Swaminathan Ravichandran, CHENNAI V. ITO, CHENNAI

ITA 299/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8811 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Residential status; Salary income; Double taxation relief; Services rendered outside India
• Section: 143(3); 142(1); 5(2)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I T.A. NO. 299 /MDS/2016 / ASSESSMENT YEAR :2011 - 12 SHRI SWAMINATHAN RAVICHANDRAN, NO.4, VINAYAGAPURAM, S.V. KOIL STREET, AMBATTUR CHENNAI 600 0 53 . [PAN: A ELPR7714M ] VS. THE INCOME TAX OFFICER , INTERNATIONAL TAXATION II ( 2 ) , 121, M.G. ROAD, NUNGAMBAKKAM, CHENNAI 34 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SP CHIDAMBARAM , ADVOCATE / RESPONDENT BY : S HRI A.V. SREEKANTH , J CIT / DATE OF HEARING : 0 9 . 0 6 .201 6 / DATE OF P RONOUNCEMENT : 05 . 0 8 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 16, CHENNAI , DATED 04 . 11 .20 1 5 RELEVANT TO THE ASSESSMENT YEAR 20 11 - 12. THE ASSESSEE HAS RAISED TWO EFFECTIVE GROUND S VIZ., (I) CONFIRMATION OF DISALLOWANCE OF EXEMPTION OF SALARY INCOME OF .63,20,835/ - CLAIMED UNDER ARTICLE 15(1) OF T HE DOUBLE TAXATION AVOIDANCE AGREEMENT [ DTAA IN SHORT] BETWEEN INDIA AND CHINA AND (II) CONFIRMATION OF DISALLOWANCE OF RENTAL INCOME FROM HOUSE PROPERTY . I.T.A. NO . 299 /M/ 16 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME ON 28.07.2011 ADMITTING TOTAL INCOME OF .7,20,911/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] DATED 11.09.2012 WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. NOTICE UNDER SECTION 142(1) OF THE ACT ALONG WITH Q UESTIONNAIRE DATED 12.11.2013 WAS ALSO ISSUED AND SERVED ON THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT BY DETERMINING TOTAL INCOME OF THE ASSESSEE AT .70,29,200/ - AFTER MAKING VARIOUS DISALLOWANCES. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 4. ON BEING AGGRIEVED, THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WITH REGARD TO THE FIRST ISSUE, BY FILING DETAILED WRITTEN SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT BY APPLYING THE INDIAN INCOME TAX ACT AS WELL AS THE INDIA - CHINA DTAA AND ALSO BY RELYING ON THE DECISION IN THE CASE OF BHOLANATH PAL V. ITO [23 TAXMAN 177], THE ENTIRE SALARY INCOME IS NOT CHARGEABLE TO TAX IN INDIA AND PRAYED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. I.T.A. NO . 299 /M/ 16 3 5. ON THE OTHER HAND, THE LD. DR AND STRONGLY S UPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, OUT OF TOTAL SALARY INCOME, THE ASSESSEE HAS CLAIMED RELIEF UNDER ARTICLE 15(1) OF THE DTAA AND OFFERED SALARY INCOME OF .11,85,888/ - . THOUGH M/S. FORD INDIA PVT. LTD. HAS DEDUCTED TAX ON THE ENTIRE SALARY INCOME, THE ASSESSEE HAS CLAIMED REFUND OF TDS DEDUCTED AMOUNTING TO .8,86,551/ - IN HIS RETURN OF INCOME. T HOUGH THE ASSESSEE IS A RES IDENT OF CHINA FOR THE FINANCIAL YEAR 2010 - 11, THE REAL EMPLOYER IS FORD INDIA ONLY AND BY VIRTUE OF HIS EMPLOYMENT WITH FORD INDIA, THE ASSESSEE WAS RENDERING THE SERVICE IN CHINA . T HE ASSESSEE HAS RECEIVED SALARY FOR SERVICES RENDERED OUTSIDE INDIA, THE SERVICES ARE UTILISED BY THE INDIAN COMPANY FOR GENERATION OF INCOME IN INDIA. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE CLAIM OF THE ASSESSEE UNDER ARTICLE 15(1) WAS NOT IN ORDER SINCE AS PER ARTICLE 23 OF THE DTAA, ONLY RESIDENTS ARE ALL OWED TO CLAIM RELIEF UNDER THE DTAA AND IN THIS CASE, THE ASSESSEE IS A RESIDENT OF CHINA AND HENCE NOT ELIGIBLE TO CLAIM RELIEF UNDER ARTICLE 15(1). THE LD. CIT(A) HAS ALSO EXAMINED BY GOING THROUGH THE ARTICLE 15(1) AND ARTICLE 23 OF DTAA BETWEEN INDIA A ND CHINA AND OBSERVED THAT ONLY RESIDENTS ARE ALLOWED TO CLAIM SUCH RELIEF. SINCE THE ASSESSEE IS NON - RESIDENT AND MOREOVER FORD INDIA PVT. LTD. HAS PAID SALARY IN INDIA, IT HAS I.T.A. NO . 299 /M/ 16 4 DEDUCTED THE TDS FOR THE SALARY PAID IN INDIA. HE FURTHER OBSERVED THAT THE EX EMPTION UNDER ARTICLE 15(1) WILL NOT BE APPLICABLE TO THE ASSESSEE BECAUSE OF ARTICLE 23 OF DTAA BETWEEN INDIA AND CHINA WHICH ALLOWS EXEMPTION TO A RESIDENT INDIAN , WHEREAS, IN THE INSTANT CASE, THE ASSESSEE IS NON - RESIDENT FOR THE PURPOSE OF INCOME TAX ACT, 1961. THEREFORE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF EXEMPTION UNDER ARTICLE 15(1) TO THE ASSESSEE AND TAXING THE SALARY PAID IN INDIA UNDER THE SECTION 5(2) OF THE INCOME TAX ACT. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON T HE DECISION OF THE BANGALORE BENCH OF ITAT IN THE CASE OF BHOLANATH PAL V. ITO (SUPRA), WHEREIN IT WAS HELD THAT WHERE THE EMPLOYMENT SERVICES AND ENTIRELY RENDERED OUTSIDE INDIA, SALARY IS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 15 OF DTAA BETWEEN INDIAN AND JAPAN. FURTHER, THE JAIPUR SMC BENCH OF THE TRIBUNAL IN THE CASE OF NEERAJ BADAYA V. ADIT (INTERNATIONAL TAXATION) [2016] 67 TAXMANN.COM 240 (JAIPUR TRIB) HAS HELD THAT WHERE DURING RELEVANT ASSESSMENT YEAR, IF THE ASSESSEE RENDERED SERVICES OUTSIDE INDIA AND SALARY RECEIVED BY HIM FOR SUCH SERVICES IN INDIA FROM SISTER CONCERN OF US EMPLOYER, THE SALARY RECEIVED BY THE ASSESSEE WOULD BE EXEMPT FROM INDIAN TAXATION UNDER ARTICLE 16(1) OF INDO - US DTAA. IN THE CASE OF ITO V. ARJUN BHOWMIK, IN I.T.A. NO. 3484/DEL/2012 DATED 21.09.2012 FOR THE ASSESSMENT YEAR 2008 - 09, THE DELHI BENCHES OF THE TRIBUNAL HAS HELD THAT IN VIEW OF ARTICLE 16(1) OF THE INDO - PHILIPPINES DTAA, THE SALARY RECEIVED BY THE I.T.A. NO . 299 /M/ 16 5 ASSESSEE THROUGH KJS INDIA FOR THE EMPLOYMENT EXERCISED IN PH ILIPPINES IS NOT TAXABLE IN INDIA. BY RELYING ON THE CASE LAW, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY CONTENDED THAT THE ENTIRE SALARY INCOME OF THE ASSESSEE IS NOT CHARGEABLE TO TAX IN INDIA. 8. WE HAVE CAREFULLY GONE THROUGH THE ABOVE CASE LAW R ELIED 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 NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IN THE INSTANT CASE , THE ASSESSEE IS NON - RESIDENT INDIAN RESIDENT OF CHI NA. FOR THE SAKE OF CLARITY, ARTICLE 23 OF THE INDIA - CHINA DTAA IS REPRODUCED AS UNDER: 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 INDIA 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. THE AMOUNT OF CREDIT, HOWEVER, SHALL NOT EXCEED THE AMOUNT OF THE CHINESE T AX ON THAT INCOME COMPUTED IN ACCORDANCE WITH THE TAXATION LAWS AND REGULATIONS OF CHINA. (B) WHERE THE INCOME DERIVED FROM INDIA IS A DIVIDEND PAID BY A COMPANY WHICH IS A RESIDENT OF INDIA TO A COMPANY WHICH IS A RESIDENT OF CHINA AND WHICH OWNS NOT LES S THAN 10 PER CENT OF THE SHARES OF THE COMPANY PAYING THE DIVIDEND, THE CREDIT SHALL TAKE INTO ACCOUNT THE TAX PAID TO INDIA BY THE COMPANY PAYING THE DIVIDEND IN RESPECT OF ITS INCOME. 2. IN INDIA, DOUBLE TAXATION SHALL BE ELIMINATED AS FOLLOWS : I.T.A. NO . 299 /M/ 16 6 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 THE INCOME - TAX PAID IN CHINA WHETHER DIRE CTLY OR BY DEDUCTION. SUCH DEDUCTION SHALL 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 IN 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 OTHER TAX INCENTIVES OF THE CONTRACTING STATES FOR THE PROMOTION OF EC ONOMIC DEVELOPMENT. 9. I N VIEW OF THE SPECIFIC CONDITION UNDER ARTICLE 23 OF THE INDIA - CHINA DTAA, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM RELIEF UNDER ARTICLE 15(1) SINCE THE ASSESSEE IS NON - RESIDENT AND AS PER A RTICLE 23 OF DTAA BETWEEN INDIA AND CHINA A LLOWS EXEMPTION ONLY TO A RESIDENT INDIAN. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM EXEMPTION UNDER SECTION 5(2) OF THE INCOME TAX ACT AND ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 10. THE NEXT GR OUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE RENTAL INCOME OF THE PROPERTY SITUATED AT MEDAVAKKAM AT INR 10,000 PER MONTH THOUGH THE MARKET VALUE OF THE PROPERTY DURING THE SAID PERIOD WAS MUCH LOWER. 10.1 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS OFFERED RENTAL INCOME OF .60,000/ - FROM A PROPERTY AT MEDAVAKKAM, CHENNAI. WHEN THE ASSESSEE WAS ASKED TO FILE COPY OF RENTAL I.T.A. NO . 299 /M/ 16 7 AGREEMENT OR OTHER EVIDENCE IN SUPPORT OF THE RENTAL INCOME OFFERED, VIDE HIS LETTER DATED 29.01.2014, THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT HAVE ANY COPY OF RENTAL AGREEMENT. HOWEVER, THE ASSESSEE HAS SUBMITTED COPY OF PURCHASE DEED IN RESPECT OF THE PROPERTY AT MEDAVAKKAM. FROM THE P ERUSAL OF THE PURCHASE DEED, THE ASSESSING OFFICER HAS NOTED THAT THE PROPERTY IS ADMEASURING 1756 SQ.FT. VILLA TYPE WAS PURCHASED FOR A CONSIDERATION OF .97,29,354/ - IN AUGUST, 2009. IN THE ABSENCE OF ANY EVIDENCE FOR THE RENTAL INCOME OFFERED, CONSIDERING THE AREA, LOCATION AND SIZE OF THE PROPERTY, THE ASSESSING OFFICER HAS ESTIMATED THE RENTAL INCOME AT .10,000/ - PER MONTH AND WORKED OUT THE INCOME FR OM HOUSE PROPERTY AT .3,06,625/ - . 10.2 ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO IN THE ABSENCE OF ANY EVIDENCE FOR THE RENTAL INCOME, THE LD. CIT(A) CONFIRMED THE RENTAL INCOME OF THE PROPERTY AS ESTIMATED BY THE ASSESSING O FFICER. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. 3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE VALUE OF THE PROPERTY OF .97,29,354/ - TAKEN BY THE ASSESSING OFF ICER FOR QUANTIFYING THE RENTAL INCOME PERTAINS TO THE 2 ND PROPERTY HELD BY THE ASSESSEE AT METROZONE AS AGAINST THE MEDAVAKKAM PROPERTY, WHICH WAS PURCHASED AT A VALUE OF .49,28,000/ - . THEREFORE, CONSIDERING THE AREA, LOCATION, ETC., THE VALUE OF THE I.T.A. NO . 299 /M/ 16 8 PRO PERTY TAKEN BY THE ASSESSING OFFICER IS MORE OR LESS DOUBLE FOR THE MEDAVAKKAM PROPERTY, THE RENTAL INCOME WORKED OUT BY THE ASSESSING OFFICER SHOULD BE 50%, AS HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE, WHICH SHOULD BE ACCEPTED. ADMITTEDLY, THE ASSESSEE HA S NOT FILED ANY DOCUMENTARY EVIDENCE BEFORE THE TRIBUNAL WITH REGARD TO THE CLAIM OF RENTAL INCOME. MOREOVER, THE ASSESSEE HAS NOT RAISED SUCH ISSUE BEFORE THE ASSESSING OFFICER OR BEFORE THE LD. CIT(A). THUS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSE SSING OFFICER NEEDS TO VERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AND DECIDE THE ISSUE AFRESH AFTER ALLOWING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THE 05 TH AUGUST, 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT M EMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 05 . 0 8 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.