Sumit Aggarwal, Ludhiana V. DCIT, Ludhiana

ITA 212/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77080 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Residential status; Double taxation relief; Deemed to accrue or arise in india
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 212/CHD/2014 ASSESSMENT YEAR: 2008-09 SHRI SUMIT AGGARWAL VS. THE D.C.I.T 12, RAKH BAGH CIRCLE VII LUDHIANA LUDHIANA ACPMA 0233B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. MANISH KUMAR RESPONDENT BY : SMT. JYOTI KUMARI DATE OF HEARING : 22.04.2014 DATE OF PRONOUNCEMENT : 20.5.2014 ORDER PER T.R.SOOD, A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 3.1.2014 OF CIT(A)-II, LUDHIANA. 2 IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX- APPEALS II, LUDHIANA [C IT(A)] ERRED IN CONCLUDING THAT THE APPELLANT, A RESIDENT INDIVIDUA L ASSESSEE, IS NOT LIABLE TO OFFER THE OVERSEAS RENTAL INCOME OF RS. 7 ,32,731/- TO TAX IN INDIA, THEREBY DISALLOWING (RS. 5,52,490) COMPUTED UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN ACCORDANCE WITH THE R ELEVANT PROVISIONS OF THE INCOME TAX ACT, 1961 (OR ACT). 2. THAT ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE HONBLE CIT(A) ERRED IN PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. P.V.A.L. KULANDAGAN CHETTIAR TO HOL D THAT THE INCOME / (LOSS) ARISING TO THE APPELLANT FROM PROPERTY SITUA TED IN AUSTRALIA IS TAXABLE / (ALLOWABLE) ONLY IN AUSTRALIA WITHOUT APP RECIATING THE PROVISIONS OF SECTIONS 4 AND 5 OF THE ACT AS APPLICABLE TO A R ESIDENT ASSESSEE. 3. THAT ON THE FACTS AND CIRCUMSTANCES, THE HONBLE CIT(A) ERRED IN NO APPRECIATING THAT THE RENTAL INCOME OF RS. 7,32,731 /- IS THE GROSS AMOUNT OF RENT RECEIVED AND THUS ERRONEOUSLY DIRECTING THE ASSESSING OFFICER TO DETERMINE THE CORRECT GROSS RENT RECEIVED. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT IN TH IS CASE THE ASSESSEE HAS FILED A RETURN DECLARING INCOME OF RS. 24250550/. THIS INCLUDED LOSS FROM HOUSE PROPERTY WAS COMPUTED. T HE LOSS IN 2 HOUSE PROPERTY WAS COMPUTED BECAUSE THE PAYMENT OF INTEREST TO ANZ BANK, AUSTRALIA AMOUNTING TO RS. 1043207/-. TH E ASSESSEE HAS PURCHASED THE PROPERTY IN AUSTRALIA WHICH WAS ALREA DY ON RENT AND OBTAINED A LOAN FROM ANZ BANK AUSTRALIA. THE ASSESS ING OFFICER OBSERVED THAT IN VIEW OF SEC 25 WHICH PRESCRIBED TH AT INTEREST WILL NOT BE ALLOWED IF INTEREST IS PAYABLE OUTSIDE INDIA WHICH IS CHARGEABLE TO TAX IN INDIA AND TAX HAS NOT BEEN DED UCTED. SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX, THEREFORE POSSIB LE INCOME FROM THE PROPERTY WAS ASSESSED TO TAX AFTER IGNORING CLA IM OF THE INTEREST. 