Dy. Commissioner of Income Tax vs Torqouise Investment and Finance Ltd. and Others

Civii Appeal No. 4485 of 2007 with Civil Appeal No. 4502 of 2007, Civil Appeal No. 4497 of 2007, Civil Appeal No. 4498 of 2007, Civil Appeal Nos. 4499-4501 of 2007, Civil Appeal No. 4495 of 2007, Civil Appeal No. 4496 of 2007, Civil Appeal Nos. 4486-87 of 2007, Civil Appeal Nos. 4488-4489 of 2007 and Civil Appeal No. 4492 of 2007

This order shall dispose of the aforesaid appeals as the point involved is the same,

For the sake of convenience, the facts are taken from Civil Appeal No. 4485 of 2007.

Assessee-respondent, hereinafter referred to as ''the assessee'' filed its return of income for the assessment year 1992-93 declaring income of Rs. 4,30,06,580 by showing its business as investment and finance, which was processed u/s 143(1)(a) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'')on 18th Jan., 1996 on the same income. Along with the return the assessee claimed refund amounting to Rs. 29,16,660 on the basis of credit of deemed TDS on dividend received from a Malaysian company i.e. Pan Century Edible Oils SDN, BHD, Malaysia.

The assessing officer raised a demand of Rs. 1,07,370 after rejecting the credit claimed by the assessee on the basis of deemed credit on dividend received from the aforesaid Malaysian company.

Being aggrieved, assessee filed an appeal before the Commissioner (Appeals) which was accepted. Revenue thereafter filed appeal before the income tax Appellate Tribunal (hereinafter referred to as ''the Tribunal''). The Tribunal disposed of the appeal with the observation that Double Taxation Avoidance Agreement (hereinafter referred to as ''DTAA'') entered into by the Government of India with the Government of Malaysia would override the provisions of the Act if they are at variance from the provisions of the Act. It was held that from a plain reading of Article 11 of the DTAA, it was clear that dividend income would be taxed only in the contracting states where such income accrued.

Aggrieved by the order of the Tribunal, the department filed further appeal in the High Court of Madhya Pradesh at Indore Bench which was admitted on the following questions of law:

Whether Tribunal was justified in holding that dividend income earned by the assessee amounting to Rs. 21,35,766 from a company called Pan Century Edible Oils SDN, BHD, Malaysia is not liable to be taxed in the hands of assessee in India under any of the provisions of the Income Tax Act ?

In view of Section 5(1)(c) of the Income Tax Act, whether the finding recorded by the Tribunal that income earned out of dividend from the Company outside the country is not liable to be taxed under the Act ?

Whether Tribunal was justified in law in recording a finding on an issue which was not raised by the assessee either before the assessing officer or before the Commissioner (Appeals) but was raised for the first time before the Tribunal and that too in an appeal filed by the department ?

Having dismissed the cross objection filed by the assessee, whether the Tribunal was justified in then proceeding to decide the issue raised by the assessee on merits in their favour.

On question No. 1, the High Court, following the decision of the Madras High Court in the case of 227693 which was affirmed by the Supreme Court in the case of 268352 , held that the Tribunal was justified in holding that dividend income derived by the assessee from a company in Malaysia is not liable to be taxed in the hands of the assessee in India under any of the provisions of the Act. Accordingly, the High Court has answered question No. 1 in favour of the assessee and against the department.

Insofar as question No. 2 is concerned, counsel for the assessee conceded that tax u/s 5(1)(c) of the Income Tax Act would have been exigible but under Article 11 of DTAA entered into between India and Malaysia, taxis liable to be levied in the country where the income had accrued. Under these circumstances the court held that this question as to whether income of an assessee accrued outside the country could be taxed within the country under the provisions of Section 5(1)(c) of the Act did not arise from the order of the Tribunal.

On question Nos. 3 and 4, it was observed that this point had been raised by the assessee before the Commissioner (Appeals). Since, the Commissioner (Appeals) had decided the appeal against the assessee, assessee filed cross-objections before the Tribunal and therefore it could not be said that the assessee had not raised this point earlier or that the assessee had raised this point for the first time before the Tribunal. Insofar as TDS tax credit is concerned, the High Court has observed that it could not go into this question since it has decided the question No. 1 in favour of the assessee to the effect that the income arrived (sic) by the assessee in Malaysia was not taxable in India at all.

We have gone through the judgment of the Madras High Court in CIT v. VR. S.R.M. Firm and Ors. (supra) and judgment of this Court in CIT v. P.V.A.L. Kulandagan Chettiar (Dead) through LRs. (supra) and we are satisfied that the point involved in these appeals stands concluded in favour of the assessee and against the revenue by the decision of the Madras High Court in CIT v. VR. S.R.M. Firm and Ors. (supra) which was duly affirmed by this Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar (Dead) through LRs. (supra).

Incidentally, it may be mentioned that the review petition filed against the decision of this Court in CIT v. P.V.A.L. Kulandagan Chettiar (Dead) through LRs. (supra) was also dismissed on 1-11-2007.

Accordingly, these appeals are dismissed. Parties shall bear their own costs.