Shri.Sunil Shinde, Bangalore V. Assistant Commissioner of Income-Tax, Bangalore

ITA 2149/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7661 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 07-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SUBHASH K R
• Assessee Lawyers: P K PRASAD
• Keywords: Residential status; Salary income; Double taxation relief; Opportunity of being heard; Revised return
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL SMC-C BENCH : BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNANT MEMBER ITA NO.2149 (BANG) 2016 (ASSESSMENT YEAR : 2011 12) SHRI SUNIL SHINDE, APPELLANT NO. 73, 1 ST D CROSS, MATHIKERE, BENGALURU - 560054 PAN. AMWPS5902R VS THE ACIT, CIRCLE 14 (1), BENGALURU RESPONDENT ASSESSEE BY : SHRI P. K. PRASAD, ADVOCATE REVENUE BY : DR. SUBHASH K. R., JCIT DATE OF HEARING : 16-08-2017 DATE OF PRONOUNCEMENT : 31-08-2017 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST THE ORDER OF CIT (A) 12, BANGALORE DATED 23.09.2016 FOR A. Y. 2011 12. 2. THE ASSESSEE HAS RAISED AS MANY AS 7 GROUNDS BUT THE ASSESSEE HAS ONLY THREE GRIEVANCES. THE FIRST GRIEVANCE OF THE ASSESS EE IS ABOUT THE AFFIRMATION OF THE ADDITION OF RS. 275,336/- MADE BY THE A.O. BY HOLDI NG THAT FEDERAL TAXES WITHHELD IN THE USA IS PART OF SALARY INCOME OF THE ASSESSEE . THE SECOND GRIEVANCE IS ABOUT THE DIRECTION OF CIT (A) TO THE A.O. THAT MEDICARE PAID IN THE USA OF RS. 28,752/- IS PART OF SALARY INCOME OF THE ASSESSEE AND THEREB Y MAKING ENHANCEMENT IN THE TAXABLE INCOME OF THE ASSESSEE. THE THIRD GRIEVANCE IS ABOUT THE DIRECTION OF CIT (A) TO THE A.O. THAT STATE INCOME TAX WITHHELD IN U SA OF RS. 77,042/- IS PART OF ITA NO. 2149(BANG)2016 2 SALARY INCOME OF THE ASSESSEE AND THEREBY MAKING EN HANCEMENT IN THE TAXABLE INCOME OF THE ASSESSEE. AN ALTERNATIVE CONTENTION I S ALSO RAISED AS PER GROUND NO. 6 THAT EVEN IF IT IS HELD THAT STATE INCOME TAX WIT HHELD IN USA OF RS. 77,042/- IS PART OF SALARY INCOME OF THE ASSESSEE AND HENCE TAX ABLE IN INDIA, HE SHOULD HAVE ALLOWED CREDIT OF SUCH STATE INCOME TAX. 3. RELEVANT FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN EMPLOYEE OF FIDELITY BUSINESS SERVICES INDIA PVT. LTD. AND THE ASSESSEE DERIVED INCOME FROM SALARY. HE WAS TRANSFERRED TO FIDELITY INVESTMENTS SYSTEMS INC , USA FROM 07.10.2010 TO 21.06.2012. IN THE PRESENT YEAR, THE ASSESSEE WAS P RESENT IN INDIA FOR MORE THAN 182 DAYS AND THEREFORE, THE ASSESSEE IS AN ORDINARY RESIDENT IN INDIA IN THE PRESENT YEAR AS PER THE FACTS NOTED IN WRITTEN SUBM ISSIONS FILED BEFORE THE TRIBUNAL BY THE LEARNED AR OF THE ASSESSEE. IN USA, THE ASSE SSEE WAS NONRESIDENT IN THE YEAR 2010 BUT RESIDENT IN 2011. THE ASSESSEE FILED ORIGINAL RETURN OF INCOME IN INDIA ON 23.07.2011 AND REVISED THE SAME ON 12.03.2 013. IN THE REVISED RETURN, THE ASSESSEE CLAIMED CREDIT FOR FOREIGN TAX AMOUNT OF RS. 275,336/- AS RELIEF U/S 90 READ WITH PROVISIONS OF INDO US DTAA. IN THESE W RITTEN SUBMISSIONS, THIS IS THE CLAIM THAT THE PROVISIONS OF SECTION 5 (1) ( C) OF I. T. ACT, 1961 ARE APPLICABLE. THE