4 ON APPEAL IT WAS MAINLY SUBMITTED THAT PROPERTY P URCHASED IN INDIA WAS ALREADY ON RESIDENTIAL TENANCY AGREEMENT VIDE AGREEMENT DATED 13.1.2004. A LOAN WAS SANCTIONED BY ANZ BANK AUSTRALIA AS HOME LOAN. IT WAS FURTHER POINTED OUT THAT REFEREN CE TO SEC 5 & 9 (I)(V)(B), THE INTEREST WOULD NOT ACCRUE OR ARISE I N INDIA. 5 THE LD. CIT(A) EXAMINED THIS ISSUE AND AFTER DETA ILED DISCUSSION, CONCLUDED THIS ISSUE VIDE PARA 4.6 WHIC H IS AS UNDER: 4.6 FROM THE SUBMISSIONS OF THE APPELLANT IT IS AP PARENT THAT THE IMMOVABLE PROPERTY PURCHASED BY THE APPELLANT WAS ALREADY ON RENT AND THE APPELLANT CONTINUED TO RECEIVE THE RENT THEREAFTER. IT IS AN UNDISPUTED FACT THAT THIS PROPERTY WAS NEVER OCCUPIED BY THE APPELLANT FOR HI S PERSONAL USE BUT WAS GIVEN ON RENT FROM THE DATE IT WAS PURCHASED. THE A PPELLANT HAD RECEIVED THE RENT FROM THIS PROPERTY SINCE THE PURCHASE OF THE P ROPERTY. IN THESE CIRCUMSTANCES IT IS APPARENT THAT THE INTEREST PAYM ENT TO ANZ BANK, AUSTRALIA IS ON ACCOUNT OF MONEY BORROWED BY THE APPELLANT FOR T HE PURPOSE OF PURCHASING PROPERTY FROM WHICH THE APPELLANT HAD EARNED INCOME IN ALL THESE YEARS. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE AND KEEPI NG IN VIEW THE PROVISIONS OF SECTION 9 OF THE IT ACT I HOLD THAT THE INTEREST RE CEIVED BY THE ANZ BANK, AUSTRALIA FROM THE APPELLANT SHALL NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA AND THEREFORE NOT CHARGEABLE TO TAX IN INDIA. AS SUCH T HE APPELLANT WAS NOT LIABLE TO DEDUCT ANY TDS ON THE PAYMENT OF INTEREST MADE TO T HE BANK. THE ASSESSING OFFICER WAS THEREFORE NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPENDITURE U/S 25 OF THE IT ACT. THEREFORE IT IS CLEARLY HELD THAT THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN DISALLOWING THE INTEREST. THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THIS FINDING AND THEREFORE WE ARE NO T REQUIRED TO DISCUSS THIS ISSUE FURTHER. HOWEVER, DURING APPEL LATE PROCEEDINGS THE LD. CIT(A) REFERRED TO THE DECISION OF CIT V. P VAL KULANDAGAN CHETTIAR, 267 ITR 645. IN VIEW OF THIS DECISION AC CORDING TO THE LD. 3 CIT(A) AS FAR AS RENT INCOME FROM AUSTRALIA IS CONC ERNED, THE ASSESSEE WAS REQUIRED TO FILE THE RETURN IN AUSTRAL IA AND SUCH INCOME COULD NOT BE INCLUDED IN INDIAN INCOME. THER EFORE NEGATIVE INCOME CAN NOT BE ASSESSED IN INDIA. THE DETAIL FIN DINGS ARE AS PER PARA 4.7 AND 4.8 WHICH ARE AS UNDER: 4.7 HOWEVER, THE APPELLANT IS LIABLE TO FILE HIS RE TURN OF INCOME IN AUSTRALIA WITH REGARD TO HIS RENTAL INCOME. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT WAS SPECIFICALLY ASKED WHET HER ANY TDS WAS DEDUCTED ON THE RENT RECEIVED BY HIM FROM PROPERTY IN AUSTRA LIA AND WHETHER ANY RETURN HAD BEEN FILED BY HIM PERTAINING TO THIS INCOME IN AUSTRALIA. THE AR OF THE APPELLANT SUBMITTED THAT HE WAS NOT SURE IF ANY TDS WAS DEDUCTED ON THE RENT RECEIVED BY HIM FROM PROPERTY SITUATED IN AUSTRALIA AND IF ANY RETURN WAS FILED BY HIM IN AUSTRALIA. THE AR OF THE APPELLANT SUBMIT TED THAT IN CASE ANY TDS HAD BEEN DEDUCTED ON THE RENT, THE SAME WAS NOT TAK EN INTO ACCOUNT WHILE COMPUTING THE HOUSE PROPERTY INCOME IN INDIA IMPLYI NG THEREBY THAT ONLY THE NET RENT RECEIVED AND NOT THE GROSS RENT RECEIVED HAD B EEN SHOWN IN THE RETURN OF INCOME IN INDIA. THE APPELLANT ALSO EXPLAINED THAT THE EXPENSES PAID THE AGENT WHO WAS COLLECTING THE RENT AND WAS MANAGING THE OT HER MATTERS RELATING TO PROPERTY HAD ALSO BEEN REDUCED WHILE ADOPTING THE F IGURE OF RENT RECEIVED FOR COMPUTING INCOME FROM HOUSE PROPERTY IN THE RETURN FILED IN INDIA. THIS ACCOUNTING TREATMENT IS NOT CORRECT. APPELLANT IS R EQUIRED TO DECLARE THE TOTAL RENT RECEIVED FROM PROPERTY SITUATED IN AUSTRALIA W HILE COMPUTING THE INCOME FROM HOUSE PROPERTY IN THE RETURN FILED IN INDIA. A PPELLANT CAN CLAIM CREDIT FOR ANY TAX PAID IN AUSTRALIA AGAINST ANY INCOME DECLAR ED FROM HOUSE PROPERTY IN INDIA. AS THE APPELLANT HAS DECLARED ONLY LOSS UNDE R THE HEAD INCOME FROM HOUSE PROPERTY, THE APPELLANT IS NOT ELIGIBLE FOR C LAIMING CREDIT FOR TAX PAID IN AUSTRALIA AGAINST HIS INCOME FROM OTHER HEAD IN IND IA. THE AO IS DIRECTED TO ASCERTAIN THE CORRECT AMOUNT OF (GROSS) RENT RECEIV ED BY THE APPELLANT FROM HOUSE PROPERTY IN AUSTRALIA AND TAKE THE SAME AMOUN T FOR COMPUTING INCOME UNDER THE HEAD HOUSE PROPERTY IN THE RETURN FILED I N INDIA. 4.8 WITHOUT PREJUDICE TO THE ABOVE, THERE IS ANOTHE R ASPECT OF THE CASE. AS REFERRED ABOVE DURING THE COURSE OF APPELLATE PROCE EDINGS THE CASE OF CIT VS. P.V.A.L KULANDAGAN.CHETTIAR (SC) 267 ITR 654 WAS DI SCUSSED WITH THE APPELLANT. IN THIS CASE THE HONBLE SUPREME COURT H AS HELD THAT THE INCOME ARISING FORM IMMOVABLE PROPERTY FROM PROPERTY SITUA TED IN ANOTHER CONTRACTING STATE IS TAXABLE ONLY IN THAT OTHER CONTRACTING STA TE. THE FACTS OF THE APPELLANTS CASE ARE SIMILAR TO THE FACTS OF THE CASE REFERRED TO ABOVE. THEREFORE, THE INCOME (OR LOSS) ARISING TO THE APPELLANT FROM PROP ERTY SITUATED IN AUSTRALIA IS TAXABLE (ALLOWABLE) ONLY IN AUSTRALIA. THEREFORE, T HE LOSS ARISING TO THE APPELLANT AND CLAIMED BY THE APPELLANT IN THE COMPU TATION OF INCOME ON ACCOUNT OF IMMOVABLE PROPERTY SITUATED IN AUSTRALIA IS ALLO WABLE ONLY IN AUSTRALIA AND IS THEREFORE NOT ALLOWABLE IN INDIA. KEEPING IN VIEW T HE AFORESAID FACTUAL AND LEGAL POSITION THE APPELLANTS CLAIM OF LOSS OF RS. 5,52, 490/- IS NOT ALLOWABLE. THE LOSS OF RS. 5,52,490/- CLAIMED BY THE APPELLANT OF HOUSE PROPERTY IS ACCORDINGLY DISALLOWED. 