ADIT, New Delhi V. Sh. Rono Joy Dutta, USA

ITA 2058/DEL/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3129 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 25-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Double taxation relief

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCHES: F NEW DELHI ] BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI O. P. KANT, ACCOUNTANT MEMBER ITA. NO. 2058/DEL/2011 ASSESSMENT YEAR : 2005-06. ASSTT. DIRECTOR OF INCOME TAX, SHRI RONO JOY DUTTA, CIRCLE : 1 (2), VS. 1044, MOHAWAK ROAD, INTERNATIONAL TAXATION, WILMETTE, IIII NOTS NEW DELHI. UNITED STATE OF AMERICA. PAN : AHOPD 6113 E (APPELLANT) (RESPONDENTS) ASSESSEE BY : SHRI ANIL BHALLA, C. A.; DEPARTMENT BY : SHRI F. R. MEENA, SR. D.R.; DATE OF HEARING : 16.02.2017 DATE OF PRONOUNCEMENT: 11.05.2017 O R D E R . PER I. C. SUDHIR, J. M. : THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE GROUND THAT THE LD. CIT (APPEALS) HAS ERRED IN HOLDING THAT THE RECEIPTS FROM SAHARA INDIA LTD. (SAL) WERE FEE FOR TECHNICAL SERVICES AND NOT SALARY, WITHOUT APPRECIATING THAT, INTER ALIA, THE ASSESSEE WAS HAVING EXECUTIVE DESIGNATION IN SAL, GETTING MONTHLY REMUNERATION IN THE CHARACTER OF SALARY AND THE SUPERVISION AND CONTROL REMAINED WITH SAL. 2 2. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD. 3. IN SUPPORT OF THE GROUND THE LD. SR. DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER, WHEREAS THE LD. AR HAS TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE. 4. IN THE PRESENT CASE THE ASSESSING OFFICER ASSESSED INCOME OF RS.3,92,35,137/- AS AGAINST RETURNED INCOME OF RS.39,23,400/-. THE ASSESSEE WAS WORKING AS A CONSULTANT WITH SAHARA AIRLINES LIMITED (SAL) AND THE INCOME WAS OFFERED UNDER THE TERMS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND THE USA, AS TAXABLE AT 15%. THE ASSESSING OFFICER HELD THAT THE ASSESSEES INCOME RECEIVED FROM SAL WAS IN THE NATURE OF SALARY TAXABLE IN INDIA FOR THE REASONS THAT THE CONSULTANCY CHARGES WERE RECEIVED ON A MONTHLY BASIS, THE DESIGNATION OF THE ASSESSEE WAS OF PRESIDENT AND CEO AND THAT HE HAD REPRESENTED THE COUNTRY AT VARIOUS FORA. IT WAS HELD THAT THE ASSESSEE HAD WORKED UNDER THE SUPERVISION AND CONTROL OF SAL AND THE INCOME ACCRUED TO HIM IN INDIA WAS DEEMED TO HAVE ACCRUED TO HIM IN INDIA. THE ASSESSEE WENT IN FIRST APPEAL AND SUCCEEDED. THE ACTION OF THE LD. 3 CIT (APPEALS) IN HOLDING THE RECEIPT FROM SAL AS FEE FOR TECHNICAL SERVICES AND NOT SALARY, HAS BEEN QUESTIONED BY THE REVENUE BEFORE US. 5. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE LD. CIT (APPEALS) HAS DISCUSSED THE ISSUE IN DETAIL AND HAS COME TO THE FOLLOWING CONCLUSION VIDE PARA NO. 7 OF THE FIRST APPELLATE ORDER, REPRODUCED HEREUNDER FOR A READY REFERENCE :- 7. I HAVE CAREFULLY CONSIDERED THE APPELLANTS ABOVE SUBMISSIONS, AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. IT IS NOTED THAT THE MOU BETWEEN THE APPELLANT AND SAL DESCRIBES THE FUNCTIONS OF THE APPELLANT AS CONSULTANCY AND ADVISORY SERVICES. SAL HAS DEDUCTED TAX U/S 195 OF THE I.T. ACT AT THE RATES APPLICABLE TO INCOME BY WAY OF FEES FOR TECHNICAL SERVICES AS PER SECTION 9(L)(VII) OF THE I. T. ACT, AND AS PER ARTICLE 12 OF THE INDIA- USA TAX TREATY. THE APPELLANT HAS FILED HIS RETURN OF INCOME IN INDIA DISCLOSING THE CONSULTANCY INCOME AS FEES FOR INCLUDED SERVICES. THE APPELLANTS RETURN OF INCOME FILED IN THE USA ALSO DECLARES THE INCOME EARNED IN INDIA FROM SAL OF $760,000/-, AND CLAIMING CREDIT OF FOREIGN TAXES PAID OR ACCRUED OF $126,564/-. MOST SIGNIFICANTLY, THE APPELLANTS RETURN OF INCOME FILED IN THE US SHOWS TOTAL CONSULTANCY INCOME OF $17,47,820/-, WHICH INCLUDES, APART FROM THE $760,000 FROM SAL, THE SUMS OF $199,635/- FROM SIMAT, HELLIESEN AND EICHNER INC., $38,971/- FROM THE US AIRWAYS 4 GROUP, $593,000/- FROM CERBERUS PARTNERS AND $156,487/- FROM GREENBRIAR EQUITY GROUP LLC, ALL OF THE USA. IT IS DIFFICULT TO HOLD, IN THESE CIRCUMSTANCES, THAT THE APPELLANT WAS WORKING SOLELY FOR SAL IN THE YEAR UNDER CONSIDERATION, AND PARTICULARLY IN THE ROLE OF AN EMPLOYEE WHICH REQUIRES A MEASURE OF EXCLUSIVITY, DIRECT CONTROL, AND FULL-TIME OCCUPATION. I WOULD ALSO TEND TO AGREE WITH THE APPELLANT THAT THE STRUCTURE OF FEES, EVEN IF IN THE NATURE OF MONTHLY PAYMENTS, CANNOT DETERMINE THE NATURE OF SERVICES PROVIDED. THE APPELLANT HAS OBJECTED TO THE ASSESSING OFFICERS FINDING THAT DETAILS OF STAY IN THE USA WAS NOT PROVIDED, AND HAS FURNISHED A COPY OF LETTER DATED 06.11.2007 FILED BEFORE THE ASSESSING OFFICER, ENCLOSING COPY OF PASSPORT AND DETAILS OF STAY IN INDIA, AND COPY OF LETTER DATED 14.12.2007 ENCLOSING DETAILS OF VISITS TO ALL COUNTRIES AS ASKED BY YOU FROM F.Y. 2000- 01 TO F.Y. 2004-05. IT IS ALSO SEEN FROM COPY OF LETTER DATED 16.10.2007, THAT THE APPELLANT HAD ALSO FILED BEFORE THE ASSESSING OFFICER, THE COPY OF RETURN OF INCOME FILED IN THE USA. THUS, ALL THE EVIDENCES FURNISHED BEFORE ME WERE AVAILABLE TO THE ASSESSING OFFICER. IF IT WERE TO BE ACCEPTED THAT THE APPELLANT WAS THE CEO OF SAL, NECESSARILY A FULL- TIME OCCUPATION, THE APPELLANT WOULD CERTAINLY HAVE RESIDED IN INDIA FOR MORE THAN THE 158 DAYS THAT HE DID IN THE F.Y. 2004-05. IT IS ALSO SEEN THAT THE APPELLANT DID NOT PARTICIPATE IN THE COMPANYS SCHEMES OF PROVIDENT FUND, OR HEALTH INSURANCE, AND RECEIVED NO BONUS, THOUGH ANNOUNCED TO ALL EMPLOYEES BY SAL IN THAT YEAR. CONSIDERING THAT THE APPELLANT SPENT MORE THAN HALF OF THE YEAR OUTSIDE INDIA, AND 5 THAT LESS THAN HALF OF HIS TOTAL CONSULTANCY INCOME WAS RECEIVED FROM SAL, I HAVE COME TO THE CONCLUSION THAT THE APPELLANTS INCOME CANNOT BE BROUGHT TO TAX AS SALARY EARNED IN INDIA. IN THIS VIEW OF THE MATTER, THE INCOME OFFERED TO TAX AT 15%, AS PER ARTICLE 12 OF THE INDIA- USA DTAA, IS HELD TO BE INCOME FROM FEES FOR TECHNICAL SERVICES. 6. WE FIND THAT THE LD. CIT (APPEALS) IN HIS CONCLUSION HAS MET OUT THE OBJECTIONS RAISED BY THE ASSESSING OFFICER WHILE MAKING THE ADDITION. THE FACTS NOTED DOWN BY THE LD. CIT (APPEALS) HAVE NOT BEEN REBUTTED BY THE REVENUE BEFORE US. THESE MATERIAL FACTS ARE THAT THE EXISTENCE OF MEMORANDUM OF UNDERSTANDING (MOU) BETWEEN ASSESSEE AND SAL DESCRIBES THE FUNCTIONS OF THE ASSESSEE AS CONSULTANCY AND ADVISORY SERVICES; SAL HAS DEDUCTED TAX UNDER SECTION 195 OF THE INCOME TAX ACT AS RATES APPLICABLE TO INCOME BY WAY OF FEES FOR TECHNICAL SERVICES AS PER SECTION 9(1)(VII) OF THE I. T. ACT AND AS PER ARTICLE 12 OF THE INDIA USA TAX TREATY; THE ASSESSEE HAD FILED HIS RETURN OF INCOME IN INDIA DISCLOSING THE CONSULTANCY INCOME AS FEE FOR INCLUDED SERVICES; HE HAD ALSO FILED HIS RETURN OF INCOME IN USA DECLARING THE INCOME EARNED IN INDIA FROM SAL OF US$ 7,60,000 AND CLAIMING CREDIT OF FOREIGN TAXES PAID OR ACCRUED OF US$ 1,26,564/- ETC. THE LD. CIT (APPEALS) HAS ALSO NOTED FROM THE EVIDENCES FILED BY THE ASSESSEE IN SUPPORT, WHICH WERE ALSO MADE AVAILABLE BEFORE THE ASSESSING OFFICER, THAT IF IT WERE TO BE ACCEPTED THAT 6 THE ASSESSEE WAS CEO OF SAL, NECESSARILY A FULL TIME OCCUPATION FOR WHICH THE ASSESSEE WOULD CERTAINLY HAVE RESIDED IN INDIA FOR MORE THAN 158 DAYS THAT HE DID IN F.Y. 2004-05. HE NOTED FURTHER THAT THE ASSESSEE HAD NOT PARTICIPATED IN THE COMPANIES SCHEME OF PROVIDENT FUND OR HEALTH INSURANCE AND RECEIVED NO BONUS, THOUGH ANNOUNCED TO ALL EMPLOYEES BY SAL IN THAT YEAR. THE ASSESSEE HAD SPENT MORE THAN HALF OF THE YEAR OUTSIDE INDIA AND LESS THAN HALF OF HIS TOTAL CONSULTANCY INCOME WAS RECEIVED FROM SAL. IN VIEW OF THESE MATERIAL FACTS, WE DO NOT FIND REASON TO DEVIATE FROM THE FINDING OF THE LD. CIT (APPEALS) THAT THE ASSESSEES INCOME CANNOT BE BROUGHT TO TAX AS SALARY EARNED IN INDIA. HE WAS THUS JUSTIFIED IN ACCEPTING THE INCOME OFFERED BY THE ASSESSEE TO TAX AT 15% AS PER ARTICLE 12 OF THE INDIA USA, DTAA AS INCOME FROM FEES FOR TECHNICAL SERVICES. THE FIRST APPELLATE ORDER, BEING COMPREHENSIVE AND REASONED ONE, IS THUS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. 7. IN RESULT, APPEAL IS DISMISSED. 8. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON : 11 TH MAY, 2017 . SD/- SD/- ( O. P. KANT ) ( I. C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 11 TH MAY, 2017 . *MEHTA* 7 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT; 2. RESPONDENT; 3. CIT; 4. CIT (APPEALS); 5. DR, ITAT, ND. BY ORDER ASSISTANT REGISTRAR 8 DATE DRAFT DICTATED ON 11.05.2017 DRAFT PLACED BEFORE AUTHOR 11.05.2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER. 9