A.O. HAS CONSIDERED THE FEDERAL TAX WITHHELD IN USA AS A BENEFIT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN THE WRITTEN SUBMISSIONS FILED BY THE LEARNED AR OF THE ASSESSEE, CONTENTIONS RAISED IN COURSE OF HEARING ARE ALSO SU BMITTED AND THEREFORE, THE SUBMISSIONS ARE REPRODUCED HEREUNDER:- ITA NO. 2149(BANG)2016 3 ITA NO. 2149(BANG)2016 4 ITA NO. 2149(BANG)2016 5 ITA NO. 2149(BANG)2016 6 ITA NO. 2149(BANG)2016 7 ITA NO. 2149(BANG)2016 8 ITA NO. 2149(BANG)2016 9 ITA NO. 2149(BANG)2016 10 5. LEARNED DR OF THE REVENUE SUPPORTED THE ORDER OF CIT (A). 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. I FIND THAT THE PROVISIONS OF SECTION 5 (1) ( C) OF I. T. ACT ARE STATED TO BE APPLICABLE IN THE PRESENT CASE BUT ITS CONTENTS ARE NOT REPRODUCED IN THE WRITTEN SUBMISSIONS FILED BY THE LEARNED AR OF THE ASSESSEE AS REPRODUCED ABOVE. HENCE, I REPRODUCE IT HEREUNDER FOR READY REFERENCE:- SECTION 5(1)(C) IN THE INCOME- TAX ACT, 1995 (C) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING S UCH YEAR: PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARI LY RESIDENT IN INDIA WITHIN THE MEANING OF SUB- SECTIO N (6) OF SECTION 6, THE INCOME WHICH ACCRUES OR ARISES TO HI M OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVEDFROM A BUSINESS CONTROLLED IN OR A PROFESSIO N SET UP IN INDIA. ITA NO. 2149(BANG)2016 11 7. AS PER THE PROVISIONS OF SECTION 5 (1) (C) AS RE PRODUCED ABOVE, THE TOTAL INCOME INCLUDES INCOME WHICH ACCRUES OR ARISES OUTS IDE INDIA. HENCE, THE QUESTION IS WHETHER THE FEDERAL TAX AND STATE INCOM E TAX WITHHELD IN USA CAN BE CONSIDERED AS INCOME WHICH ACCRUES OR ARISES OUTSID E INDIA. IN THIS REGARD, RELIANCE HAS BEEN PLACED ON A JUDGMENT OF HONBLE M ADHYA PRADESH HIGH COURT RENDERED IN THE CASE OF CIT VS. YAWAR RASHID, 218 I TR 699. THE RELEVANT PARA OF THIS JUDGMENT IS PARA 3 AND IT IS REPRODUCED HEREIN BELOW FOR READY REFERENCE:- 3. BEFORE WE EXAMINE THE QUESTION IN DETAIL IT WIL L BE NECESSARY TO REFER TO THE RELEVANT PROVISIONS OF LA W WHICH HAS BEARING ON THE SUBJECT-MATTER OF THIS REFERENCE. SE C. 5 OF THE IT ACT, 1961, (HEREINAFTER REFERRED TO AS THE ACT), WH ICH DEALS WITH THE TOTAL INCOME, READS AS UNDER: 'SEC. 5: SCOPE OF TOTAL INCOME (1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON, WHO IS A RESIDENT INCLUD ES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR; OR (C) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING S UCH YEAR; PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARI LY RESIDENT IN INDIA WITHIN THE MEANING OF SUB-S. (6) OF S. 6, THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA. (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INC LUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH ITA NO. 2149(BANG)2016 12 (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR.' ACCORDING TO S. 5 OF THE ACT, THE TOTAL INCOME OF T HE ASSESSEES OF THE PREVIOUS YEAR WHO IS A RESIDENT IN INDIA, INCLU DES ALL INCOME FROM WHATEVER SOURCE, I.E. WHICH IS RECEIVED OR DEE MED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF S UCH