JCIT, CHENNAI V. Rajasekaran Balasubramanian, CHENNAI

ITA 1324/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73630 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARI RAO
• Assessee Lawyers: R VENK ATESANC A
• Keywords: Residential status; Salary income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI (BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ) .. I.T.A. NO.1324/MDS/2013 ASSESSMENT YEAR : 2009-10 DEPUTY COMMISSIONER OF INCOME TAX , SALARY CIRCLE V, WANAPARTHY BLOCK, VTH FLOOR, ROOM NO.508, 121,M.G.ROAD, CHENNAI 600 034. (APPELLANT) V. SHRI RAJASEKARAN BALASUBRAMANIAM , R 12/51,15 TH STREET, R BLOCK, ANNA NAGAR, CHENNAI 600 040. PAN : AJAPB 4310 R (RESPONDENT) APPELLANT BY : SHRI HARI RAO JCIT D.R. RESPONDENT BY : SHRI R.VENK ATESAN,C.A. DATE OF HEARING : 08.01.14 DATE OF PRONOUNCEMENT : 17.01.14 O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE , AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A), CHENNAI, DATED ITA NO. 1324/MDS/13 2 28.12.2012 IN ITA NO.240/11-12 PASSED U/S.143(3) READ WITH SECTION 250 OF THE ACT. 2. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APP EAL, HOWEVER, THE CRUX OF THE ISSUE IS THAT THE REVENUE IS AGGRIE VED BY THE ORDER OF LD. CIT(A) FOR HAVING DELETED THE ADDITION MADE BY THE AO FOR `. 40,13,145/- TOWARDS HYPOTHETICAL TAX. 3. THE ASSESSEE IS AN INDIVIDUAL, RESIDING IN INDI A EARNING SALARY INCOME, FILED HIS RETURN OF INCOME ON 27.07.2009 FO R THE ASSESSMENT YEAR 2009-10 DECLARING TOTAL INCOME OF `. 1,22,94,450/-. THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT WAS COMPLE TED U/S. 143(3) OF THE ACT WHEREIN THE LD. ASSESSING OFFICER MADE A N ADDITION OF `. 39,27,597/- UNDER THE HEAD PERQUISITE ON THE GROUND THAT THE ASSESSEE HAD NOT PAID THE TAX LEVIED BY THE UNITED STATES GOVERNMENT AUTHORITIES WHICH WAS SHOWN AS AMOUNT DE DUCTED FROM SALARY. THE ASSESSEE HAD CLAIMED BEFORE THE LD. AS SESSING OFFICER THAT HE IS AN EMPLOYEE OF M/S.GMAC FINANCIAL SERVIC ES BASED IN INDIA, HOWEVER RECEIVING SALARY IN US DOLLAR IN US, WHICH IS DEPOSITED ITA NO. 1324/MDS/13 3 IN THE BANK ACCOUNT OPERATED BY THE ASSESSEE IN US. IT WAS FURTHER STATED THAT THE EMPLOYER OF THE ASSESSEE HAD DEDUCT ED HYPOTHETICAL TAX OF `. 40,13,145/- BEING THE SALARY WITHDRAWN AS PER THE EMPLOYERS TAX EQUALIZATION POLICY. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS REMUNERATED IN SUCH A MANNER THAT HE DOES NOT I NCUR ANY ADVANTAGE ON ACCOUNT OF INTERNATIONAL ASSIGNMENT. THE TAX EQUALIZATION POLICY OF COMPANY WAS INTENDED TO ENSU RE PARITY BETWEEN THE EMPLOYEES OF THE COMPANY WHO WERE WORKI NG IN US AND ABROAD BY WITHDRAWING THE ADVANTAGE THE ASSESSEE EN JOYED OVER THE DIFFERENCE OF TAX PAYABLE IN HOME COUNTRY AND THE T AX PAID IN THE COUNTRY WHERE HE IS EMPLOYED. HOWEVER, LD. ASSESSI NG OFFICER MADE THE ADDITION OF `. 39,27,597/- BY OBSERVING AS UNDER:- AS PER THE DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND THE US, ANY INCOME TAX THAT HAS BEEN PAID IN THE COUNTRY OF RES IDENCE WILL BE ALLOWED AS A REBATE IN THE OTHER CONTRACTING STATE. SINCE THE ASSESSEE IS A RESIDENT OF INDIA AND PAYS INCOME TAX IN INDIA, THE ASSESSEE HAS OBTAINED THE RELIEF FOR THE TAXES PAID IN INDIA IN THE US. HENCE, THE ASSESSEE HAS NOT PAID ANY FEDERAL TAX IN USA AS EVIDENCED BY THE W-2 FURN ISHED BY THE ASSESSEE FOR THE F.Y.2008. SINCE THE ASSESSEE HAS N OT PAID ANY FOREIGN TAX IN THE US, THE ENTIRE GROSS SALARY RECEIVED BY THE ASSESSEE IS TAXABLE IN INDIA. HENCE, THE GROSS SALARY IS TREATED AS TH E SALARY INCOME OF THE ASSESSEE. ITA NO. 1324/MDS/13 4 4. ON APPEAL, LD. CIT(A) DIRECTED THE LD. ASSESSI NG OFFICER TO DELETE THE ADDITION BY OBSERVING AS UNDER:- 4. I HAVE GONE THROUGH THE OBSERVATIONS OF THE AO A ND THE EXPLANATIONS OFFERED BY THE APPELLANT. THE CONCEPT OF THE HYPOTHETICAL TAX, AS EXPLAINED ABOVE, IS BROUGHT OUT, ONLY TO EN SURE THAT A CITIZEN OF ONE COUNTRY, DOES NOT LOSE OUT ON ADVERSE TAXATION , WHEN HE IS DEPUTED TO WORK IN A DIFFERENT COUNTRY. THE SAME HAS BEEN LUCIDLY EXPLAINED BY THE AR IN HIS WRITTEN NOTE AS ABOVE. IN A SIMILAR CASE TO THE SIMILAR FACTS, THE HONBLE ITAT, MUMBAI HAS HELD THAT HYPOTHETICAL TAX DOES NOT FORM PART OF THE SALARY INCOME TAXABLE IN INDIA (ITA NO. 2021/MUM./98). GOING BY THE FINDING AND THE RATIO GIVEN BY THE HONBLE I TAT AND ALSO CONG THE FACT THAT HYPOTHETICAL TAX HAS BEEN BROUGHT IN TO B RING IN TAX EQUALIZATION BETWEEN DOMESTIC EMPLOYMENT AND OVERSEAS EMPLOYMENT , IT IS HELD THAT THE HYPOTHETICAL TAX CANNOT BECOME A SUBJECT OF ADD ITION. HENCE, THEAO IS DIRECTED TO DELETE THE ADDITION. 5. LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE LD. ASSESSING OFFICER AND THE LD. A.R. REITERATED HIS SUBMISSION BEFORE THE REVENUE ON EARLIER OCCASIONS AND ALSO SUBMITTED A STATEMENT ON THE ANALYSIS OF THE HYPOTHETICAL TAX AND FURTHER RELIED ON THE O RDER OF LD.CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ORDER OF T HE LD. ASSESSING ITA NO. 1324/MDS/13 5 OFFICER, WE FIND THAT THE LD. ASSESSING OFFICER HAS NOT UNDERSTOOD THE ISSUE FACTUALLY. LD. CIT(A) HAS ALSO ADJUDICATED THE MATTER SIMPLY BY FOLLOWING THE DECISION OF THE TRIBUNAL MUMBAI BE NCHES WITHOUT EXAMINING THE FACTS. FROM THE ARGUMENTS SUBMITTED BY THE LD. A.R. AND FURTHER ON PERUSING THE MATERIALS ON RECORD AND THE ANALYSIS STATEMENT OF HYPOTHETICAL TAX SUBMITTED BY THE LD. A.R., BEFORE US AT THE TIME OF HEARING, WE FIND THAT THE FACTS ARE AS STATED HEREIN BELOW:- 7. THE ASSESSEE HAS RECEIVED IN US $ AMOUNT EQUIVA LENT TO INR `. 1,10,75,021/- AS SALARY ON WHICH AN AMOUNT OF INDI AN `. 40,13,145/- IS WITHDRAWN BEING HYPOTHETICAL TAX PAYABLE IN US . IN LIEU FOR THE AMOUNT WITHDRAWN AS HYPOTHETICAL TAX , THE EMPLOYER COMPANY HAD PAID THE TAX LIABILITY OF THE ASSESSEE IN INDIA FOR `. 31,57,915/-. THUS, THE NET AMOUNT WITHDRAWN BY THE ASSESSEE COMPANY FROM THE SALARY OF THE ASSESSEE IS `. 8,55,230/- ( `. 40,13,145 (-) `. 31,57,915), THEREBY THE ASSESSEE HAS FACTUALLY HAD RECEIVED SALARY OF `. 1,02,19,791/- ( `. 1,10,75,021 `. 8,55,230). ITA NO. 1324/MDS/13 6 8. THESE FACTS EMERGED FROM THE STATEMENT OF ANALY SIS OF HYPOTHETICAL TAX SUBMITTED BY THE LD. A.R. WHICH IS REPRODUCED BELOW FOR REFERENCE :- (A) SALARY RECEIVED IN US PARTICULARS AMOUNT (IN EQUIV.INR) AMOUNT (IN EQUIV.INR) GROSS SALARY RECEIVED IN THE US 100 11,075,021 LESS: US TAXES/HYPOTHETICAL TAX @ 40% 40 4,013,145 NET SALARY RECEIVED IN THE US 60 7,061,876 (B) ACTUALLY SALARY RECEIVED WHILE ON ASSIGNMENT IN INDIA PARTICULARS AMOUNT (IN EQUIV.INR) AMOUNT (IN EQUIV.INR) SALARY TAXABLE IN INDIA 87 10,219,791 LESS: TAXES BORNE BY THE COMPANY IN INDIA ON BEHALF OF THE INDIVIDUAL 27 3,157,915 NET SALARY RECEVIED 60 7,061,876 (C) COMPARATIVE ANALYSIS PARTICULARS AMOUNT (IN EQUIV.INR) AMOUNT (IN EQUIV.INR) HYPOTHETICAL TAX DEDUCTION FROM EMPLOYEE 40 4,013,145 TOTAL TAX PAID IN HOST COUNTRY BY EMPLOYER 27 3,157,915 DIFFERENCE IN TAXES 13 855,230 NOTE: UNDER THE TAX EQUALIZATION POLICY, THIS DIFFE RENCE OF 13 (INR 855,230) IS NOT ELIGIBLE TO BE PAID BACK TO THE ASSESSEE. ITA NO. 1324/MDS/13 7 9. THEREFORE, THIS ISSUE NEEDS TO BE VERIFIED AND EXAMINED BY THE LD. ASSESSING OFFICER AFRESH BASED ON THE ABOVE FAC TS NEEDLESS TO MENTION THAT ON PRINCIPLES IF THE CONTENTION OF THE ASSESSEE IS FACTUALLY CORRECT AS STATED ABOVE, THEN THE ADDITIO NS MADE BY THE LD. ASSESSING OFFICER WOULD NOT BE WARRANTED SUBJECT TO THE CORRECTNESS OF THE ARITHMETICAL COMPUTATION. 10. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 17 TH JANUARY, 2014 AT CHENNAI. SD/- SD/- (V. DURGA RAO) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH JANAURY,2014. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE