High Court of Delhi · Judgments and reasoned final orders
Commissioner of Income Tax (International Taxation)-2 v. Little Fairy Limited
ITA 356/2026 ·
Inapplicability of the draft assessment procedure under Section 144C(1) for AY 2016-17 where the Assessing Officer made no variation to the returned quantum of income/loss of a non-resident Cyprus company and only denied the concessional 10% tax rate under Article 11 of the India-Cyprus DTAA; consequential annulment of the assessment order.
1. FACTS OF THE CASE
For AY 2016-17, the respondent (a Cyprus company) offered interest income to tax at the concessional treaty rate of 10% under Article 11 of the India-Cyprus DTAA. The AO accepted the returned income quantum without any variation, but passed a draft assessment order under Section 144C proposing to tax the income at normal domestic rates on the allegation of treaty shopping. The ITAT by order dated 25.09.2023 in ITA No. 1512/DEL/2022 annulled the assessment order as time-barred, holding that Section 144C could not be invoked where there was no variation in the income or loss returned.
2. DISCUSSION BY THE COURT
Quoting and following the coordinate Division Bench judgment affirming S.A. Chitra Ventures Ltd. v. International Taxation-3 (ITA Nos. 6144 & 6145/Del/2018), the High Court held that Section 144C(1) empowers an Assessing Officer to frame a Draft Assessment Order only where he proposes a variation in the income or loss returned which is prejudicial to the eligible assessee. Where the quantum of returned income remains unvaried and the sole dispute relates to the rate of tax upon denial of Article 11 DTAA benefit, Section 144C(1) is not attracted, and the ITAT committed no error in annulling the assessment order.
3. JUDICIAL DECISION
Holding that no substantial question of law arose, the High Court dismissed the Revenue's appeal and pending application.
4. OUTCOME
Assessee - Revenue appeal dismissed; annulment of assessment order framed via inapplicable Section 144C procedure affirmed.
5. AKHB REVIEW POINT
An Assessing Officer cannot avail the extended limitation window under Section 144C by issuing a draft assessment order where the returned income of the non-resident is accepted without variation and only the DTAA tax rate (such as Article 11 interest rate) is denied.
Source and verification
5-page official High Court of Delhi judgment PDF (DLHC011322342024_1_2026-04-30.pdf, 44,833 bytes).
Original PDF: 5 pages · SHA-256: c02f5d1b8c7f300028bdd07708ed90596419d7c14b9b76406f730f84ec484650
Supplied source-reviewed note retained; original bytes and identity validation checked in this release. Substantive re-review is not claimed for this record.
Applies Section 144C(1) of the Income-tax Act, 1961 as it stood in AY 2016-17. Income-tax Act, 2025 equivalence is not verified.
Full 5-page primary judgment PDF text read and verified page-by-page. Follows the Delhi High Court ruling affirming S.A. Chitra Ventures Ltd. v. DCIT (International Taxation)-3 on the scope of 'variation in the income or loss returned' under Section 144C(1).
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