PERSON; OR ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR; OR ACCRUES OR ARISES TO HIM OUTSI DE INDIA DURING SUCH YEAR. THERE ARE THREE CATEGORIES WHICH HAVE BEEN CONTEMPLATED - ONE, THAT A PERSON WHO IS RECEIVED T HE INCOME OR DEEMED TO BE RECEIVED THE INCOME IN INDIA; SECOND, THAT INCOME WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR A RISE TO HIM IN INDIA AND THIRD, WHICH ACCRUES OR ARISES TO HIM OUT SIDE INDIA. IN THE FIRST CATEGORY THE PERSON WHO HAS ALREADY RECEI VED THE INCOME THAT HE IS HAVING THE ACTUAL RECEIPT OF THE INCOME AND IN SECOND CATEGORY ANY INCOME WHICH ACCRUES OR ARISES THAT MEANS INCOME IN THE ORDINARY COURSE UNDER ANY LAW, ACCRUE S OR TO WHICH IS DUE TO HIM OR IT COULD BE DEEMED TO HAVE A CCRUED TO HIM OR IT COULD BE DEEMED TO HAVE ARISEN TO HIM, I.E., WHATEVER INCOME UNDER ANY LAW THAT IT HAS NOT BEEN RECEIVED BY HIM IN HAND; BUT IT ACCRUES OR ARISES TO HIM ON ACCOUNT OF LAW FROM ANY SOURCE. THEREFORE, IN SECOND CATEGORY, IT IS FICTIO NALLY DEEMED THAT EVEN IF THE INCOME WHICH HAS NOT BEEN RECEIVED IN HAND BUT IT ARISES OR ACCRUES TO HIM FROM ANY SOURCE, THAT W ILL BE TREATED TO BE THE TOTAL INCOME. BUT AS AGAINST THIS, IN CAT EGORY (C), IT ONLY TALKS ABOUT THE INCOME, I.E. WHICH ACCRUES OR ARISE S TO HIM FROM OUTSIDE INDIA DURING THAT YEAR. THEREFORE, A DISTIN CTION HAS TO BE MADE BETWEEN THREE CLAUSES, I.E. CL. (A) MEANS THE ACTUAL INCOME RECEIVED; CL. (B) TALKS ABOUT THE INCOME WHICH ACCR UES OR ARISES TO HIM THOUGH IT HAS NOT BEEN RECEIVED IN HAND, AND CL . (C) MEANS THAT IT ACCRUES OR ARISES TO HIM FROM OUTSIDE INDIA THAT SHOWS THAT ACTUAL INCOME WHICH HAS BEEN RECEIVED BY THE A SSESSEE FROM OUTSIDE INDIA, SHALL ONLY BE ENTITLED TO BE TAKEN A S TOTAL INCOME. THIS DISTINCTION HAS TO BE KEPT IN MIND THAT WHAT I NCOME FROM ABROAD SHOULD BE ACCOUNTED TOWARDS THE INCOME OF TH E ASSESSEE RESIDING IN INDIA. CLAUSE (C) AS AGAINST THE CLS. ( A) AND (B) STANDS ON DIFFERENT FOOTING, I.E. CL. (C) IS IN CONTRADICT ION OF CLS. (A) AND (B). IN CL. (A) MONEY RECEIVED OR DEEMED TO HAVE RE CEIVED IN INDIA ITA NO. 2149(BANG)2016 13 OR CL. (B) ACCRUES OR ARISES TO HIM UNDER ANY LAW I N INDIA. BUT AS AGAINST CL. (C) WHICH IS IN PRESENT TENSE MEANS WHI CH ACCRUES OR ARISES TO HIM OUTSIDE INDIA THAT MEANS THAT ONLY TH E INCOME ACTUALLY ACCRUES OR ARISES TO HIM, THAT IS THE ONLY TOTAL INCOME. THEREFORE, IN BOTH THE CLAUSES THE WORD USED `IS RE CEIVED OR IS DEEMED TO BE RECEIVED OR ACCRUES OR ARISES OR IS DE EMED TO ACCRUE OR ARISE IN INDIA, I.E. IN BOTH CLS. (A) AND (B), N O DISTINCTION HAS BEEN MADE THAT WHAT IS DUE TO HIM SHALL BE COUNTED. AS AGAINST IN CL. (C), IT MAKES CLEAR THAT WHAT IS ACTUAL INCO ME ACCRUES OR ARISES TO HIM FROM OUTSIDE INDIA SHALL BE COUNTED, I.E. THE GROSS INCOME IN CLAUSE (C) IS NOT TO BE COUNTED, BUT ACTU AL INCOME WHICH IS RECEIVED AT THE HANDS OF THE ASSESSEE, IS TO BE COUNTED. 8. AS PER THIS JUDGMENT, FOR CLAUSE ( C) OF SECTION 5 (1), GROSSING UP OF INCOME IS NOT REQUIRED AND ONLY NET INCOME AFTER TDS IS TO BE TAXED IN INDIA BUT FOR GRANTING THE BENEFIT OF FEDERAL TAX WITHHELD IN USA, THE SAM E HAS TO BE QUANTIFIED AS PER ARTICLE 25 OF INDO US DTAA. THE SAME IS REPRODUCED HEREIN BELOW FOR READY REFERENCE:- ARTICLE 25 - RELIEF FROM DOUBLE TAXATION 1. IN ACCORDANCE WITH THE PROVISIONS AND SUBJECT TO THE LIMITATIONS OF THE LAW OF THE UNITED STATES (AS IT MAY BE AMENDED FROM TIME TO TIME WITHOUT CHANGING THE GENERAL PRINCIPLE HEREOF), THE UNITED STATES SHALL ALLOW TO A RESIDENT OR CITIZEN OF THE UNITED STATES AS A CREDI T AGAINST THE UNITED STATES TAX ON INCOME (A) THE INCOME-TAX PAID TO INDIA BY OR ON BEHALF OF SUCH CITIZEN OR RESIDENT ; AND (B) IN THE CASE OF A UNIT ED STATES COMPANY OWNING AT LEAST 10 PER CENT OF THE VOTING STOCK OF A COMPA NY WHICH IS A RESIDENT OF INDIA AND FROM WHICH THE UNITED STATES COMPANY RECE IVES DIVIDENDS, THE INCOME-TAX PAID TO INDIA BY OR ON BEHALF OF THE DIS TRIBUTING COMPANY WITH RESPECT TO THE PROFITS OUT OF WHICH THE DIVIDENDS A RE PAID. FOR THE PURPOSES ITA NO. 2149(BANG)2016 14 OF THIS PARAGRAPH, THE TAXES REFERRED TO IN PARAGRA PHS 1(B) AND 2 OF ARTICLE 2 (TAXES COVERED) SHALL BE CONSIDERED AS INCOME TAX ES. 2. (A) WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN ACCORDAN CE WITH THE PROVISIONS OF THIS CONVENTION, MAY BE TAXED IN THE UNITED STATES, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDE NT AN AMOUNT EQUAL TO THE INCOME-TAX PAID IN THE UNITED STATES, WHETHER D IRECTLY OR BY DEDUCTION. SUCH DEDUCTION SHALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME-TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS AT TRIBUTABLE TO THE INCOME WHICH MAY BE TAXED IN THE UNITED STATES. 9. SINCE, THE A.O. HAS DETERMINED THE AMOUNT OF CRE DIT OF TAX PAID IN USA AFTER INCLUDING THE US TAX AMOUNT AS AN INCOME TAXABLE IN INDIA; THIS ISSUE HAS TO GO BACK TO HIS FILE FOR A FRESH DECISION. HENCE, I SET ASIDE T HE ORDER OF CIT (A) AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR A FRESH DECIS ION WITH THE DIRECTION THAT THE TAX WITHHELD IN USA (FEDERAL AND STATE TAX) SHOULD NOT BE ADDED BACK TO QUANTIFY THE INCOME TAXABLE IN INDIA AS HELD BY HONBLE M. P. HI GH COURT IN THE CASE CITED BY THE LEARNED AR OF THE ASSESSEE AND RELEVANT PARA REPROD UCED ABOBE. THE AMOUNT OF FOREIGN TAX CREDIT TO BE ALLOWED TO THE ASSESSEE SH OULD BE QUANTIFIED AFRESH AS PER ARTICLE 25 OF INDO US DTAA AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BECAUSE FOREIGN TAX CREDIT CANNOT EXCE ED THAT PART OF THE INCOME-TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS AT TRIBUTABLE TO THE INCOME WHICH MAY BE TAXED IN THE UNITED STATES. 10. REGARDING GROUND NO. 4, I FOLLOW THE JUDGMENT O F HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. LALA SRIDHAR, 84 IT R 192 AND HOLD THAT THIS IS NOT ITA NO. 2149(BANG)2016 15 TAXABLE BECAUSE IT CANNOT BE SAID THAT IT HAS ACCRU ED OR ARISEN IN THE ABSENCE VESTED RIGHT. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER BANGALORE: D A T E D : 31.08.2017 *MS COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD F ILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.