Jayalakshmi Badiga Rep. by GPA holder Satyanarayana Rao P.V., Hyderabad, Hyderabad V. ITO, international Taxantion-1, Hyderabd, Hyderabad

ITA 168/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2732 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 03-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 154

Judgement Text

ITA NO.168 & 169 OF 2017 JAYALAKSHMI BADIGA PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NOS. 168 & 169/HYD/2017 (ASSESSMENT YEAR: 2011-12) SMT. JAYALAKSHMI BADIGA REP.BY GPA HOLDER SATYANARAYANA RAO PV HYDERABAD PAN: ACVPB 8273 D VS INCOME TAX OFFICER (INTERNATIONAL TAXATION)-1 HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO FOR REVENUE : SMT. SUMAN MALIK, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH THE ABOVE APPEALS ARE FILED BY THE ASSESSEE FO R THE A.Y 2011-12 AGAINST THE ORDER OF THE CIT (A)-10 , HYDERABAD, BOTH DATED 29.08.2016. ITA NO.168/HYD/2017 IS AGAIN ST THE ORDER OF THE CIT (A) CONFIRMING THE ASSESSMENT ORDE R PASSED U/S 143(3) OF THE ACT, WHILE ITA NO.169/HYD/2017 IS AGA INST THE ORDER OF THE CIT (A) CONFIRMING THE ORDER PASSED U/S 154 OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL IS A NON-RESIDENT. SHE FILED HER RETURN OF INCOME FOR THE A.Y 2011-12 ON 29.07.2011 ADMITTING INCOME FROM HOUS E PROPERTY AT RS.1,75,760. DURING THE ASSESSMENT PROC EEDINGS U/S DATE OF HEARING : 09.08.2017 DATE OF PRONOUNCEMENT : 11.08.2017 ITA NO.168 & 169 OF 2017 JAYALAKSHMI BADIGA PAGE 2 OF 6 143(3) OF THE ACT, THE AO NOTICED THAT THE ASSESSEE IS IN RECEIPT OF RS.22,84,267 FROM M/S. GALAXY ARCHITECTS AND BUILDE RS PVT. LTD, AN INDIAN COMPANY, BUT HAS NOT OFFERED THE SAID REC EIPTS TO TAX IN HER RETURN OF INCOME. THEREFORE, THE AO ASKED THE A SSESSEE TO PRODUCE THE DETAILS OF THESE RECEIPTS AND ALSO THE REASONS FOR NON ADMISSION OF THESE RECEIPTS FOR TAXATION IN INDIA. THE ASSESSEE STATED THAT SHE HAD PROVIDED ADVISORY SERVICES TO M /S. GALAXY ARCHITECTS AND BUILDERS PVT. LTD AND ACCORDINGLY RE CEIVED THE FEE IN FOREIGN CURRENCY REMITTED IN US $ FOR THE SERVIC ES PROVIDED IN USA. THE AO ASKED THE ASSESSEE TO PRODUCE THE TAX R ETURN FILED BY THE ASSESSEE IN USA TO VERIFY WHETHER THE PROFESSIO NAL INCOME/ADVISORY SERVICES FEE RECEIVED BY THE ASSESS EE HAS BEEN REPORTED AS GLOBAL INCOME AND WHETHER ANY TAXES HAV E BEEN PAID THEREON. SINCE THE ASSESSEE DID NOT PRODUCE THE DE TAILS OF HER U.S. TAX RETURN, THE AO PRESUMED THAT THEY HAVE NOT BEEN OFFERED TO TAX IN USA AND THEREFORE, HELD THAT THESE RECEIP TS ARE TO BE ADDED TO THE INCOME RETURNED