HE APPELLANTS INTERPRETATION AND CHOICE ABOUT TAXABILITY OF INCOME UNDER PARTICULAR HEAD CARRY AN ELEMENT OF FALSEHOOD OR INTENTION OF DELIBE RATELY FURNISHING INACCURATE PARTICULARS. THE REJECTION OF THE CONTENTI ONS RAISED BY THE APPELLANT CANNOT LEAD TO THE CONCLUSION THAT THERE HAS BEEN ANY CONCEALMENT OF THE PARTICULARS OF INCOME BY THE ASS ESSEE OR THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOM E. THUS I AM INCLINED TO RELY ON THE OVERWHELMING JUDICIAL PRECEDENCE AVA ILABLE TO HOLD THAT NO PENALTY CAN BE LEVIED IN EVENT OF SIMPLE RE-CHARACTE RIZATION OF HEADS OF INCOME FROM BUSINESS TO CAPITAL GAINS 3.14 FURTHER ON FACTS ALSO FROM THE ENTIRE RECORD IT IS NOT PROVED THAT THE APPELLANT IS GUILTY OF WITHHOLDING MATERIAL OR ANY M ATERIAL FURNISHED BY IT HAS BEEN FOUND TO B FALSE OR WRONG BY THE ASSESSING OFF ICER. 6 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF T HE CASE THE ORDER PASSED U/S 271(1)( C) IS NOT SUSTAINABLE PRELIMINARY ON T HE REASON THAT VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AS WELL AS BEING BASED ON WRONG AND CONTRARY FACTS AS HIGHLIGHTED 7 ITA NO. 3940/MUM/2010 (ASST YEAR 2006-07) ABOVE. ACCORDINGLY WE DO NOT FIND ANY REASON TO I NTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A) IN DELETING THE PENALTY. 7 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 29 TH DAY OF JULY 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 29 TH JULY 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI