The Hindu Business Line : A boost to powers of the Tribunal

The Tribunal held that it is not prevented from passing orders which may result in an enhancement of the assessee's tax liability beyond that determined by the AO.

It has been generally understood that unlike the Commissioner (Appeals) the Tribunal has no power of enhancement in appeals filed by the assessee. The law has been fairly well-settled that it is not open to the Tribunal in the appeals filed by the assessee to give a finding adverse to the assessee which does not arise from any question raised in the appeal, nor is it open to the Tribunal to raise any ground which would work adversely on the assessee and pass an order which makes his position worse than what it was under the order appealed against. In the appeals filed by the assessee, the Tribunal also cannot exercise the power of remand with a view to enhancing the assessment.

Exceptions to the rule

The recent ruling of Mumbai Tribunal in the JCIT v Sakura Bank Ltd (100 ITD 215) case has held that the principle that the Tribunal cannot give a finding which may enhance the assessment is not of universal application and there are exceptions to the rule. The facts in the said decision were that the original assessment was completed by the assessing officer (AO) holding that the rate of tax would be as applicable to foreign companies.

On appeal by the assessee, the Commissioner (Appeals) directed the AO to consider the provisions of the DTAA between India and Japan, the non-discrimination clause in particular, and determine the rate of tax. While giving effect to the directions of the Commissioner (Appeals), the AO determined the rate of tax as the rate applicable to domestic companies in which the public are not substantially interested. In the second round of appeal, the Commissioner (Appeals) directed the AO to charge the rate applicable to domestic companies in which the public are substantially interested. Aggrieved, the Department appealed to the ITAT.

The questions which arose before the Tribunal were i) whether in view of the retrospective amendment to Section 90, the Tribunal has power to apply the Explanation to Section 90 and hold that the assessee should be liable to be taxed at the rate prescribed for a `company other than a domestic company' though the said Explanation was not dealt with by the lower authorities, ii) whether the powers of the Tribunal are confined to the issues arising out of the order of the Commissioner (Appeals) or order passed by the AO and whether an assessee can be placed in a worse position, as a result of the matter being carried in appeal before the Tribunal by the Revenue, than if the assessee had simply accepted the assessment order?

On the basis of these facts of the case, the Tribunal, referring to the Supreme Court decisions in National Thermal Power Co. Ltd (229 ITR 383) and Jute Corporation of India Ltd (187 ITR 688), held that the powers of the Tribunal are not confined to deal with the issues arising out of the orders of the authorities and as long as an issue has relevance to the correct determination of taxes in respect of the year and particularly when relevant facts can be found from the material already on record, the issue can be raised.

The Tribunal observed that the net effect of insertion of the Explanation to Section 90 is that the non-discrimination clauses in the DTAAs, so far as they relate to non-discrimination in the tax rates between domestic companies and foreign companies, have been rendered ineffective. The Tribunal noted that in the present case there is no enhancement of income but there is enhancement of tax liability wholly because of retrospective insertion of the Explanation in Section 90 of the Act, which restricted the application of non-discrimination clauses in the tax treaties.

The Tribunal held that it is not prevented from passing orders which may result in enhancement of the assessee's tax liability beyond the tax liability determined by the AO and it is not always necessary that as a result of the proceeding having been carried in the appeal, he cannot be worse off vis-à-vis the position in the event of his having simply accepted the order. The Tribunal restored the matter to the file of the AO for fresh adjudication in accordance with the law.

Thus, in the above decision, the Tribunal has dealt with the Explanation to Section 90 which was brought on the statute book retrospectively and which was not before the lower authorities. The Tribunal has decided the issue which was not arising out of the Commissioner (Appeals) order, though the Department took a stand in the appeal. The issue before the Tribunal in the appeal filed by the Department was whether the rate to be applied is the rate applicable to companies in which the public are substantially interested or the one applicable to companies in which the public are not substantially interested.

The above ruling has certainly clarified the earlier position regarding the powers of the Tribunal and one certainly needs to consider this while dealing with the Tribunal.

(The author is with Deloitte Haskins & Sells, Mumbai.)

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