High Court of Judicature at Madras · Judgments and reasoned final orders
Commissioner of Income Tax, Chennai v. Indian Overseas Bank
T.C.A. Nos. 64 & 65 of 2014 ·
Section 271(1)(c) concealment penalty deleted where public-sector bank made a bona fide, fully disclosed double-taxation relief claim under section 90 for its Hong Kong SAR branch.
1. FACTS OF THE CASE
The assessee, Indian Overseas Bank (a nationalised public-sector bank), operated overseas branches in Singapore, South Korea, Sri Lanka and Hong Kong. In its returns for AY 2006-07 (filed 29.11.2006, revised 28.03.2008) and AY 2007-08 (filed 30.10.2007, revised 27.03.2009), the bank claimed double taxation relief under section 90 in respect of foreign branch profits, including its Hong Kong branch on the premise that Hong Kong was a Special Administrative Region of the People's Republic of China covered by the India-China DTAA. Prior to the Finance (No. 2) Act, 2009 (w.e.f. 01.10.2009), section 90 did not include 'specified territory' and India had no separate DTAA with Hong Kong. The Assessing Officer disallowed the section 90 relief attributable to the Hong Kong branch—which the bank accepted without appeal—and levied penalty under section 271(1)(c) of Rs. 2,34,63,048 for AY 2006-07 and Rs. 4,57,07,937 for AY 2007-08. For AY 2006-07 the CIT(A) deleted the penalty and for AY 2007-08 the CIT(A) confirmed it; by common order dated 19.09.2013, the ITAT cancelled the penalties for both years.
2. DISCUSSION BY THE COURT
The Division Bench rejected the Revenue's contention that claiming section 90 treaty relief for the Hong Kong branch for a second consecutive year amounted to furnishing inaccurate particulars or a mala fide 'inflated claim'. Examining the chronology, the Court noted that the return for AY 2007-08 had already been filed on 30.10.2007—more than a year before the assessment order for AY 2006-07 was passed on 30.12.2008 first disallowing the claim—and even the revised return for AY 2007-08 was filed before the bank decided not to pursue a quantum appeal on that point. All branch income figures were drawn transparently from audited accounts, and the question whether the India-China DTAA extended to Hong Kong SAR after the 1997 transfer of sovereignty was a debatable legal interpretation. Applying CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) and distinguishing Union of India v. Dharmendra Textile Processors, (2008) 306 ITR 277 (SC), the Court held that a mere unsustainable legal claim accompanied by full factual disclosure does not attract penalty under section 271(1)(c).
3. JUDICIAL DECISION
Reframing the substantial question of law to substitute 'erroneous claim' for 'inflated claim', the High Court answered the question in favour of the assessee and against the Revenue, dismissing both Tax Case Appeals (TCA Nos. 64 and 65 of 2014) with no order as to costs.
4. OUTCOME
In favour of the assessee (Indian Overseas Bank). Both Revenue appeals were dismissed, affirming the deletion of section 271(1)(c) penalties of Rs. 2,34,63,048 (AY 2006-07) and Rs. 4,57,07,937 (AY 2007-08).
5. AKHB REVIEW POINT
AKHB analysis: where a multi-year legal or treaty-relief position is disallowed in scrutiny, map the exact filing dates of the original and revised returns for the subsequent year against the date of service of the earlier year's assessment order. Demonstrating that the subsequent year's return was filed before the first adverse assessment order—and that all underlying figures matched audited branch schedules—defeats the Revenue's argument of repetitive defiance in section 271(1)(c) / 270A penalty proceedings.
Source: AKHB analysis based on paragraphs 11-23 / PDF pp. 5-14
Source and verification
Fourteen-page official Madras High Court common judgment PDF (2026:MHC:774); paragraphs 1-24 span PDF pages 1-14.
Original PDF: 14 pages · SHA-256: 02ed7642030035bba4f2609ffdb3def779ba032f30735141468addc28f8d2289
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 271(1)(c) read with section 90 of the Income-tax Act, 1961 for AYs 2006-07 and 2007-08 (prior to the Finance (No. 2) Act, 2009 amendment to section 90 w.e.f. 01.10.2009 empowering agreements with specified territories). Income-tax Act, 2025 equivalence is not verified.
Full judgment checked. Applies CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) and distinguishes Union of India v. Dharmendra Textile Processors, (2008) 306 ITR 277 (SC). Comprehensive subsequent judicial treatment has not been verified.
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