IN INDIA. ACCORDING TO THE AO, THE SOURCE OF THE RECEIPTS IS IN INDIA AND THEREFORE, T HE SAID RECEIPTS ARE TAXABLE IN INDIA. AGGRIEVED, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT (A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE SERVICES HAVE BEEN RENDERED BY THE ASSESSEE OUT SIDE INDIA AND THE ADVISORY FEE HAS BEEN RECEIVED BY THE ASSESSEE IN USA AND IN US $ AND THERE IS NO TAXABLE INCOME WHICH HAS ACCRU ED OR ARISEN OR DEEMED TO ACCRUE OR ARISE TO THE ASSESSEE IN IND IA. THEREFORE, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE ADVISORY FEE IS NOT TAXABLE IN INDIA. ITA NO.168 & 169 OF 2017 JAYALAKSHMI BADIGA PAGE 3 OF 6 4. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE F ACTS ON RECORD, IT IS SEEN THAT THE ASSESSEE IS AN NRI AND THAT SHE HAS RENDERED ADVISORY SERVICES TO THE INDIAN COMPANY FO R MAKING INVESTMENT IN A US COMPANY GREEN CLINICAL SYSTEMS I NC; 379 THORHALL STREET, EDISON, NEW JERSEY. THUS, THE SITU S OF THE ACTIVITY OF INVESTMENT IS OUTSIDE INDIA AND THEREFORE, THE I NCOME HAS ACCRUED OR ARISEN TO THE ASSESSEE OUTSIDE INDIA. IN SUCH CIRCUMSTANCES, THE EXCEPTION CARVED OUT IN CLAUSE ( B) TO SECTION 9(1)(VII) WOULD APPLY AS THE RESIDENT COMPANY HAS M ADE INVESTMENT IN A COMPANY IN US FOR THE PURPOSE OF EA RNING INCOME FROM A SOURCE OUTSIDE INDIA. THUS, TO BRING TO TAX, THE FTS IN INDIA, THE TERRITORIAL LIVE LINK IS NECESSARY WHICH IS MISSING IN THE CASE BEFORE US. THE QUESTION AS TO WHAT IS A SOURCE OF INCOME HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HAVELLS INDIA LTD, IN ITA NO.55 & 57/2012 D ATED 21.5.2012 AND AT PARAS 12 & 13 OF THE SAID JUDGMENT , IT WAS HELD AS UNDER: 12. THE QUESTION AS TO WHAT IS A SOURCE OF INCOME H AS BEEN DEALT WITH IN SOME AUTHORITATIVE PRONOUNCEMENTS. THE JUDICIAL COMMITTEE IN RHODESIA METALS LTD. V. COMMISSIONER OF INCOME TAX, (1941) 9 ITR (SUPPL.) 45 OBSERVED THAT A SOURCE MEANS NOT A LE GAL CONCEPT BUT ONE WHICH A PRACTICAL MAN WOULD REGARD AS A REAL SO URCE OF INCOME. THIS OBSERVATION WAS ADOPTED BY MALIK, J. IN HIS SE PARATE BUT CONCURRING JUDGMENT IN THE CASE OF RANI AMRIT KAUR V. CIT, (1946) 14 ITR 561, A DECISION OF THE FULL BENCH OF THE ALLAHA BAD HIGH COURT. A SOURCE OF INCOME WAS DESCRIBED BY R. S. PATHAK, J. (AS HE THEN WAS) IN THE FOLLOWING WORDS IN SETH SHIV PRASAD V. CIT, (19 72) 84 ITR 15 (ALL.) AT PAGE 18: - A SOURCE OF INCOME, THEREFORE, MAY BE DESCRIBED AS THE SPRING OR FOUNT FROM WHICH A CLEARLY DEFINED CHANNEL OF INCOME FLOWS. IT IS THAT WHICH BY ITS NATURE AND INCIDENTS CONSTITUTES A DISTINCT