NEERAJ BADAYA, Jaipur V. ADIT, Jaipur

ITA 308/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5534 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 28-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Assessee Lawyers: P K PRASAD
• Keywords: Residential status; Salary income; Double taxation relief
• Section: 244A; 5(2); 15

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES SMC, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JUDICIAL MEMBER VK;DJ VIHY LA- @ ITA NO. 308/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 NEERAJ BADAYA, C-13, MANGAL PRABHAT, PANCHSHEEL COLONY, AJMER ROAD, JAIPUR-302019, RAJASTHAN. CUKE VS. ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: ABSPB 6742 K VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.K. PRASAD. JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJ MEHRA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 26/11/2015 MN?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 22/01/2016 VKNS'K @ ORDER PER: R.P. TOLANI, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 09/01/2014 PASSED BY THE LEARNED CIT(A)-II, JAIPUR FOR A.Y. 2008-09 AGITATING VARIOUS ISSUE WHICH IN EFFECT RAISE THAT T HE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN: - (I) TREATING THE ASSESSEE AS RESIDENT IN INDIA. ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 2 (II) TAXING THE SALARY AMOUNTING TO RS. 8,25,792/- RECEIVED IN INDIA (FROM THE SISTER CONCERN OF US EMPLOYER) FOR THE SERVICES WHICH ARE UNDISPUTEDLY RENDERED IN UNITED STATES (U.S.) AND IS EXEMPT FROM INDIAN TAXATION UNDER ARTICLE 16(1) OF THE INDIA-U.S . DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). (III) CHARGING INTEREST U/S 244A AND 234D THEREON. LD. COUNSEL CONTENDS THAT IMPUGNED ASSESSMENT HAS B EEN FRAMED BY LD. AO TREATING THE ASSESSEE AS NON-RESIDENT, WHICH IS FURTHER EVIDENT FROM THE FACT THAT THE CASE OF THE ASSESSEE WAS TRAN SFERRED FROM ITO, WARD 3(3), JAIPUR TO ASSISTANT DIRECTOR OF INCOME TA X (INTERNATIONAL TAXATION), JAIPUR WHO FRAMED THE ASSESSMENT. DURING THIS YEAR, THE ASSESSEE WAS TRANSFERRED FROM INDIA SUBSIDIARY TO FI DELITY INVESTMENTS SYSTEMS INC, BOSTON, USA (FIS) TO ACT AS A LEAD SOF TWARE ENGINEER, ACCORDINGLY HE LEFT INDIA ON 30.05.2007 IN CONNECTI ON WITH HIS US EMPLOYMENT. HENCE, FOR THE PERIOD FROM 1/4/2007 TO 30.05.2007 HE WAS AN EMPLOYEE OF FBSI AND WITH EFFECT FROM 31.05.20 07, HE STARTED WORKING FOR FIS. PROVISIONS OF SECTION 5(2) STARTS WITH THE EXPRESSIO N 'SUBJECT TO THE OTHER PROVISIONS OF THE ACT... .AS A RESULT OF SECTION 5(2), IT FOLLOWS THAT SALARY IS TO BE TAXED IN INDIA SUBJECT TO OTHER PROVISIONS OF THE ACT. OTHER PROVISIONS OF THE ACT IS THE CONTEXT OF SALARY INCOME REFERS TO THE FOLLOWING PROVISIONS: ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 3 I) SECTION 15 CHARGEABILITY OF SALARY II) SECTION 9(I)(II) SALARY EARNED IN INDIA (III) SECTION 90(2) OVERRIDING EFFECT OF DOUBLE TAXATION AVOIDANCE ..THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOM E-TAX UNDER THE HEAD SALARIES: A) ANY SALARY DUE FORM AN EMPLOYER OR A FORMER EMPLOYER TO AN ASSESSEE IN THE PREVIOUS YEAR, WHETHER PAID OR NOT; B) ANY SALARY PAID OR ALLOWED TO HIM IN THE PREVIOU S YEAR BY OR ON BEHALF OF AN EMPLOYER OR A FORMER EMPLOYER THOUGH NOT DUE OR BEFORE IT BECAME DUE TO HIM. C) .... IT IS HUMBLY SUBMITTED THAT SECTION 5(2)(A) REQUIRES RECEIPT OF SALARY AS THE FIRST RECEIPT AND NOT THE RECEIPT WHICH FOLLOWS ACCRUAL OF INCOME. ....INCOME IS TAXABLE ON ACCRUAL OR RECEIPT WHICHEVER OCCURS FIRST. HENCE, IN TERMS OF APPLICABILITY OF SCOPE OF TOTAL INCOME, IT IS THE ACCRUAL OR ARISAL OR DEEMED ACCRUAL OR ARISAL WHICH IS MORE IMPORTANT CRITERIA RATHER THAN RECEIPT OF INCOME. THEREFORE, IF AN INCOME IS ACCRUED OR DEEMED TO ACCRUE OUTSIDE INDIA THEN IT HAS TO BE TAXED ON ACCRUAL OR DEEMED ACCRUAL BASIS RATHER THAN RECEIPT BASIS. THE ASSESSEE SUMMARIZED ITS ARGUMENTS AS UNDER: A) THE ASSESSEE WAS A NON RESIDENT IN INDIA DURING THE PY. 2007-08. ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 4 B) THE PROVISIONS OF SECTION 5 ARE SUBJECT TO THE O THER PROVISIONS OF THE ACT AND CANNOT TAX AN AMOUNT WHICH IS OTHERWISE OUTSIDE THE AMBIT OF TAXATION. C) SALARY IS CHARGEABLE TO TAX ON DUE BASIS AND THEREFORE, HIS SALARY CANNOT BE TAXED IN INDIA ON RECEIPT BASIS. D) HE WAS A RESIDENT IN USA FOR THE PY 2007-08. E) WHILE DISCUSSING THE PROVISIONS OF DTAA FROM THE INDIA TAXATION PERSPECTIVE, IT IS NECESSARY TO CONSI DER THE INDIAN FINANCIAL YEAR AS THE YEAR . F) SALARY IS CONSIDERED TO BE ACCRUED IN THE STATE WHERE THE EMPLOYEE EXERCISES THE EMPLOYMENT AND THEREFORE, HIS SALARY ACCRUED IN USA. G) BY APPLYING THE PROVISIONS OF ARTICLE 16(1) OF T HE TREATY ALSO, THE SALARY IS NOT TAXABLE IN INDIA. H) HENCE, BY APPLYING INDIAN INCOME-TAX ACT, AS WELL AS TREATY, SALARY INCOME SHALL NOT BE TAXABLE IN INDIA. AS SUCH THE ASSESSEE IS ENTITLED FOR FULL EXEMPTION IN RESPECT OF SALARY SINCE IT RELATES TO OVERSEAS EMPLOYMENT. LD. AO PROPOSED TO ASSESS THE ABOVE SALARY IN INDIA , ASSESSEE OBJECTED TO THAT CLAIMING THAT THE RELEVANT SERVICES WERE REN DERED IN US ONLY FOR INTERNAL FACILITATION THE SALARY WAS PAID IN INDIA. RELIANCE WAS PLACED ON THE DECISIONS IN THE CASES OF RANJIT KUMAR BOSE VS INCOME TAX OFFICER 18 ITD 230, BRITISH GAS INDIA PVT. LTD. 55 TAXMAN 32 6 & CIT VS. ESTIENNE ANDRE & OTHERS 242 ITR 422. THE LD ASSESSIN G OFFICER HOWEVER HELD THAT EXEMPTION U/A 16(1) OF DTAA WAS NOT APPLIC ABLE AS FIDELITY ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 5 BUSINESS SERVICES INDIA PVT. LTD. HAD ISSUED FORM N O. 16 WHICH INDICATED THAT THE IMPUGNED PART OF SALARY WAS TAXAB LE IN INDIA. SINCE THE SALARY IS RECEIVED IN INDIA BY THE EMPLOYEE THR OUGH A CREDIT TO HIS SALARY ACCOUNT AND TDS IS DEDUCTED THEREON IN INDIA , THE SAME WILL BE TAXABLE IN INDIA IRRESPECTIVE OF THE RESIDENTIAL ST ATUS, IN ACCORDANCE WITH SECTION 5 OF THE INCOME TAX ACT, 1961. THE CLAIM OF E XEMPTION OF INCOME AMOUNTING TO RS. 8,25,792/- OUT OF THE ABOVE ON THE BASIS OF ARTICLE 16(1) OF INDIA-USA DOUBLE TAXATION AVOIDANCE AGREEMENT BY THE ASSESSEE IS NOT CORRECT. 3. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL B EFORE THE LD CIT(A), WHO ERRONEOUSLY HELD THAT THE ASSESSEE REMAI NED ON THE PAYROLL OF FBSI AND WAS NOT ON THE PAYROLL OF FIS, THAT IS T HE REASON HIS SALARY WAS CREDITED BY FBSI IN INDIA AND TDS WAS DEDUCTED THE REON. IN VIEW OF THE SECTION 5(2) OF THE ACT, TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME FROM WHA TEVER SOURCE DERIVED WHICH IS RECEIVED OR DEEMED TO BE RECEIVED I N INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ON ACCRUES OR A RISES TO HIM IN INDIA DURING SUCH YEAR. SINCE, THE SALARY IS RECEIVED IN INDIA BY THE EMPLOYEE THROUGH A CREDIT TO HIS SALARY ACCOUNT DUE FROM HIS INDIA EMPLOYER IN INDIA, THE SAME WILL BE TAXABLE IN INDIA IRRESPECTIV E OF THE RESIDENTIAL ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 6 STATUS, IN ACCORDANCE WITH SECTION 5 OF THE INCOME TA X ACT, 1961. THE CLAIM OF EXEMPTION OF INCOME AMOUNTING TO RS. 8,25, 792/- OUT OF THE ABOVE ON THE BASIS OF ARTICLE 16(1) OF INDIA USA DO UBLE TAXATION AVOIDANCE AGREEMENT BY THE ASSESSEE IS NOT CORRECT. THE TERM RESIDENCE USED IN DTAA PROVISIONS IS NOT SIMILAR TO THE TERM RESIDENTIAL STATUS USED IN THE INCOME TAX ACT, THEREFORE, THE AS SESSEE WAS NOT ENTITLED TO USE THE SAME AS SYNONYMOUS TO EACH OTHE R. THE ASSESSEE WILL BE A RESIDENT OF INDIA IN ACCORDANCE WITH THE DT AA BETWEEN THE INDIA AND USA AND THE RIGHT OF TAXATION IN RESPECT OF SALARY INCOME OF THE EMPLOYEE WILL REMAIN WITH THE INDIA WHETHER OR NOT THE RIGHT OF TAXATION IN RESPECT OF THIS SUM VEST WITH USA. 4. THE LD COUNSEL FOR THE ASSESSEE REFERRED TO THE P APER BOOK AND CONTENDS THAT IT HAS NOT BEEN DISPUTED THAT THE SER VICES FOR IMPUGNED PERIOD WERE RENDERED IN USA, WHICH IS CERTIFIED BY FI DELITY USA AS WELL AS INDIAN COUNTERPART. BESIDES THE DUE TAXES ON THE IMPUGNED INCOME HAVING BEEN LEVIED BY US TAX AUTHORITIES. IT HAS AL SO NOT BEEN DISPUTED THAT NO SERVICES WERE RENDERED BY THE ASSESSEE IN IN DIA AND THEY WERE RENDERED IN US. THE AMOUNT WAS PAID TO ASSESSEE BY TH E INDIAN ENTITY AS AN INTERNAL ARRANGEMENT BETWEEN USA AND INDIAN CO UNTERPART AND THIS AMOUNT HAS BEEN REIMBURSED TO INDIAN ENTITY BY FIDELITY ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 7 INVESTMENT, BOSTON, USA. THUS THE ESSENCE OF THE T AX LIABILITY AS PERCEIVED BY AUTHORITIES BELOW IS NOT RELEVANT ISSUE I.E. RENDERING OF SERVICES IN USA BUT A MERELY BECAUSE THE AMOUNT WAS PAID BY AN INDIAN ENTITY AND TDS WAS DEDUCTED THEREON. LOOKING AT THE S MALL AMOUNT, THE INDIA ENTITY DID NOT APPLY FOR EXEMPTION U/S 192/19 3 OF THE ACT. BESIDES IN LAW THE SALARY WAS NOT TAXABLE IN INDIA CONSEQUENT LY ASSESSEE ALSO DID NOT RAISE ANY OBJECTION FOR SUCH TDS. BESIDES T HE INDIAN ENTITY WAS TO BE REIMBURSED BY THE US ENTITY. IN VIEW OF THESE UNDISPUTED FACTS AND CIRCUMSTANCES THE SALARY IN QUESTION IS NOT TAX ABLE IN INDIA BEING CLEARLY EXEMPT U/A 16(1) OF DTAA. FURTHER RELIANCE IN PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS:- (I) CIT VS. NIPPON LIMITED 233 ITR 158 (CAL) (II) CIT VS. KHAMBATY 159 ITR 203 (KAR). (III) RANJIT KUMAR BOSE VS. ITO 18 ITD 230 (CAL TRIB ) (IV) AUTHORITY FOR ADVANCE RULINIGS IN REVENUE: SRE ENIVAS KUMAR SISTLA (AAR NO. 514 OF 2000) (V) CIT VS. ELI LILLY & COMPANY (INDIA) PVT. LTD. 31 2 ITR 225 (SC). (VI) UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 706 (SC). (VII) CIT VS. PVAL KULANDAGAN CHETTIAR (2004) 267 ITR 654. (VIII) CIT VS. ESTIENNE ANDREAS & ORS (2000) 242 ITR 422 (BOM) (IX) (2000) 241 ITR (ST) 124. (X) DIT & ANR. VS PRAHLAD VIJENDRA RAO 198 TAXMAN 55 1. (XI) ADIT, NEW DEKHI VS NANDAN SINGH CHAUHAN 2011-TII- 27- ITAT-DEL-NRI. ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 8 5. THE LD DR, ON OTHER HAND, CONTENDS THAT A PLAIN A ND SIMPLE READING OF SECTION 9 REVEALS THAT ANY PAYMENT OF SA LARY MADE TO ASSESSEE IN INDIA IS LIABLE TO BE TO BE TAXED AND A RTICLE 16(1) OF DTAA DOES NOT APPLY TO IT. ORDERS OF AUTHORITIES BELOW AR E RELIED ON. 6. I HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS THE FACTS EMERGE FROM RECORD T THE ASSESSEES RESIDENTIAL STATUS AS NONRESIDENT HA S BEEN ACCEPTED BY THE LD ASSESSING OFFICER, THEREFORE, THERE IS NO JU STIFICATION ON THE PART OF THE LD CIT(A) TO HOLD THAT THE ASSESSEE WAS A RESI DENT. IT HAS NOT BEEN DISPUTED THAT THE SERVICES IN QUESTION WAS REND ERED BY THE ASSESSEE IN US AND TAXED IN THE USA, WHICH IS EVIDEN T FROM THE RELEVANT RECORD FILED ON THE PAPER BOOK. THE APPLICABILITY OF ARTICLE 16(1) OF INDO- USA DTAA DEPENDS ON THE COUNTRY WHERE SERVICES ARE RENDERED WHICH IN THIS CASE IS UNDISPUTEDLY USA. THE APPLICATION O F ARTICLE 16(1) OF INDO-USA DTAA CANNOT BE DENIED TO ASSESSEE MERELY B ECAUSE THE SALARY CHECK WAS PAID BY AN INDIAN ENTITY AND THE UN DISPUTED FACT THAT NO SERVICE WAS RENDERED BY ASSESSEE FOR THE IMPUGNED PERIOD IN INDIA. THE HON'BLE SUPREME COURT IN THE CASE OF KEDAR NATH JUTE MNF. CO LTD. VS. CIT (CENTRAL) KOLKATA [1971] 82 ITR 363 (SC), HAS HELD THAT ACTUAL AND LEGAL NATURE OF THE TRANSACTION WILL DECIDED THE TAXABILITY AND NOT ITA 308/JP/2014_ NEERAJ BADAYA VS ADIT, INTERNATIONAL TAXATION 9 MERE BOOK ENTRIES OR ASSUMPTIONS. IN VIEW THEREOF, JUDGMENTS IN THE CASE OF CIT VS. NIPPON LIMITED 233 ITR 158 (CAL),CIT V S. KHAMBATY 159 ITR 203 (KAR) AND RANJIT KUMAR BOSE VS. ITO 18 ITD 230 (SUPRA), I HOLD THAT THE NONRESIDENT ASSESSEE IS NOT LIABLE FO R TAX IN INDIA ON THE IMPUGNED AMOUNT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2016. SD/- VKJ-IH-RKSYKUH (R.P.TOLANI) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 22 ND JANUARY, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI NEERAJ BADAYA, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ADIT (INT.TAXATION) JAIPUR 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDR @ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 308/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR