TII Instant Update - 2018-TII-INSTANT-ALL-568

CASE LAW

2018-TII-153-ITAT-MUM-INTL

DCIT Vs SHAH RUKH KHAN: MUMBAI ITAT (Dated: May 21, 2018)

Income tax - Sections 5(1), 23(1)(a), 24(a), 271(1)(c), 274 - India-UAE DTAA - Articles 6 & 23 - CBDT Notification No. 91/2008

Keywords - concealment - deemed annual value - notional income - levy of penalty - self occupied foreign property - source based taxation

The assessee in the present case is a famous film actor by profession and he had returned income of Rs.46,91,80,367/- under different heads. Pursuent to the same, his case was taken up for scrutiny, wherein it was found that the assessee owned a house property at Dubai, estimated the rateable value of the same at Rs. 20,00,000/- and offered the house property income of Rs. 14,00,000/- in his return. The AO however questioned him as to why the deemed annual value of the villa owned by him at Dubai should not be brought to tax as per Section 23(1)(a). In response, it was contended that the villa was received as a gift and further pleaded that the income derived by a resident of a contracting state from an immovable property situated in the other contracting state, might be taxed in that other state, therefore, the notional income of the villa owned by the him at Dubai could not be brought to tax in India. The AO however held a conviction that Sec. 5(1) covered the income of a person who was a resident of India and the income of assessee could not be related to any exception carved out under the statute. He therefore adopted the rateable value of the villa at Rs. 88,09,932/- on the basis of a valuation report of Hamptons International, and after allowing 30% statutory deduction u/s 24(a) worked out the income of assessee from house property at Rs.61,66,952/-. On appeal, both the CIT(A) as well as the ITAT sustained the addition in the hands of assessee observing that the income from Signature Villa, Dubai was liable to be taxed in India, inasmuch as the same was includible in his return of income and whatever taxes that may have been levied in the other contracting state, credit for the same would be allowed to the assessee, as per law.

The AO after the culmination of assessment proceedings, imposed a penalty of Rs.16,36,085/- on the assessee for furnishing of inaccurate particulars of income of Rs.68,26,952/-. On appeal, the CIT(A) observed that the villa owned by the assessee at Dubai had not been rented out by the assessee, but was apparently being used by him for his personal purpose. It was further observed as per the protocol to the India UAE DTAA, the self occupied property was also not taxable in UAE. The CIT(A) therefore held a conviction that the assessee had at no point of time hidden any facts about the ownership of the property or the income therefrom and had rather voluntarily offered the annual lettable value of Rs.20,00,000/- in his return. It was further observed by the CIT(A) that the annual lettable value of Rs.20,00,000/- shown by the assessee in his return u/s 23(a) could not be termed as unreasonable, for the reason that the report which formed the basis of addition made by AO was received much later and subsequent to the filing of return by the assessee, and that too in respect of wealth tax purposes. Thus, it was held that assessee could not be penalised u/s 271(1)(c) for concealment or furnishing of inaccurate particulars.

On appeal, the ITAT held that,

Whether oral objections raised by assessee without satisfying the statutory obligation enshrined u/s 254(1), is not maintainable before the Tribunal - YES: ITAT

Whether when assessee had never assailed the penalty imposed upon him u/s 271(1)(c) on the ground of wrong assumption of jurisdiction, before the CIT(A), then he is not permitted to object such levy of penalty before the Tribunal without filing an application under Rule 27 - YES: ITAT

Whether any penalty u/s 271(1)(c) becomes leviable in case of conflicting judicial opinions and a debatable nature of the issue in question - NO: ITAT

Whether a bonafide claim of assessee by relying on the provisions of DTAA and the Protocols, that his immovable property situated overseas is not taxable in India even if it went untaxed in the State of residence, does not attract levy of penalty - YES: ITAT

Whether wrong computation of income on account of bonafide belief can be characterised as "furnishing of inaccurate particulars", so as to resort to penalty proceedings - NO: ITAT

+ the Tribunal as per the substantive provision of Section 254(1), is vested with the exhaustive powers to pass orders thereon as it thinks fit, but however, it is obligatory on the part of the Tribunal to pass such orders only after giving both the parties to the appeal an opportunity of being heard. Therefore, if the contention of AR that the objection orally raised on behalf of assessee for the first time during the course of hearing, without putting the Revenue Department to notice in advance is allowed, then not only the same would seriously jeopardise the right of Revenue to meet out the same, but rather, the same would clearly militate against the scope of powers vested with the Tribunal u/s 254(1), as the Revenue would be proceeded against without affording of any opportunity of being heard. The words "after giving both the parties to the appeal an opportunity of being heard" as find mentioned in Sec. 254(1), have to be given effect in letter and spirit, and if the objection orally raised by the assessee is allowed, then the statutory requirement of affording an opportunity of being heard would stand seriously violated. This Tribunal is of the considered view that though the parties to the appeal before the Tribunal are vested with the right to raise a new contention, but the same has to be subject to the powers contemplated in the substantive provisions, viz. Sec. 253 r.w the procedural rules contemplated in Appellate Tribunal Rules, 1963. The assessee on the one hand is vested with the right to assail the order of lower authority before the Tribunal by filing an appeal u/s 253(1), as well as stands vested with the right to raise additional grounds of appeal under Rule 11 of the Appellate Tribunal Rules, 1963, while for the Revenue on the other hand can file a cross-objection u/s 253(4) r.w. Rule 22 of Appellate Tribunal Rules, or support the order appealed against, on any ground decided against him under Rule 27 of the Appellate Tribunal Rules. Further, as no application under Rule 27 had been filed by the assessee before this Tribunal, therefore, the same would suffice for not proceeding any further with admissibility of the objection raised by assessee;

+ as claimed by the assessee, he was gifted a villa, viz. 'Signature Villa' at Dubai by Nakheel P.J.S.C. The assessee initially in his return, had on his own estimated the rateable value of villa at Rs.20,00,000/- and offered an amount of Rs. 14,00,000/- towards notional income of the villa under the head house property. However, in the course of assessment proceedings, the assessee taking support of the provisions of Article 6 of the India-UAE tax treaty and the protocol thereto, requested the AO not to tax the notional income of the villa owned by him at Dubai. It is found that the assessee taking support of certain judicial pronouncements had claimed that Article 6(1) vested an exclusive taxing right with the state of source and the state of residence was not empowered to levy any tax, even if the state of source did not exercise its power to levy tax. However, this claim of the assessee that the notional income of the villa at Dubai could not be brought to tax in India, was dislodged by the AO for the reason that as per him, the manner in which the term 'may be' was used under Article 6 of the India-UAE Tax Treaty was clarified by the CBDT Notification No. 90/2008 and Notification No. 91/2008. Thus, the AO being of the view that as the assessee was a resident of India, therefore, the notional income of the villa owned by him at Dubai was liable to be assessed in his hands u/s 5(1) of the Act. But, this Tribunal is in agreement with the AR that no penalty u/s 271(1)(c) was liable to be imposed as regards the addition made by AO towards deemed notional income of the villa owned by the assessee at Dubai. A perusal of Article 6 of the India-UAE DTAA revealed that the issue as regards the taxability in India of the notional income of the villa owned by the assessee at Dubai was not free from doubts. The said claim of the assessee further stands fortified from the fact that the issue as to whether the Notifications nos. 90 and 91/2008, dated Aug 28, 2008 would have a superseding effect over the DTAA, was so much debatable that the same had travelled up to the Tribunal in the assessee's own case for the year under consideration;

+ this Tribunal is also in agreement with the AR that the scope and gamut of the term "may be taxed" used in the Notifications Nos. 90 and 91/2008, as had been relied upon by the A.O for bringing the notional income of the villa to tax in India, is in itself not free from doubts and debate, can safely be gathered from the fact that the same had even came up before a coordinate bench of the Tribunal in the case of Essar Oil Ltd. Vs. Addl. CIT - 2013-TII-159-ITAT-MUM-INTL. It is further seen that in the case of Bank of India Vs. DCIT, Mumbai - 2017-TIOL-1580-ITAT-MUM, while adjudicating a similar issue emerging in context of India-Kenya DTAA, it was concluded that the income of assessee was liable to be taxed under Article 6 of the India-Kenya tax treaty, and was further observed that any notification or circular cannot alter the nature of income that had been specifically included in the DTAA's, therefore, on the basis of conflicting views of two benches of the Tribunal on the issue under consideration, it could safely be concluded that as the issue under consideration was not free from doubts and debates, thus the assessee could not be subjected to levy of penalty u/s 271(1)(c) for adopting one of such view. This Tribunal is further of the considered view that the conduct of assessee in offering an amount of Rs. 14,00 000/- as the notional income of the villa for tax in his return, followed by raising of claim during the course of assessment proceedings that as neither Article 6(1) nor protocol to the India-UAE tax treaty expressly recognized the right of the state of residence of the owner to tax the income from immovable property situated in the state of source, therefore, the notional income of the villa owned by him at Dubai could not be subjected to tax in India, clearly reveals a bonafide claim raised by him in context of the issue under consideration. Therefore, as the claim raised by the assessee was clearly backed by a bonafide belief on his part, that the notional income of the villa was not liable to be taxed in India, therefore, on the said count too no penalty u/s 271(1)(c) could have been validly imposed on the assessee. Thus, the order of CIT(A) deleting the penalty imposed by AO u/s 271(1)(c) is upheld;

+ as far as addition towards long term capital gain on sale of structured product, viz. 0% debentures issued by Deutsche Investments India Pvt. Ltd. is concerned, it is found that the AO had only dislodged the computation of LTCG by the assessee, only for the reason that as the same was liable to be computed as per the proviso to Sec. 112, therefore, the assessee would not be entitled towards indexation of the cost of acquisition of the same. The bonafides of assessee can safely be gathered from the fact that the moment he learnt about his mistake in computing the LTCG, he submitted that he had no objection to the reworking of the LTCG as per Sec. 112 of the Act. Therefore, it can safely be concluded that the assessee cannot be subjected to penalty u/s 271(1)(c) for furnishing of inaccurate particulars of income. Raising of an incorrect claim in law cannot be construed as furnishing of inaccurate particulars of income. As it remains an admitted position that no information given by the assessee in its return of income in respect of either the amount of sale proceeds or the cost of acquisition of the structured product, viz. 0% debentures of Deutsche Investments India Pvt. Ltd. is found to be incorrect or inaccurate, therefore, the wrong computation of the LTCG can by no means be characterised as furnishing of inaccurate particulars of income by the assessee.

Revenue's appeal dismissed