AND SEPARATE O RIGIN OF INCOME, CAPABLE OF ITA NO.168 & 169 OF 2017 JAYALAKSHMI BADIGA PAGE 4 OF 6 CONSIDERATION AS SUCH IN ISOLATION FROM OTHER SOURC ES OF INCOME, AND WHICH BY THE MANNER OF DEALING ADOPTED BY THE ASSESSEE CAN B E TREATED SO. THE OBSERVATIONS OF THE JUDICIAL COMMITTEE (SUPRA) AS TO WHAT IS A SOURCE OF INCOME HAVE BEEN APPROVED BY THE SUPREME COURT IN CIT V. LADY KANCHANBAI, (1970) 77 ITR 123. THE LOCATION OR SITUS OF A SOURCE OF INCOME IS ANOTHER ASPECT. THE THIRD ASPECT IS TH E ACCRUAL OF THE INCOME. THOUGH IT IS TRUE, AS HELD BY KANIA, C.J., SPEAKING FOR A CONSTITUTION BENCH OF THE SUPREME COURT IN CIT V. A HMEDBHAI UMARBHAI, (1950) 18 ITR 472 (SC) AT PAGE 479, THAT THE PLACE WHERE THE SOURCE OF INCOME IS LOCATED MAY NOT NECESSARILY BE THE PLACE WHERE THE INCOME ALSO ACCRUES, THAT QUESTION IS NOT MATER IAL IN THE PRESENT CASE BECAUSE HEREIN WE ARE CONCERNED ONLY WITH THE QUESTION AS TO THE LOCATION OF THE SOURCE. THE REAL QUESTION IS WHETHE R THE EXPORT SALES PROCEEDS RECEIVED FROM GOODS MANUFACTURED AND EXPOR TED FROM INDIA CONSTITUTE A SOURCE INSIDE OR OUTSIDE INDIA. TO DEC IDE THE SAME WE HAVE TO TAKE A PRAGMATIC AND A PRACTICAL VIEW AND N OT APPROACH THE QUESTION FROM A THEORETICAL PERSPECTIVE. 13. SECTION 9(I)(VII)(B) CONTEMPLATES A SOURCE LOCA TED OUTSIDE INDIA. IT IS DIFFICULT TO CONCEPTUALISE THE PLACE/ SITUS OF THE PERSON WHO MAKE PAYMENT FOR THE EXPORT SALES AS THE SOURCE LOCATED OUTSIDE INDIA FROM WHICH ASSESSEE EARNED PROFITS. THE EXPORT CONTRACTS OBVIOUSLY ARE CONCLUDED IN INDIA AND THE ASSESSEES PRODUCTS ARE SENT OUTSIDE INDIA UNDER SUCH CONTRACTS. THE MANUFACTURING ACTIVITY IS LOCATED IN INDIA. THE SOURCE OF INCOME IS CREATED AT THE MOMENT WHEN THE EXPORT CONTRACTS ARE CONCLUDED IN INDIA. THEREAFTER THE GO ODS ARE EXPORTED IN PURSUANCE OF THE CONTRACT AND THE EXPORT PROCEEDS A RE SENT BY THE IMPORTER AND ARE RECEIVED IN INDIA. THE IMPORTER OF THE ASSESSEES PRODUCTS IS NO DOUBT SITUATED OUTSIDE INDIA, BUT HE CANNOT BE REGARDED AS A SOURCE OF INCOME. THE RECEIPT OF THE SALE PROC EEDS EMANATE FROM HIM FROM OUTSIDE INDIA. HE IS, THEREFORE, ONLY THE SOURCE OF THE MONIES RECEIVED. THE INCOME COMPONENT OF THE MONIES OR THE EXPORT RECEIPTS IS LOCATED OR SITUATED ONLY IN INDIA. WE ARE MAKING A DISTINCTION BETWEEN THE SOURCE OF THE INCOME AND THE SOURCE OF THE RECEIPT OF THE MONIES. IN ORDER TO FALL WITHIN THE SECOND EXCEPTIO N PROVIDED IN SECTION 9(1)(VII)(B) OF THE ACT, THE SOURCE OF THE INCOME, AND NOT THE RECEIPT, SHOULD BE SITUATED OUTSIDE INDIA. THAT CONDITION IS NOT SATISFIED IN THE PRESENT CASE. THE TRIBUNAL, WITH RESPECT, DOES NOT APPEAR TO HAVE EXAMINED THE CASE FROM THIS ASPECT. ITS CONCLUSION THAT THE TECHNICAL SERVICES WERE NOT UTILISED FOR THE ASSESSEES BUSIN ESS ACTIVITY OF PRODUCTION IN INDIA DOES NOT BRING THE ASSESSEES C ASE WITHIN THE SECOND EXCEPTION IN SECTION 9(1)(VII)(B) OF THE ACT . IT DOES NOT BRING THE CASE UNDER THE FIRST EXCEPTION EITHER, BECAUSE IN O RDER TO GET THE BENEFIT OF THE FIRST EXCEPTION IT IS NOT SUFFICIENT FOR THE ASSESSEE TO PROVE THAT THE TECHNICAL SERVICES WERE NOT UTILISED FOR ITS BUSINESS ACTIVITIES OF PRODUCTION IN INDIA, BUT IT IS FURTHE R NECESSARY FOR THE ASSESSEE TO SHOW THAT THE TECHNICAL SERVICES WERE U TILISED IN A BUSINESS CARRIED ON OUTSIDE INDIA. THEREFORE, WE CANNOT ALSO APPROVE OF THE ITA NO.168 & 169 OF 2017 JAYALAKSHMI BADIGA PAGE 5 OF 6 TRIBUNALS CONCLUSION IN PARA 29 OF ITS ORDER TO TH E EXTENT IT SEEMS TO SUGGEST THAT THE ASSESSEE SATISFIES THE CONDITION N ECESSARY FOR BRINGING ITS CASE UNDER THE FIRST EXCEPTION. BE THAT AS IT M AY, AS WE HAVE ALREADY POINTED OUT, SINCE THE SOURCE OF INCOME FRO M THE EXPORT SALES CANNOT BE SAID TO BE LOCATED OR SITUATED OUTSIDE IN DIA, THE CASE OF THE ASSESSEE CANNOT BE BROUGHT UNDER THE SECOND EXCEPTI ON PROVIDED IN THE SECTION. IN THE CASE BEFORE US, THE ADVISORY SERVICES HAVE B EEN RENDERED OUTSIDE INDIA FOR INVESTMENT OUTSIDE INDIA AND THE FEE HAS ALSO BEEN PAID OUTSIDE INDIA IN FOREIGN CURRENCY. THEREF ORE, THE SAME IS NOT TAXABLE IN INDIA BY VIRTUE OF SECTION 9 (1)(VII )(B) OF THE I.T. ACT. 6. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.168/HYD/2017 IS ALLOWED. 7. IN ITA NO.169/HYD/2017, THE ASSESSEE IS AGGRIEVE D BY THE ORDER OF THE AO U/S 154 OF THE ACT. SINCE THE A SSESSMENT ORDER WHICH HAS BEEN MODIFIED BY VIRTUE OF ORDER U/ S 154 OF THE ACT HAS BEEN HELD TO BE NOT SUSTAINABLE, THE 154 OR DER ALSO HAS NO LEGS TO STAND. THEREFORE, THE SAID ORDER IS ALSO HE LD TO BE INVALID. 8. IN THE RESULT ITA NO.169/HYD/2017 IS TREATED AS ALLOWED BY VIRTUE OF THE ORDER IN ITA NO.168/HYD/20 17. 9. TO SUM UP, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST, 2017. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 11 TH AUGUST, 2017. ITA NO.168 & 169 OF 2017 JAYALAKSHMI BADIGA PAGE 6 OF 6 VINODAN/SPS COPY TO: 1 P. MURALI & CO. CAS, 6-3-655/2/3 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500082 2 INCOME TAX OFFICER INTERNATIONAL TAXATION-1 HYDER ABAD 3 CIT (A)-10 HYDERABAD 4 CHIEF CIT ( IT & TP) HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER