The Supreme Court has dismissed the income tax department's appeal to tax Hyundai Heavy India Company Ltd at a higher rate of 65 per cent against 59.4 per cent charged from the domestic companies.
A bench headed by Justice SH Kapadia refused to entertain the appeal against the Uttarkhand High Court ruling "both on the grounds of delay and merit".
The department while seeking to levy higher tax on the foreign company's total income of Rs 3.3 crore for 1995, said that the non-resident company had been taxed at a lower rate, though under the DTA agreement the rate applicable should have been 65 per cent.
The High Court had failed to consider that the tax was charged at the rate of 59.4 per cent, applicable to a domestic company, instead of 65 percent applicable to foreign companies, it said.
"This is because the provisions of Section 90(2) does not say that DTAA will override the provisions of the Finance Act. Tax rate prescribed by an Act of Parliament cannot be whittled down by reference to the provisions of an earlier assessment," the appeal stated.
According to the Revenue department, this view had the support of the Authority of Advance rulings and the CBDT which stipulated that non-resident company had to be taxed at the rate applicable to foreign companies under the Finance Act.
Hyundai had moved the Commissioner of Income Tax after the assessment officer had applied higher tax rate of 65 per cent against 59.4 percent for assessment years 1991-1995.
While the CIT had held that the department was not right in applying the higher rate, the ITAT had dismissed the batch of appeals filed by the department.