6 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT AS PER SEC 90(2) THE ASSESSEE HAD OPTION TO DECLARE IT S GLOBAL INCOME OR TO OBTAIN BENEFIT OF DOUBLE TAX AVOIDANCE AGREEM ENT (IN SHORT (DTAA) THE ASSESSEE OPTED TO DECLARE HIS GLOBAL INC OME UNDER THE INDIAN LAWS. IT WAS FURTHER CONTENDED THAT THE LD. CIT(A) BY REFERRING TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. PVAL KULANDAGAN CHETTIAR (SUPRA) HELD THAT THE ASSE SSEE WAS BOUND 4 TO SHOW RENTAL INCOME FROM AUSTRALIAN PROPERTY IN A USTRALIA ONLY. IT WAS POINTED OUT THAT THIS DECISION WAS NOT APPLICAB LE TO THE CASE OF THE ASSESSEE BECAUSE THE FACTS ARE DIFFERENT. IN T HAT CASE THE ASSESSEE WAS RESIDENT OF MALAYSIA AS WELL AS INDIA AND INCOME HAD BEEN DERIVED FROM RUBBER PLANTATIONS IN MALAYSIA AN D THE HON'BLE COURT OBSERVED THAT THE ASSESSEES FISCAL CONNECTI ON WAS MORE WITH MALAYSIAN TERRITORY. IN THE CASE OF THE ASSESSEE, THE ASSESSEE IS ADMITTEDLY RESIDENT OF INDIA ONLY. IN ANY CASE SUB -SEC (3) TO SEC 90 WAS INTRODUCED BY FINANCE ACT, 2003 W.E.F. 1.4.2004 WHERE THE POWER WAS GIVEN TO CENTRAL GOVT TO CLARIFY THE MEAN ING OF A PARTICULAR EXPRESSION THROUGH A NOTIFICATION WHEREV ER THE PROVISION WAS INCONSISTENT WITH THE PROVISION OF THE ACT VIS- -VIS THE DTAA. IN THIS REGARD GOVT OF INDIA ISSUED A NOTIFICATION NO. 91/2008 DATED 28.8.2008 AND THE RELEVANT CLAUSE OF THIS NOTIFICAT ION READS AS UNDER: THE MUMBAI BENCH OF THE TRIBUNAL HELD IN THE MATTE R OF ESSAR OIL LTD VS. DEPARTMENT OF INCOME TAX THAT: 63 IN OUR OPINION, AS A RESULT OF THE AMENDMENT W.E .F. 1 APRIL 2004, BY WHICH SUB-SEC (3) TO SEC 90M HAS BEEN BROUGHT IN THE STATUTE FROM THE ASSESSMENT YEAR 2004-05, THERE WOULD BE A CLEAR DE PARTURE FROM THE EARLIER POSITION, WHEREIN VARIOUS COURTS HAVE INTER PRETED THE EXPRESSION MAY BE TAXED. HE POINTED OUT THAT AS PER THIS CLAUSE EVEN EXPRESS ION MAY BE TAXED HAS BEEN USED EVEN THEN SUCH INCOME WAS TAXA BLE IN INDIA, THEREFORE INCOME OF THE ASSESSEE IS IN ANY CASE TAX ABLE IN INDIA. IN THIS REGARD HE REFERRED TO THE DECISION OF MUMBAI B ENCH OF THE TRIBUNAL IN CASE OF ESSAR OIL LTD. VS. ADDL CIT, IT A NO. 2428/MUM/2007 (COPY OF THE ORDER HAS BEEN FILED IN THE PAPER BOOK AS PAGE 94 TO 200). ACCORDING TO THIS DECISION AFT ER THE NOTIFICATION, THERE WAS A DEPARTURE FROM EARLIER DECISION AND INC OME WHICH WAS EARLIER, MAY BE TAXED IN A CONTRACTING STATES, WO ULD BE TAXABLE IN INDIA. WHILE CONCLUDING HIS ARGUMENT IT WAS POINTE D OUT THAT IN THE EARLIER YEARS, THE REVENUE HAS ALREADY ACCEPTED THE LOSS FROM 5 AUSTRALIAN HOUSE PROPERTY OWNED BY THE ASSESSEE EVE N IN SCRUTINY ASSESSMENT AND IN THIS REGARD COPY OF ASSESSMENT OR DER FOR ASSESSMENT YEAR 2006-07 WAS FILED. 7 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE RELIED ON THE ORDER OF THE LD. CIT(A). 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND F ORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. F IRST OF ALL AS PER SECTION 5 IN CASE OF A RESIDENT, INCOME ACCRUING OR ARISING OUTSIDE INDIA HAS TO BE ASSESSED IN INDIA. FURTHER SEC 90( 2) & (3) READ AS UNDER: SEC 90(2) - WHERE THE CENTRAL GOVT HAS ENTERED IN TO AN AGREEMENT WITH THE GOVT OF ANY COUNTRY OUTSIDE INDIA OR SPECI FIED TERRITORY OUTSIDE INDIA, AS THE CASE MAY BE, UNDER SUB-SEC (1) FOR GR ANTING RELIEF OF TAX, OR AS THE CASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, T HEN IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE PROVIS IONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE. 90(3) - ANY TERM USED BUT NOT DEFINED IN THIS ACT OR IN THE AGREEMENT REFERRED TO IN SUB-SEC (1) SHALL UNLESS THE CONTEXT OTHERWISE REQUIRES, AND IS NOT INCONSISTENT WITH THE PROVISIONS OF THIS ACT OR THE AGREEMENT, HAVE THE SAME MEANING AS ASSIGNED TO IT IN THE NOTI FICATION ISSUED BITE CENTRAL GOVT IN THE OFFICIAL GAZETTE IN THIS BEHALF . PLAIN READING OF SEC 90(2) SHOWS THAT WHEREVER DTAA IS APPLICABLE IN CASE OF AN ASSESSEE THEN THE ASSESSEE HAS AN OPT ION TO APPLY EITHER INDIAN TAX LAWS OR PROVISIONS OF DTAA IF SAM E ARE MORE BENEFICIAL TO THE ASSESSEE. THEREFORE IT IS CLEAR THAT IT IS AN OPTION OF THE ASSESSEE WHETHER TO RETURN INCOME UNDER THE INDIAN TAX LAWS WHERE DTAA IS APPLICABLE. IN CASE BEFORE US, IF TH E ASSESSEE HAS EXERCISED THE OPTION OF FILING RETURN UNDER INDIAN LAW, THE SAME COULD NOT HAVE BEEN REFUSED SIMPLY BECAUSE DTAA WAS APPLI CABLE BECAUSE IT WAS OPTION OF THE ASSESSEE. IN ANY CASE THE DEC ISION IN CASE OF CIT V. PVAL KULANDAGAN CHETTIAR (SUPRA) IS DISTINGU ISHABLE BECAUSE IN THAT CASE THE ASSESSEE WAS A RESIDENT OF INDIA A ND MALAYSIA AND IT WAS A FINANCIAL CONNECTION OF THE ASSESSEE THAT MALAYSIAN PROPERTY WHICH WEIGHED WITH THE HONBLE COURT IT WA S HELD THAT INCOME FROM MALAYSIAN RUBBER PLANTATION WAS TAXABLE IN MALAYSIA. THEREFORE IN OUR OPINION, THE ASSESSEE HAD RIGHT TO FILE THE RETURN OF 6 GLOBAL INCOME IN INDIA AND THE REVENUE IS BOUND TO GIVE EFFECT TO SUCH RETURN. THEREFORE THE LD. CIT(A) IS NOT CORRE CT IN HOLDING THAT INCOME FROM HOUSE PROPERTY FROM AUSTRALIAN PROPERTY WAS NOT ASSESSABLE IN INDIA. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ASSESS T HE INCOME OF HOUSE PROPERTY THAT IS LOSS FROM SUCH HOUSE PROPERT Y IN THE HANDS OF THE ASSESSEE. 9 IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 20.5.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.5 2014 SURESH COPY TO:THE APPELLANT/THE RESPONDENT/THE CIT/THE CI T(A)/THE DR