ITO(IT)-2(1), MUMBAI v. SATISH BEHARILAL RAHEJA, MUMBAI

ITA 6549/MUM/2013 | 2004-2005
Pronouncement Date: 29-09-2016 | Result: Dismissed

Appeal Details

RSA Number 654919914 RSA 2013
Assessee PAN AGJPR3622G
Bench Mumbai
Appeal Number ITA 6549/MUM/2013
Duration Of Justice 2 year(s) 10 month(s) 22 day(s)
Appellant ITO(IT)-2(1), MUMBAI
Respondent SATISH BEHARILAL RAHEJA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 29-09-2016
Assessment Year 2004-2005
Appeal Filed On 07-11-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH MUMBAI BEFORE SHRI RAJENDRA ACCOUNTANT MEMBER AND SHRI C.N. PRASAD JUDICIAL MEMBER / I .TA NO. 6549/MUM/2013 ( / ASSESSMENT YEAR:2004-05 THE INCOME TAX OFFICER(INTERNATIONAL TAXATION-2(1) MUMBAI / VS. SHRI SATISH BEHARILAL RAHEJA C/O M/S. G.M. KAPADIA & CO. 1001 REHEJA CHAMBERS 213 NARIMAN POINT MUMBAI-400 021 C.O. NO. 07/MUM/2015 (ARISING OUT OF I .TA NO. 6549/MUM/2013) ( / ASSESSMENT YEAR:2004-05 SHRI SATISH BEHARILAL RAHEJA C/O. M/S. G.M. KAPADIA & CO. 1001 REHEJA CHAMBERS 213 NARIMAN POINT MUMBAI-400 021 / VS. THE INCOME TAX OFFICER(INTERNATIONAL TAXATION-2(1) MUMBAI ./ ./ PAN/GIR NO. AGJPR 3622G ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI MANJUNATHA SWAMY / RESPONDENT BY: SHRI NITESH JOSHI / DATE OF HEARING :19.07.2016 ! / DATE OF PRONOUNCEMENT : 28 .09.2016 / O R D E R PER C.N. PRASAD JM: ITA NO. 6549/M/13 C.O. NO. 7/M/15 2 THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) 11 MUMBAI DATED 22/8/2013 PERTAINING TO ASSESSMENT YEAR 2004- 05 ARISING OUT OF THE ASSESSMENT ORDER PASSED U/S. 143(3) R.W. SEC TION 147 OF THE ACT. 2. BRIEF FACTS ARE THAT THE ASSESSEE IS AN INDIVIDU AL AND A TAX RESIDENT OF SWITZERLAND FILED RETURN OF INCOME SHOW ING NET TAXABLE INCOME AT RS. 1 38 66 905/-. IN THE RETURN FILED THE ASSESSEE CLAIMED CAPITAL GAINS ON TRANSFER OF UNITS OF MUTUAL FUNDS AS EXEMPT FROM TAXATION IN INDIA IN TERMS OF THE PROVISIONS OF ART ICLE 13(6) OF THE INDO SWISS TAX TREATY. THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS DISCLOSED AS TAXABLE INCOME @ 10% IN TERMS OF ARTICLE 11 OF THE INDO SWISS TAX TREATY. THE ASSESSMENT WAS COMPLETE D U/S. 143(3) ON 28.12.2006 WHEREIN THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT INVESTMENT IN MUTU AL FUNDS IS EXEMPT FROM TAXATION IN INDIA BECAUSE ACCORDING TO THE ASS ESSING OFFICER INVESTMENT IN MUTUAL FUND WAS AKIN TO INVESTMENT IN SHARES AND THE GAIN FROM ALIENATION OF SHARES WAS TAXABLE IN INDIA IN TERMS OF ARTICLE 13(5)(B) OF THE INDO SWISS TAX TREATY. ACCORDINGLY THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER COMPUTING CA PITAL GAINS. THE ASSESSING OFFICER ALSO ALLOWED INDEXATION IN COMPUT ING THE CAPITAL GAINS. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE CIT(A) BY ORDER DATED 27.5.2009 HELD THAT THE BENEF IT OF INDO SWISS TAX TREATY WAS AVAILABLE TO THE ASSESSEE MUTUAL FU NDS ARE NOT AKIN TO SHARES IN TERMS OF THE PROVISIONS OF ARTICLE 13(6) OF THE TAX TREATY THE ITA NO. 6549/M/13 C.O. NO. 7/M/15 3 CAPITAL GAINS ARISING ON TRANSFER OF UNITS OF MUTUA L FUNDS WERE TAXABLE ONLY IN SWITZERLAND AND NOT LIABLE TO TAX IN INDIA. AS THE THINGS STOOD THUS THE ASSESSMENT WAS REOPENED U/S. 147 OF THE A CT AND