ASSTT. DIRECTOR OF INCOME TAX, Jaipur V. SHRI KARTIK VYAS, UDAIPUR

ITA 375/JPR/2012

• Counselvise Citation: 37523114 RSA 2012
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY JHAWAR
• Keywords: Residential status
• Section: 143(3); 5(2); 6; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM ITA NO. 375/JP/2012 ASSESSMENT YEAR : 2008-09 PAN NO. ACQPV 4448 K ASSTT. DIRECTOR OF INCOME TAX SHRI KARTIK VYAS, (INTERNATIONAL TAXATION), JAIPUR VS. 23 ROAD NO. 1 , PANCHWATI, UDAIPUR. REVENUE BY : SMT. NEENA JEPH. ASSESSEE BY : SHRI SANJAY JHAWAR. DATE OF HEARING : 22/10/2014 DATE OF PRONOUNCEMENT : 31/12/2014 ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 20/01/2012 BY THE LEARNED CIT(A)-II, JAIPUR FOR A.Y. 2008-09. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS. 17,27,360/- MADE BY THE A.O. ON ACCOUNT OF TREATING FOREIGN ALLOWANCE AS INCOME LIABLE TO BE TAXED IN INDIA, BY HOLDING THAT THE ASSESSEE HAD PAID TAXES ON THE SALARY AND ALLOWANCES RECEIVED IN NETHERLANDS IN THE CONCERNED PERIOD AND THEREFORE, IS NOT LIABLE TO BE TAXED IN INDIA A ND FURTHER IGNORING THE FINDINGS OF THE A.O. 2. THE APPELLANT CRAVES TO ADD, AMEND MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 2 2. THE ASSESSEE FILED RETURN OF INCOME DECLARING INC OME OF RS. 3,27,910/-. THE CASE WAS SCRUTINIZED U/S 143(3) BY TH E I.T.O. (INTERNATIONAL TAXATION), WARD 2(1), BANGLORE. THE CA SE WAS TRANSFERRED TO I.T.O. WARD 1(4), UDAIPUR ON THE BASIS OF TERRITO RIAL JURISDICTION AND FROM THERE TO THE ADDITIONAL D.I.T. (INTERNATIONAL TA XATION), THE CASE WAS TRANSFERRED TO THE ADIT (INTERNATIONAL TAXATION), JAI PUR. THE ASSESSEE WAS A NON-RESIDENT DURING THE YEAR UNDER CONSIDERATI ON UNDER EMPLOYMENT WITH IBM INDIA PVT. LTD. THE LEARNED ASSE SSING OFFICER CALLED THE DETAIL FROM THE ASSESSEE, WHICH WAS FILED AND AF TER PERUSAL OF DETAIL FILED BY THE ASSESSEE, IT WAS NOTICED THAT FORM NO. 16 ISSUED BY THE IBM INDIA PVT. LTD. WAS SHOWING TAXABLE SALARY OF THE ASS ESSEE AT RS. 22,29,716/- AFTER ALLOWING FOR THE ALLOWANCES TO THE EXTENT EXEMPT U/S 10 ON ACCOUNT OF HRA. THE ANNEXURE TO FORM NO. 16 FURTH ER SHOWED THAT THE ASSESSEE HAD BEEN ALLOWED INCOME GROSSED UP FOR TAX AMOUNTING TO RS. 5,84,263/-. THE AMOUNTS HAD BEEN CREDITED TO THE ACC OUNT OF THE ASSESSEE IN INDIA AND TAX HAS BEEN DEDUCTED ON THE SAME. THE ASSESSEE HAD APPARENTLY BEEN REIMBURSED BY THE EMPLOYER THE AMOUNT OF TAX PAYABLE BY HIM WHICH AMOUNTING TO RS. 5,84,263/-. TH E ASSESSEE IN THE RETURN OF INCOME HAD CLAIMED AN AMOUNT OF RS. 17,27 ,360/- ON ACCOUNT OF FOREIGN ALLOWANCES WHICH INCLUDED THIS AMOUNT OF GROS S UP FOR TAX ALSO. ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 3 THEREFORE, THE ASSESSEE HAD CLAIMED REFUND OF RS. 5, 47,700/-. THUS, THE TAX LIABILITY BORNE BY THE EMPLOYER WAS BEING REDEEM ED BY THE ASSESSEE IN INDIA. THE ASSESSING OFFICERS TAX LIABILITY BORNE B Y THE EMPLOYER IN NO WAY COULD BE SAID TO BE THE FOREIGN ALLOWANCE BY ANY STR ETCH OF IMAGINATION. HE FURTHER OBSERVED THAT WITHOUT PREJUDICE TO THE AB OVE, AS PER SECTION 5(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO WAS A NON-RESIDENT INCL UDED ALL INCOME FROM WHATEVER SOURCE DERIVED, WHICH WAS RECEIVED OR D EEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF S UCH PERSONS OR ACCRUED OR ARISES TO HIM IN INDIA DURING SUCH YEAR. SINCE T HE SALARY HAD BEEN RECEIVED IN INDIA BY THE EMPLOYEE THROUGH A CREDIT TO HIS SALARY ACCOUNT, THE SAME WILL BE TAXABLE IN INDIA IRRESPECTIVE OF TH E RESIDENTIAL STATUS, IN ACCORDANCE WITH SECTION 5 OF THE ACT. ACCORDINGLY, H E MADE ADDITION OF RS. 17,27,360/- IN THE INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT( A), WHO HAD ALLOWED THE APPEAL BY OBSERVING THAT THE APPELLANT WAS NON-R ESIDENT AND FOREIGN ALLOWANCES WERE NOT RECEIVED IN INDIA DURING THE YEAR UNDER CONSIDERATION BUT RECEIVED IN NETHERLAND. SUCH ALLOWANCES WEE PAID BY IBM INDIA USING A FOREIGN CURRENCY TRAVEL CARD WHICH COULD BE USED O NLY OUTSIDE INDIA. THE SOLE BASIS FOR MAKING THE IMPUGNED ADDITION BY THE ASSESSING OFFICER WAS ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 4 THE FORM NO. 16 ISSUED BY IBM WHICH SHOWED TAXABLE SA LARY OF THE ASSESSEE AT RS. 22,29,716/- AFTER ALLOWING FOR THE A LLOWANCES TO THE EXTENT EXEMPT U/S 10 ON ACCOUNT OF HRA. THE ASSESSING OFFIC ER WAS OF THE OPINION THAT ANNEXURE TO FORM NO. 16 FURTHER SHOWED THAT THE ASSESSEE HAD BEEN ALLOWED INCOME GROSSED UP FOR TAX AMOUNTING TO RS. 5,84,263/-. THE ASSESSEE HAD APPARENTLY BEEN REIMBURSED BY THE E MPLOYER THE AMOUNT OF TAX PAYABLE BY HIM WHICH AMOUNTED TO RS. 5 ,84,263/-. THE ASSESSEE HAD SHOWN IN HIS INCOME TAX RETURN AN AMOU NT OF RS. 17,27,360/- ON ACCOUNT OF FOREIGN ALLOWANCES WHICH IN CLUDED THIS AMOUNT OF GROSSING UP FOR TAX ALSO.. THEREFORE, THE ASSESSE E HAD CLAIMED A REFUND OF RS. 5,87,700/-. THE LEARNED ASSESSING OFFICER APP LIED PROVISIONS OF SECTION 5(2) OF THE ACT. AFTER CONSIDERING THE ASSE SSEES REPLY, IT HAS BEEN HELD BY THE LEARNED CIT(A) THAT THE APPELLANT WAS A NON-RESIDENT AS PER SECTION 6(1) OF THE ACT, ONLY HIS INDIAN SOURCED IN COME COULD BE BROUGHT TO TAX IN INDIA. SECTION 5(1) OF THE INCOME TAX ACT DEALS WITH THE SCOPE OF TOTAL INCOME. IT STATES, INTER ALIA, THAT SUBJECT T O THE PROVISIONS OF THE ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON W HO IS A RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED, WHI CH IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA OR WHICH ACCRUES TO H IM IN INDIA OR WHICH ACCRUES TO HIM OUTSIDE INDIA DURING SUCH YEAR. IN O RDER WORDS, THE TOTAL INCOME OF A RESIDENT INDIAN SHALL, INTER ALIA, INCL UDE EVEN INCOME WHICH ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 5 ACCRUES TO HIM OUTSIDE INDIA. THEREFORE, AS PER SECT ION 6 OF THE ACT, INCOME ACCRUES OUTSIDE THE INDIA IS NOT TAXABLE. SE CTION 6 INDICATES THE MEANING OF RESIDENCE IN INDIA. SECTION 6 OF THE ACT LAYS DOWN THAT FOR THE PURPOSES OF INCOME TAX ACT, AN INDIVIDUAL IS SAID T O BE A RESIDENT IN INDIA IF HE IS IN INDIA FOR A PRESCRIBED PERIOD. THEREFORE , SECTION 6 EMPHASIZES PHYSICAL PRESENCE OF THE PERSON IN INDIA. SECTION 9 (1)(II) LAID DOWN AS TO WHAT TYPE OF INCOME SHALL BE DEEMED TO ACCRUE OR ARI SE IN INDIA. WHEN SALARY EARNED IN INDIA, IT SHALL BE REGARDED AS INC OME ARISING IN INDIA. THERE IS AN EXPLANATION ALSO TO BE ABOVE SECTION, WHI CH INTER ALIA, DECLARES THAT INCOME OF THE ABOVE NATURE PAYABLE FOR SERVICE S RENDERED IN INDIA SHALL BE REGARDED AS INCOME EARNED IN INDIA. THIS EX PLANATION CLEARLY INDICATES THAT WHERE SALARY IS PAYABLE FOR SERVICES RENDERED IN INDIA, THE SAME SHALL BE REGARDED AS INCOME EARNED IN INDIA. H OWEVER, THESE SECTIONS CANNOT BE APPLIED TO A NON-RESIDENT AND TH AT TOO FOR AN INCOME ACCRUING OUTSIDE INDIA. HE RELIED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF DIRECTOR OF INC OME TAX (INTERNATIONAL TAXATION) AND ANR. VS. PRAHLAD VIJENDRA RAO (239 CTR 107) AND BRITISH GAS INDIA (P) LTD., IN REVENUE, (287 ITR 462). 3.1 LEARNED CIT(A) FURTHER HELD AS UNDER: FURTHER AS PER DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) ENTERED INTO BETWEEN INDIA AND NETHERLANDS FOR THE P URPOSE OF ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 6 DETERMINING THAT WHICH COUNTRY SHALL BE ELIGIBLE TO TAX THE INCOME OF APPELLANT WHICH WAS DERIVED FOR THE PERIOD OF HI S ASSIGNMENT IN NETHERLANDS, THE RELEVANT ARTICLES 15 OF THE AGREEM ENT STATED THAT SUBJECT TO THE PROVISIONS OF ARTICLES 16, 18, 19, 20 AND 21, SALARIES, WAGES AND OTHER SIMILAR REMUNERATION DERIVED BY A RE SIDENT OF ONE OF THE STATES IN RESPECT OF AN EMPLOYMENT SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE EMPLOYMENT WAS EXERCISED IN TH E OTHER STATE. IF THE EMPLOYMENT WAS SO EXERCISED, SUCH REMUNERATIO N AS WAS DERIVED THERE FROM MAY BE TAXED IN THAT OTHER STATE . DURING THE COURSE OF APPELLANT PROCEEDINGS, THE COUNSEL OF APP ELLANT SUBMITTED THE DETAILS OF INCOME TAX PAID BY THE APPELLANT IN NETHERLANDS. THE APPELLANT HAD PAID TAXES ON THE SALARY AND ALLOWANCE S RECEIVED IN NETHERLANDS IN CALENDAR YEAR 2007 AND CALENDAR YEAR 2008 AS THE PREVIOUS YEAR CONSISTED OF THE PERIOD 01/01/2007 TO 31/12/2007 AND 01/01/2008 TO 31/12/2008. THESE DOCUMENTS WERE F ORWARDED TO ADIT (INT. TAX) JAIPUR VIDE MY LETTER DATED 05/12/ 2011. IN RESPONSE, THE A.O. HAS NOT MADE ANY SPECIFIC COMMEN TS AS REGARDS THE CONTENTS AVAILABLE IN THE DOCUMENTS. THE A.O. HA S STATED VIDE HIS LETTER DATED 03/01/2012 THAT THE GOVERNMENT OF NETHERLANDS MIGHT HAVE COLLECTED TAXES AS PER THEIR RULINGS APP LICABLE TO THE REMITTANCE FROM THAT STATE TO INDIA. IT WAS ARGUED T HAT THE A.O. HAD RIGHTLY TAXED THE FOREIGN ALLOWANCES IN THE HAND S OF THE APPELLANT. HOWEVER, IT IS NOTICED BY THE UNDERSIGNED THAT THE FOREIGN ALLOWANCES OF RS. 17,27,360/- WERE NOT CREDIT ED IN THE BANK ACCOUNT OF THE APPELLANT FOR THE PERIOD 01/04/2007 TO 31/03/2008. SUCH ALLOWANCES WERE PAID BY IBM INDIA USING A FOREIG N CURRENCY TRAVEL CARD WHICH COULD BE USED ONLY OUTSIDE INDIA. THE APPELLANT HAD ALSO FILED CERTIFICATE TO THIS EFFECT FROM THE EMPLOYER I.E. M/S ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 7 IBM INDIA PVT. LTD. FURTHER THE APPELLANT HAD DECLA RED RECEIPTS OF 58,578 EUROS RECEIVED IN NETHERLANDS IN CALENDAR YE AR 2007 AS TAXABLE AND TAXES OF 24,155 EUROS WERE ALSO PAID. IN THE CALENDAR YEAR 2008, THE APPELLANT HAD DECLARED RECEIPTS OF 6 4,359 EUROS RECEIVED IN NETHERLANDS AS TAXABLE AND TAXES OF 27, 727 EUROS WERE ALSO PAID. SINCE THE APPELLANT HAD PAID TAXES ON HI S RECEIPTS INCLUDING FOREIGN ALLOWANCES IN NETHERLANDS, THE A.O . COULD NOT HAVE TAXED THE SAME INCOME TWICE. THE FACT THAT THE E MPLOYER HAD INADVERTENTLY DEDUCTED TDS ON FOREIGN ALLOWANCES AND THE SAME WAS OFFERED TO TAX IN THE ORIGINAL RETURN OF INCOME, WILL NOT EMPOWER THE A.O. TO TAX THE SAME. IT WAS HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF MAYNAK PODDAR (2 62 ITR 633) THAT IF IN LAW AN ITEM WAS NOT TAXABLE, NO AMOUNT OF ADMISSION OR MISAPPREHENSION COULD MAKE IT TAXABLE. THE HONBLE MUMBAI HIGH COURT IN THE CASE OF NIRMALA L. MEHTA VS. CIT (269 I TR 1) HELD THAT ACQUIESCENCE COULD NOT TAKE AWAY FROM A PARTY THE RE LIEF THAT HE WAS ENTITLED TO. IN VIEW OF ABOVE FACTS, I DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 17,27,360/-. THIS GROUND OF APP EAL IS ALLOWED. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LEARNE D D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. AT THE OUTSET, THE LEARNED A.R. FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) AND SUBMI TTED THAT THE APPELLANT IS AN EMPLOYEE OF IBM INDIA PVT. LTD., WAS SENT ON AN INTERNATIONAL ASSIGNMENT TO NETHERLANDS DURING THE PREVIOUS YEAR 2007- 08. THE APPELLANT RECEIVED FOREIGN ALLOWANCES OF RS. 17,27,360/- OUTSIDE ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 8 INDIA FOR THE SERVICES RENDERED IN NETHERLANDS. AS THE APPELLANT, QUALIFIED AS A NON-RESIDENT DURING THE RELEVANT ASSESSMENT YE AR AND FOREIGN ALLOWANCES RECEIVED BY THE APPELLANT IS NOT LIABLE T O TAX U/S 5(2) OF THE ACT. THE APPELLANT HAD DISCLOSED TOTAL INCOME OF RS. 3,27,910/- EXCLUDING THE FOREIGN ALLOWANCES AND AGAINST THIS INCOME, THE TAX OF RS. 48,790/- WAS PAID BY THE APPELLANT. THE EMPLOYER DEDUCTED TDS WRONGLY AT RS. 6,36,484.65 AND APPELLANT ALSO PAID SELF ASSESSMEN T TAX AT RS. 4,653/- ON ACCOUNT OF HIS INTEREST INCOME FROM BANK DEPOSITS. THEREFORE, THE APPELLANT HAD CLAIMED REFUND OF RS. 5,92,305/- BY F ILING THE RETURN. THE LEARNED ASSESSING OFFICER SUBMITTED THAT THE AMOUNT OF RS. 17,27,360/- WAS RECEIVED BY THE APPELLANT IN NETHERLANDS FROM HI S EMPLOYMENT ON ACCOUNT OF FOREIGN ALLOWANCES, FOR WHICH HE PRODUCED CERTIFICATE FROM THE EMPLOYER. THE EMPLOYER WAS NON-RESIDENT DURING THE YE AR AND PROVISIONS OF SECTION 6(1) OF THE ACT IS APPLICABLE. THEREFORE, FOREIGN ALLOWANCES RECEIVED BY HIM OUTSIDE THE INDIA FOR SERVICES REND ERED OUTSIDE INDIA ARE NOT LIABLE TO BE TAXED IN INDIA U/S 5(2) OF THE ACT . HE ALSO RELIED ON THE VARIOUS CASE LAWS, WHICH WERE RELIED UPON BEFORE THE LEARNED CIT(A), THEREFORE, HE PRAYED TO CONFIRM THE ORDER OF THE LE ARNED CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE APPELLANT WAS NON-RESIDE NT DURING THE YEAR UNDER CONSIDERATION AND ALLOWANCES WERE RECEIVED BY H IM IN NETHERLANDS. ITA NO. 375/JP/2012 ADIT VS. KARTIK VYAS. 9 THE EMPLOYER WRONGLY DEDUCTED TDS, THE APPELLANT HAD C LAIMED REFUND ON IT. THE INDIAN INCOME HAS BEEN CONSIDERED BY THE APP ELLANT AS TAXABLE BUT THE ALLOWANCES PAID OUTSIDE THE INDIA ARE NOT TAXABL E U/S 5(2) OF THE ACT IN THE CASE OF NON-RESIDENT. THE CASE LAW RELIED UPON BY THE LEARNED CIT(A) ARE SQUARELY APPLICABLE IN THE CASE OF THE A SSESSEE, THEREFORE, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/12/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 31 ST DECEMBER, 2014 * RANJAN COPY FORWARDED TO :- 1. ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXAT ION), JAIPUR. 2. SHRI KARTIK VYAS, UDAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 375/JP/2012) BY ORDER, AR ITAT JAIPUR.