Dennis Rozario, CHENNAI V. DDIT, CHENNAI

ITA 298/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8133 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH JT
• Assessee Lawyers: R VIJAYARAGHAVAN; S P CHIDAMBARAM S
• Keywords: Residential status; Salary income; Double taxation relief; Question of law
• Section: 143(3); 5(2)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL SMC BENCH, CHE NNAI , ! BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ I T.A. NO. 298/MDS/2016 / ASSESSMENT YEAR :2011-12 DENNIS ROZARIO, 18, MAHALINGAPURAM, RAMANATHAN STREET, NUNGAMBAKKAM, CHENNAI 600 034. [PAN: AAEPR 6561K] VS. DEPUTY DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION - II, CHENNAI 600 034. ( '# /APPELLANT ) ( $%'# / RESPONDENT ) / APPELLANT BY : SHRI R.VIJAYARAGHAVAN & SHRI S.P.CHIDAMBARAM, ADVOCATES / RESPONDENT BY : SHRI A.V.SREEKANTH, JT. CIT / DATE OF HEARING : 08.12.2016 ! /DATE OF PRONOUNCEMENT : 06.01.2017 & / O R D E R THIS APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-16 DATED 09.11 .2015 (CIT(A) FOR SHORT) PASSED UNDER SECTION 143(3) OF THE INCOME TA X ACT, 1961 [ACT IN SHORT], FOR THE ASSESSMENT YEAR (AY) 2011-12 VIDE O RDER DATED 31.03.2011. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE LEARNED CIT(A) HAS ERRED IN DENYING EXEMPT ION UNDER ARTICLE 15(1) OF DTAA FOR BONUS PAYMENTS AMOUNTING TO INR 1 ,040,052/- PERTAINING TO SERVICES RENDERED IN CHINA. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 2 2.2 THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT, BEING A TAX RESIDENT OF CHINA AND A NON-RESIDENT OF INDIA I S ELIGIBLE TO CLAIM EXEMPTION UNDER ARTICLE 15(1) OF THE DTAA BETWEEN I NDIAN AND CHINA. 2.3 THE LD. CIT(A) HAS NOT APPRECIATED THE FACT T HAT AS PER ARTICLE 15(1) OF THE DTAA, THE APPELLANT IS TAXABLE ONLY IN THE COUN TRY WHERE HE IS A RESIDENT AND EXERCISING EMPLOYMENT (CHINA). 2.4 THE LD. CIT(A) HAS ERRED IN STATING THAT BONU S FORMS PART OF THE COMPENSATION FOR THE SOCIAL NEEDS OF THE APPELLANT AND FOR BEING AN EMPLOYEE OF THE LEGAL EMPLOYER BY WAY OF EMPLOYEE-E MPLOYER AGREEMENT. 2.5 THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT FOR THE ASSIGNMENT PERIOD, REPORTING OBLIGATIONS, WORK INST RUCTIONS, RISK AND REWARD IS VESTED WITH THE HOST ENTITY AND NOT THE LEGAL EM PLOYER. HENCE, THE HOST ENTITY WOULD ONLY BE RESPONSIBLE FOR DETERMINING TH E BONUS PAYABLE TO THE APPELLANT. 3. THE ASSESSEE RAISED THE GROUND WITH REGARD TO DI SALLOWANCE OF EXEMPTION CLAIMED ARTICLE 15(1) OF THE DOUBLE TAXAT ION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND CHINA. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME UNDER SECTI ON 139(1) OF THE INCOME TAX ACT, 1961 ('THE ACT') ON JULY 29, 2011, RETURNI NG AN INCOME AMOUNTING TO INR 1,986,648. THE ASSESSEE EXCLUDED SALARY AMOU NTING TO INR 6,616,354 (OUT OF HIS GROSS SALARY OF INR 8,275,581 ) RECEIVED IN INDIA FOR SERVICES RENDERED IN CHINA FOR THE PERIOD APRIL. 01 , 2010 TO MARCH 31, 2011 BY RELYING ON ARTICLE 15(1) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND CHINA. BASED ON THE EXEMPT ION CLAIMED AND TDS DEDUCTED BY THE EMPLOYER M/S FORD INDIA PRIVATE LIM ITED AMOUNTING TO INR 1,512,507, A REFUND AMOUNTING TO INR 1,081,658 WAS CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 3 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E LEARNED ASSESSING OFFICER (AO) HAD CALLED FOR VARIOUS DOCUMENTS/INFOR MATION LIKE EMPLOYMENT CONTRACT WITH THE INDIAN COMPANY, ASSIGNMENT LETTER STATING THAT THE EMPLOYEE WILL BE WORKING FOR FORD CHINA, PROOFS FOR PAYMENT OF TAXES IN CHINA ALONG WITH THE BREAKUP OF SALARY COMPONENTS F ORMING PART OF THE OVERSEAS RETURN OF INCOME AND COPY OF THE DEBIT NOT ES TO SUBSTANTIATE THE RECHARGE OF SALARY COSTS (INCLUDING BONUS) BY THE H OME ENTITY. THESE WERE DULY FILED BY THE ASSESSEE AND TAKEN ON RECORD BY T HE LEARNED AO. 3.2 IN ADDITION, THE ASSESSEE HAD ALSO FILED VARIOU S DOCUMENTS/DETAILS TO SUPPORT THE EXEMPTION CLAIMED UNDER ARTICLE 15(1) O F THE DTAA. 3.3 HOWEVER, THE LEARNED ASSESSING OFFICER HELD THA T THE ASSESSEE HELD DUAL EMPLOYMENT ONE WITH THE ORIGINAL EMPLOYER AT T HE HOME COUNTRY AND ANOTHER WITH THE ECONOMIC EMPLOYER AT THE HOST ENTI TY AND ACCORDINGLY DIVIDED THE SALARY COMPENSATION IN TWO PARTS. FURTH ER, THE ASSESSING OFFICER HELD THAT BONUS IS PAID FOR MAINTAINING THE MORALE OF THE EMPLOYEE AND IS PART OF THE SOCIAL OBLIGATION AND THEREBY DETERMINE D BY THE ORIGINAL EMPLOYER (HOME ENTITY). ACCORDINGLY, THE AO DISALLOWED A POR TION OF THE BONUS AMOUNTING TO INR 1,040,052 ATTRIBUTING IT AS COMPEN SATION FOR EXERCISING HIS EMPLOYMENT IN THE HOME COUNTRY. 3.4 THE LEARNED AO HAS ALSO CONSIDERED A HIGHER AMO UNT AS REFUND RECEIVED AND THEREBY ERRED IN COMPUTING INTEREST U/ S 244A. BESIDES, THE AO I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 4 HAS ALSO LEVIED INTEREST TREATING THE REFUND AS AMO UNT PAID BACK IN EXCESS AND INITIATED PENALTY PROCEEDINGS FOR CONCEALMENT O F INCOME. 3.5 BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE HAS PREFERRED THE APPEAL BEFORE CIT(A). 4. ON APPEAL CIT(A) OBSERVED THAT ARTICLE 15 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND CHINA IS NOT APPLICABLE ON THE GROUND THAT BONUS IS A PART OF PAYMENT OF REMUN ERATION, WHICH WAS GIVEN AS A REVENUE TO MAINTAIN THE MORAL OF THE EMPLOYEE AND TO ENCOURAGE HIM TO HAVE MORE LOYALTY TOWARDS THE EMPLOYER. BONUS EMAN ATES FROM THE EMPLOYER - EMPLOYEE AGREEMENT BUT NOT AS A CONDITIO N RATE BASED ON A SALARY BUT BASED ON THE RECOGNITION OF THE EMPLOYEE BY THE EMPLOYER. IT S A DISCRETION OF THE EMPLOYER TO QUALITY AND EMPLOYEE FOR BONUS AND QUANTIFIED THE BONUS WILL. IN THE INSTANT CASE THE SECOND EMP LOYER DOES NOT HAVE ANY RIGHTS OVER DECLARING ANY BONUS TO THE EMPLOYEE AS SUCH REWARD IS THE PREROGATIVE OF THE ORIGINAL EMPLOYER TO ELEVATE THE RECOGNITION IS OF THE EMPLOYEE BY SUCH REWARD AS IT IS A PART OF SOCIAL O BLIGATION OF THE ORIGINAL EMPLOYER. ACCORDINGLY TO THE CIT(A), HELD THAT AO HAS RIGHTLY TREATED BONUS AS THE CONTRIBUTION OF THE ORIGINAL EMPLOYER, WHETH ER OR NOT RECHARGED BY THE SECOND EMPLOYER, AS BONUS PAYMENTS ARE MADE FOR THE PURPOSE OF EMPLOYMENT EXERCISED BEING AN EMPLOYEE ACCORDINGLY HE UPHELD THE ACTION OF THE AO AS TREATING BONUS AMOUNT PAID CHARGEABLE TO TAX IN INDIA. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 5 ACCORDINGLY DISMISS THE GROUND TAKEN BY THE ASSESSE E. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. LD. A.R SUBMITTED THAT CIT(A) ERRED IN NOT GRANTING THE EXEMPTION UNDER ARTICLE 15(1) OF DTAA. FURTHER HE RELIED ON THE JUDGMENT OF KARNATAKA HIGH COURT IN THE CASE OF DIT (INTERNATIONAL TAXATION) V. PRAHLAD VIJENDRA RAO [2011] 239 CTR 107 (KARNATAKA HIGH COURT) WHEREIN HELD THAT: HAVING HEARD THE LEARNED ADVOCATES APPEARING FOR T HE PARTIES AND AFTER PERUSING THE ORDERS PASSED BY THE AUTHORITIES AND A FTER HAVING GIVEN OUR ANXIOUS CONSIDERATION TO THE CONTENTIONS RAISED, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO SUBSTANTIAL QUESTION OF LAW I NVOLVED IN THIS APPEAL FOR BEING FORMULATED AND ADJUDICATED FOR THE FOLLOWING REASONS: (A)THE REVENUE DOES NOT DISPUTE THAT ASSESSEE HAD W ORKED AS A CHIEF ENGINEER ON THE BOARD OF A SHIP BELONGING TO HIS EM PLOYER 'M/S. LIVE STOCK TRANSPORT & TRADING CO., KUWAIT AND DURING THE RELEVANT PERIOD THE ASSESSEE HAD STAYED OUTSIDE INDIA FOR A PERIOD OF 225 DAYS AND THE SALARY THAT WAS EARNED BY HIM WAS ON ACCOUNT OF THE WORK DISCHARGED BY HIM ON BOARD DURING THE SAID PERIOD WHICH IS OUTSID E THE SHORES OF LNDIA. (B)THE CIT(A) HAS PLACED RELIANCE IN THE CASE OF CI T V . AVTAR SINGH WADHWAN [2001] 247 I TR 260 (BOM.) WHEREIN IT HAS BEEN HELD THAT SALARY RECEIVED BY THE NON-RESIDENT MARINE ENGINEER FOR SERVICES RENDERED BY HIM ON A FOREIGN GOING INDIAN SHIP WHIC H MAINLY REMAINED AWAY FROM THE INDIAN COAST DURING THE RELEVANT ACCO UNTING YEAR ACCRUED OUTSIDE INDIA AND WAS NOT TAXABLE IN INDIA. WHILE A NSWERING THE QUESTION OF LAW THEREUNDER WITH REFERENCE TO SECTION 9(1 )(II) IN THE SAID CASE IT HAS ALSO BEEN HELD THAT THE SALARY WHICH IS EARNED IN I NDIA WILL ALONE BE REGARDED AS INCOME ARISING IN INDIA AND NOT OTHERWI SE. THE PRINCIPLE LAID DOWN IN THE SAID CASE IS SQUARELY APPLICABLE TO THE FACTS OF PRESENT CASE ALSO. (C)THE CRITERIA OF APPLYING THE DEFINITION OF SECTI ON 5(2)(B) WOULD BE SUCH INCOME WHICH IS EARNED IN INDIA FOR THE SERVICES RE NDERED IN INDIA AND NOT OTHERWISE. (D)UNDER SECTION 15 OF THE ACT EVEN ON ACCRUAL BASI S SALARY INCOME IS TAXABLE I.E., IT BECOMES TAXABLE IRRESPECTIVE OF TH E FACT WHETHER IT IS ACTUALLY RECEIVED OR NOT: ONLY WHEN SERVICES ARE RE NDERED IN INDIA IT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 6 BECOMES TAXABLE BY IMPLICATION. HOWEVER. IF SERVICE S ARE RENDERED OUTSIDE INDIA SUCH INCOME WOULD NOT BE TAXABLE IN I NDIA. THE EXPLANATION TO SECTION 9(1 )(II) HAS BEEN TAKEN NOTE OF WHILE ANSWERING THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE AS SESSEE AND TO NEGATIVE THE CONTENTIONS OF THE REVENUE. APPLYING THE SAID P RINCIPLES TO THE FACTS OF THE PRESENT CASE AND NUMBER OF DAYS WORKED BY THE A SSESSEE OUTSIDE INDIA AS EXTRACTED IN ASSESSMENT ORDER WHEN TAKEN INTO CO NSIDERATION IT WOULD EMERGE THAT ASSESSEE WAS WORKING OUTSIDE INDIA FOR A PERIOD OF 225 DAYS AND THE INCOME IN QUESTION EARNED BY ASSESSEE HAS N OT ACCRUED IN INDIA AND IS NOT DEEMED TO HAVE ACCRUED IN INDIA. AS SUCH THE CONTENTION OF THE REVENUE CANNOT BE ACCEPTED. IN VIEW OF THE ABOVE DISCUSSIONS THE APPEAL IS DISM ISSED AS DEVOID OF MERITS. NO ORDER AS TO COSTS. 5.1) HE SUBMITTED THAT TAX CREDIT TO BE GIVEN FOR T HE TAX PAID BY THE ASSESSEE IN CHINA AS PER ARTICLE 23 OF DTAA. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ASSESSEE NOT ENTITLED FOR BENEFIT OF UNDER ARTICLE 15(1) SINCE THE ASSESS EE IS A NON RESIDENT AND AS PER ARTICLE 23 OF THE DTAA BETWEEN INDIA AND CHINA ALLOWS EXEMPTION ONLY TO A RESIDENT OF INDIA. 7. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATERIAL ON RECORD. IDENTICAL ISSUE CAME FOR CONSIDERATION BEFORE THIS BENCH IN THE CASE OF SHRI SWAMINATHAN RAVICHANDRAN V. ITO IN ITA NO.299/MAD/2 016 FOR THE AY 2011-12 VIDE ORDER DATED 05.08.2016 THE TRIBUNAL HE LD AS UNDER: 8. WE HAVE CAREFULLY GONE THROUGH THE ABOVE CASE L AW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE AND FIND THAT A LL THESE CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE N OT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IN THE INSTANT CA SE, THE ASSESSEE IS NON-RESIDENT INDIAN RESIDENT OF CHINA. FOR THE S AKE OF CLARITY, ARTICLE 23 OF THE INDIA-CHINA DTAA IS REPRODUCED AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 7 ARTICLE 23 METHODS FOR THE ELIMINATION OF DOUBLE TAXATION 1. IN CHINA, DOUBLE TAXATION SHALL BE ELIMINATED AS FOLLOWS : (A) WHERE A RESIDENT OF CHINA DERIVES INCOME FROM I NDIA THE AMOUNT OF TAX ON THAT INCOME PAYABLE IN INDIA IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE CREDITED AGAINST THE CHINESE TAX IMPOSED ON THAT RESIDENT. T HE AMOUNT OF CREDIT, HOWEVER, SHALL NOT EXCEED THE AMOUNT OF THE CHINESE TAX ON THAT IN COME COMPUTED IN ACCORDANCE WITH THE TAXATION LAWS AND REGULATIONS OF CHINA. (B) WHERE THE INCOME DERIVED FROM INDIA IS A DIVIDE ND PAID BY A COMPANY WHICH IS A RESIDENT OF INDIA TO A COMPANY WHICH IS A RESIDENT OF CHINA AND WHICH OWNS NOT LESS THAN 10 PER CENT OF THE SHARES OF THE COMPANY PAYIN G THE DIVIDEND, THE CREDIT SHALL TAKE INTO ACCOUNT THE TAX PAID TO INDIA BY THE COMP ANY PAYING THE DIVIDEND IN RESPECT OF ITS INCOME. 2. IN INDIA, DOUBLE TAXATION SHALL BE ELIMINATED AS FOLLOWS : WHERE A RESIDENT OF INDIA DERIVES INCOME WHICH, IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, MAY BE TAXED IN CHINA, INDIA SHALL ALLOW AS A DEDUCTION FROM THE TAX ON THE INCOME OF THAT RESIDENT AN AMOUNT EQUAL TO T HE INCOME-TAX PAID IN CHINA WHETHER DIRECTLY OR BY DEDUCTION. SUCH DEDUCTION SH ALL NOT, HOWEVER, EXCEED THAT PART OF THE INCOME-TAX (AS COMPUTED BEFORE THE DEDUCTION IS GIVEN) WHICH IS ATTRIBUTABLE, AS THE CASE MAY BE, TO THE INCOME WHICH MAY BE TAXED I N CHINA. 3. THE TAX PAID IN A CONTRACTING STATE MENTIONED IN PARAGRAPHS 1 AND 2 OF THIS ARTICLE SHALL BE DEEMED TO INCLUDE THE TAX WHICH WOULD HAVE BEEN PAYABLE BUT FOR THE LEGAL PROVISIONS CONCERNING TAX REDUCTION EXEMPTION OR OT HER TAX INCENTIVES OF THE CONTRACTING STATES FOR THE PROMOTION OF ECONOMIC DE VELOPMENT. 9. IN VIEW OF THE SPECIFIC CONDITION UNDER ARTICLE 23 OF THE INDIA- CHINA DTAA, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM R ELIEF UNDER ARTICLE 15(1) SINCE THE ASSESSEE IS NON-RESIDENT AND AS PER ARTICLE 23 OF DTAA BETWEEN INDIA AND CHINA ALLOWS EXEMPTION ONLY TO A RESIDENT INDIAN. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, THE ASSESS EE IS NOT ELIGIBLE TO CLAIM EXEMPTION UNDER SECTION 5(2) OF THE INCOME TAX ACT AND ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS D ISMISSED. 8. IN VIEW OF THE ABOVE, THE ORDER OF THE TRIBUNAL SINCE THE ISSUES ARE SIMILAR, I AM INCLINED TO HOLD THAT THE ASSESSEE IS NOT ENTITLE FOR EXEMPTION UNDER ARTICLE 15(1) OF THE DOUBLE TAXATION AVOIDANC E AGREEMENT (DTAA) BETWEEN INDIA AND CHINA. I DECIDE ACCORDINGLY AND THE APPEAL OF THE ASSESSEE IS DISMISSED. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .298 298298 298/M /M/M /MDS DSDS DS/ // /201 201201 2016 66 6 8 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 6 TH JANUARY, 2017 AT CHENNAI. SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 06.01.2017 EDN '# $% &% /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ' ( ) /CIT(A), 4. ' /CIT, 5. %() * /DR & 6. )+ , /GF.