AN ORDER WAS PASSED ON 23.12.2011 UNDER SECTION 143(3) R.W. SEC. 147 OF THE ACT WITHDRAWING THE BENEFIT OF INDEXATION ALLOWED B Y THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS WHIL E COMPUTING THE CAPITAL GAINS ON MUTUAL FUNDS. ON APPEAL THE LD. CIT(A) HELD THAT AS THE CIT(A) IN ORIGINAL ASSESSMENT PROCEEDING DECI DED THAT THE CAPITAL GAINS IS NOT LIABLE TO BE TAXED IN INDIA BE CAUSE OF THE BENEFIT AVAILABLE TO NON-RESIDENT ASSESSEE UNDER THE RELEVA NT TAX TREATY AND THIS DECISION WAS ALSO AFFIRMED BY THE TRIBUNAL BY ORDER DATED 14.8.2013 IN ITA NO. 4627/M/2009 THE ISSUE HAS BEE N CONCLUDED IN FAVOUR OF THE ASSESSEE THE ADDITION BY WITHDRAWIN G INDEXATION ON THE SAME ACCOUNT IN THE REASSESSMENT ORDER WILL NOT BE JUSTIFIED. HE HELD THAT SUCH ADDITION SHOULD NOT HAVE BEEN MADE I N THE REASSESSMENT ORDER AND DELETED THE ADDITION MADE BY WITHDRAWING THE INDEXATION BY THE ASSESSING OFFICER. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TH E ASSESSMENT U/S. 147 MADE BY THE ASSESSING OFFICER WILL NOT SUR VIVE IN VIEW OF THE TRIBUNALS ORDER AFFIRMING THE DECISION OF THE LD. CIT(A) IN HOLDING THAT THE CAPITAL GAIN ARISING ON ACCOUNT OF SALE OF MUTUAL FUNDS CANNOT BE TAXED IN INDIA AS PER THE PROVISIONS OF ARTICLE 13(6). THE LD. COUNSEL FOR THE ASSESSEE PLACES STRONG RELIANCE ON THE ORDER OF THE TRIBUNAL. 5. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY S UPPORTS THE ORDER OF THE ASSESSING OFFICER IN REOPENING THE ASS ESSMENT. ITA NO. 6549/M/13 C.O. NO. 7/M/15 4 6. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CO-ORDINATE BENCH DECIS ION AGAINST 143(3) PROCEEDINGS. IN THIS CASE THE ORIGINAL ASSE SSMENT WAS MADE U/S. 143(3) BY THE ASSESSING OFFICER ASSESSING INCO ME FROM MUTUAL FUNDS IN THE HANDS OF THE ASSESSEE AS TAXABLE CAPIT AL GAIN AND WHILE DOING SO THE ASSESSING OFFICER COMPUTED THE CAPITAL GAINS ALLOWING INDEXATION TO THE ASSESSEE. THE ASSESSMENT WAS REO PENED U/S. 147 SUBSEQUENTLY ON THE GROUND THAT THE INDEXATION WAS ERRONEOUSLY ALLOWED TO THE ASSESSEE WHILE COMPUTING THE CAPITAL GAINS. WE FIND THAT THE TRIBUNAL WHILE DEALING WITH THE ISSUE OF C HARGEABILITY OF CAPITAL GAINS TO TAX IN INDIA IN THE HANDS OF THE A SSESSEE AFFIRMED THE ORDER OF THE LD. CIT(A) IN HOLDING THAT SUCH CAPITA L GAINS IS NOT CHARGEABLE TO TAX IN INDIA BY OBSERVING AS UNDER: WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVA L CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING TAX ABILITY OF CAPITAL GAIN ARISING ON ACCOUNT OF SALE OF MUTUAL F UND UNITS IN INDIA BY THE ASSESSEE WHO IS A NON RESIDENT BASED IN SWITZERLAND. THE ASSESSEE HAS CLAIMED THE BENEFIT OF INDO SWISS TAX TREATY AND ARGUED THAT THE CAPITAL GAIN IS NOT TAXABLE IN INDI A UNDER THE PROVISIONS OF ARTICLE 13(6) OF THE INDOSWISS TAX T REATY. THE SAID ARTICLE HAS BEEN REPRODUCED IN PARA 3 OF THIS ORDER WHICH DEALS WITH TAXABILITY OF CAPITAL GAIN ARISING ON TRANSFER OF DIFFERENT TYPES OF ASSETS ARTICLE 13(4) AND 13(5) DEAL WITH G AIN ARISING FROM ALIENATION OF SHARES. AS PER ARTICLE 13(5) GAI N ARISING FROM ALIENATION OF SHARE IN A COMPANY WHICH RESIDENT OF INDIA CAN BE TAXED IN INDIA. THE AO HAD TREATED THE UNITS OF MUT UAL FUND AS SHARES OF INDIAN COMPANY AND HAS HELD THAT GAIN IS TAXABLE UNDER ARTICLE 5 (B). THE CASE OF THE ASSESSEE IS THAT UNI TS OF MUTUAL FUNDS ARE DIFFERENT FROM SHARES OF INDIAN COMPANIES AND H AVE BEEN GIVEN DIFFERENT TREATMENT IN THE INCOME TAX ACT. RE LIANCE HAS BEEN PLACED ON THE JUDGMENT OF HON'BLE SUPREME COUR T IN CASE OF APOLLO TYRES (SUPRA) IN WHICH IT HAS BEEN HELD THAT UNITS OF UTI ARE NOT SHARES OF COMPANIES. WE HAVE CAREFULLY PERU SED THE SAID ITA NO. 6549/M/13 C.O. NO. 7/M/15 5 JUDGMENT. IN THAT CASE THE REVENUE AUTHORITIES HAD NOTED THAT U/S 32 (3) OF UTI ACT TRUST HAD BEEN DEEMED TO BE A CO MPANY AND ANY DISTRIBUTION RECEIVED BY UNIT HOLDER FROM THE T RUST HAD BEEN DEEMED TO BE INCOME BY WAY OF DIVIDEND. THE REVENUE THEREFORE ARGUED THAT UNIT OF UTI WILL HAVE TO BE CONSIDERED AS SHARES AND ACCORDINGLY THE PROVISIONS OF EXPLANATION TO SECTIO N 73 SHALL APPLY AND THE BUSINESS OF SHARES HAS TO BE CONSIDER ED AS SPECULATION BUSINESS. HON'BLE SUPREME COURT OBSERVE D THAT EVEN THOUGH THE SECTION 32(3) HAD CREATED THE FICTION TO MAKE THE UTI A DEEMED COMPANY AND DISTRIBUTION OF INCOME RECEIVE D BY THE UNIT HOLDER A DEEMED DIVIDEND THE DEEMING PROVISIO N HAD TO BE APPLIED FOR THE PURPOSE FOR WHICH IT HAD BEEN SPECI FICALLY CREATED. IT WAS CONFINED ONLY TO DEEMING UTI A COMPANY AND D EEMING THE INCOME FROM UNITS AS DIVIDEND. THERE WERE NO SPECIF IC PROVISIONS FOR DEEMING THE UNITS AS SHARES. HON'BLE SUPREME CO URT THEREFORE UPHELD THE VIEW THAT UNITS OF UTI ARE NO T SHARES OF COMPANIES. THOUGH THE SAID JUDGMENT HAD BEEN RENDER ED IN THE CONTEXT OF EXPLANATION TO SECTION 73 THEREFORE IS ALSO APPLICABLE TO THE PRESENT SITUATION WHICH INVOLVES THE INTERPR ETATION AS TO WHETHER UNITS CAN BE CONSIDERED AS SHARES. IN OUR V IEW IN THE ABSENCE OF ANY SPECIFIC PROVISION UNDER THE ACT TO DEEM THE UNIT AS SHARES IT COULD NOT BE CONSIDERED AS SHARES OF COMPANIES AND THEREFORE THE PROVISIONS OF ARTICLE 13 (5) (B) CAN NOT BE APPLIED IN CASE OF UNITS. WE AGREE WITH THE FINDINGS OF CIT(A) THAT PROVISIONS OF ARTICLE 13(6) ARE APPLICABLE IN CASE OF UNITS AS PER WHICH THE CAPITAL GAIN CANNOT BE TAXED IN INDIA. TH E ORDER OF CIT(A) IS ACCORDINGLY UPHELD. 7. THEREFORE WHEN ONCE IT WAS HELD THAT THE MUTUAL FUNDS ARE NOT TAXABLE IN INDIA THE QUESTION OF COMPUTING CAPITAL GAINS AND ALLOWING OR NOT ALLOWING THE INDEXATION BENEFIT TO THE ASSES SEE DOES NOT ARISE AND IT BECOME ONLY ACADEMIC. IN THE CIRCUMSTANCES THE REASSESSMENT MADE U/S. 143(3) R.W. SECTION 147 FOR WITHDRAWING T HE INDEXATION ALLOWED IN ORIGINAL ASSESSMENT PROCEEDINGS WILL NOT SURVIVE. THUS WE HOLD THAT THE REASSESSMENT IS INVALID. WE AFFIR M THE ORDER OF THE LD. CIT(A). ITA NO. 6549/M/13 C.O. NO. 7/M/15 6 8. SINCE WE HAVE AFFIRMED THE ORDER OF THE LD. CIT( A) AND HELD THAT THE REASSESSMENT WILL NOT SURVIVE THE CROSS O BJECTION FILED BY THE ASSESSEE CHALLENGING THE REOPENING BECOME INFRU CTUOUS AND DISMISSED. 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE A ND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 28 TH SEPTEMBER 2016 . % . ./ RJ SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ %%-. -.! / DR ITAT MUMBAI 6. /01 / GUARD FILE. / BY ORDER *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI