Prakash Singhi, Kolkata V. DCIT, CIR-2(1), KOLKATA, Kolkata

ITA 644/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1736 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S ALLONG YADEN CIT LD
• Assessee Lawyers: SUNIL SURA NA FCA LD
• Keywords: Transfer pricing; Salary income; Services rendered outside India
• Section: 5(2)

Judgement Text

1 ITA NO. 644/K/16 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA BEFORE: SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUD ICIAL MEMBER I.T.A NO. 644/KOL/2016 A.Y: 2010-11 PRAKASH SINGH VS. D.C.I.T (IT) 2(1), KOLKA TA PAN: BFTPS 7424H [APPELLANT] [RESPONDENT] FOR THE APPELLANT : SHRI SUNIL SURANA, FCA, L D.AR FOR THE RESPONDENT : SHRI SALLONG YADEN, ADDL.CI T, LD.SR.DR DATE OF HEARING : 07-06-2017 DATE OF PRONOUNCEMENT : 09-08-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D T. 01-01- 2016 PASSED BY THE CIT-A, 22, KOLKATA FOR THE ASSES SMENT YEAR 2010-11. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER TH E CIT-A JUSTIFIED IN HOLDING THAT THE RECEIPT OF FOREIGN SALARY AND A CCRUED OUTSIDE INDIA IS CHARGEABLE TO TAX IN INDIA IN THE FACTS AND CIR CUMSTANCES OF THE CASE. 3. THE LD.AR SUBMITS THAT THE ISSUE IN HAND IS SQUA RELY COVERED BY THE ORDER DT. DECEMBER 15, 2016 OF HONBLE JURISDIC TIONAL HIGH COURT AT CALCUTTA IN THE CASE OF UTANKA ROY VS. DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION TRANSFER PRICING, KOLKATA & ORS IN W.P NO. 369 OF 2014 AND COPY OF SUCH ORDER PLACED ON RECORD. HE AL SO RELIED ON THE CBDT CIRCULAR NO. 13/2017 DT. 11-04-2017 IN SUPPORT OF HIS CONTENTION. 4. THE LD.DR RELIED ON THE ORDERS OF THE AUTHORITIE S BELOW. 2 ITA NO. 644/K/16 5. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IS A NON RESIDENT . HE DERIVES HIS INCOME FROM SALARY FROM A FOREIGN EMPLOYER OUTSIDE INDIA. SALARY EARNED BY THE ASSESSEE IS CREDITED TO NRE IN HSBC B ANK, PATNA. THE SAID SALARY REMITTED THROUGH FOREIGN EXCHANGE IN HI S NRE ACCOUNT. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT OF CALCUTTA IN THE CASE OF SUPRA , HELD THAT SUCH INCOME IS NOT TAXABLE IN INDIA. RE LEVANT PORTION OF SUCH ORDER IS REPRODUCED HEREIN BELOW:- THE PETITIONER IS AN INDIAN CITIZEN. HE IS AN INCOM E TAX ASSESSEE. HE HAS FILED A RETURN FOR THE ASSESSMENT YEAR 2011-2012 WITH THE INCOME TAX AUTHO RITIES. THE PETITIONER CLAIMS TO BE AN ENGINEER AND TO BE ENGAGED AS SUCH BY A FOREIGN COMPANY. THE PETITIONE R CLAIMS THAT, HE HAS WORKED AS AN ENGINEER WITH TH E FOREIGN COMPANY FOR 286 DAYS DURING THE ASSESSMENT YEAR. HE HAS FILED INCOME TAX RETURN FOR THE ASSESS MENT YEAR DISCLOSING AN INCOME OF RS. 5,63,850/-. HE HAS THEREAFTER RECEIVED AN ASSESSMENT CUM INTIMATION N OTICE UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. H E HAS APPLIED UNDER SECTION 264 OF THE INCOME TAX A CT, 1961 AGAINST SUCH INTIMATION UNDER SECTION 143(1). IN COURSE OF HEARING OF THE PROCEEDINGS UNDER SECTI ON 264, THE PETITIONER HAS CLAIMED THAT, HE HAS RECEIVED RS . 27,92,417/- FROM HIS EMPLOYER DURING THE ASSESSME NT YEAR IN QUESTION INSTEAD OF THE SUM OF RS. 5,63,850/-. THE PROCEEDINGS UNDER SECTION 264 OF THE INCOME TAX ACT, 1961 WAS DISPOSED OF BY THE IMPUGNED ORDER DATED SEPTEMBER 25, 2013. THERE ARE TWO PARTS TO THE IMPUGNED ORDER. THE FIRST PART FINDS THE PE TITIONERS INCOME TO BE ASSESSABLE UNDER THE INCOME TAX ACT, 1 961. IT, HOWEVER, DOES COMPUTE THE TAX LIABILITY. T HE SECOND PORTION RELATES TO THE EXEMPTION RECEIVABLE BY THE PETITIONER AND NOTES THAT, SUCH EXEMPTIONS HAVE NO T BEEN CLAIMED BY THE PETITIONER. IT ULTIMATELY ALLOWS THE ASSESSING OFFICER TO TAKE NECESSARY ACTION. THE CONTENTION ON BEHALF OF THE PETITIONER THAT, IN THE PRESENT FACTS, THE PETITIONER IS EXEMPT FROM PAYMENT OF INCOME TAX REQUIRES CONSIDERATION. SCOPE OF TOTAL INCOME IS LAID DOWN IN SECTION 5 OF THE INCOME TAX ACT, 1961. SUB-SECTION (1) DEALS WITH INCOME TO A PERSON WHO IS RESIDENT IN INDIA WH ILE SUB-SECTION (2) DEALS WITH INCOME OF A PERSON W HO IS A NON-RESIDENT. THE PETITIONER IS A NON-RESIDENT INDI AN. HE IS GUIDED BY SECTION 5(2) OF THE ACT OF 1961 . SECTION 5(2) OF THE ACT OF 1961 IS AS FOLLOWS:- (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOT AL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NONRESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURC E DERIVED WHICH- (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. EXPLANATION 1.- INCOME ACCRUING OR ARISING OUTSIDE INDIA SHALL NOT BE DEEMED TO BE RECEIVED I INDIA WITHIN THE MEANING OF THIS SECTION BY REASON ONLY O F THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALAN CE SHEET PREPARED IN INDIA. EXPLANATION 2.- FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PERSON ON THE BAS IS THAT IT HAS ACCRUED OR ARISEN OR IS DEEMED TO HA VE ACCRUED OR ARISEN TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RECEIVED OR DEEMED TO BE RECEI VED BY HIM IN INDIA. EXPLANATION 1 TO SUB-SECTION 2 STATES THAT, INCOME ACCRUING OR ARISING OUTSIDE INDIA SHALL NOT BE DEEMED TO BE RECEIVED IN INDIA WITHIN THE MEANING O F SUCH SECTION BY REASON ONLY OF THE FACT THAT IT I S TAKEN INTO ACCOUNT IN A BALANCE SHEET PREPARED IN INDIA. EXPLA NATION 2 CLARIFIES THAT INCOME WILL NOT BE TREATED TO BE RECEIVED IN INDIA SOLELY ON THE BASIS THAT SUCH INC OME WAS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA. THEREFORE, IT HAS TO BE FOUND OUT WHERE THE INCOME TO THE PERSON CONCERNED HAD ACCRUED. FOR THE PURPOS E OF FINDING OUT THE PLACE OF ACCRUAL OF THE INCOME, THE PLACE WHERE THE SERVICES HAVE BEEN RENDERED BECOME S MATERIAL. IN FACT, THE PLACE WHERE THE INCOME GAVE RISE IS REQUIRED TO BE CONSIDERED TO ARRIVE AT A FI NDING WHETHER THE INCOME WAS IN INDIA OR OUTSIDE INDIA. IN PRAHLAD VIJENDRA RAO (SUPRA) AN INCOME DERIVED BY A PERSON WORKING OUTSIDE INDI A FOR 225 DAYS HAS BEEN HELD NOT TO HAVE ACCRUED IN INDIA. IN AVTAR SINGH WADHWAN (SUPRA) IT HAS BEEN HELD THAT, THE RELEVANT TEST TO BE APP LIED TO DECIDE WHETHER THE INCOME ACCRUED TO A NON-RESIDENT IN IND IA OR OUTSIDE IS CONCERNED, IS TO FIND THE PLACE WH ERE THE SERVICES WERE RENDERED, IN ORDER TO CONSIDER WHERE THE INCOME ACCRUED. THE SOURCE OF THE INCOME WAS NO T RELEVANT FOR THE PURPOSES OF ASCERTAINING WHETHER T HE INCOME HAD ACCRUED IN INDIA OR OUTSIDE INDIA. THE QUESTION WHETHER THE PETITIONER HAS RENDERED SE RVICES IN INDIA OR NOT IS A QUESTION OF FACT. IT IS NOT DISPUTED THAT THE PETITIONER AS A MARINE ENGINE ER HAD RENDERED SERVICES OUTSIDE INDIA FOR THE PERI OD OF 286 DAYS. HE HAS RECEIVED HIS REMUNERATION FOR SUCH WOR K FROM A FOREIGN COMPANY. CONSEQUENTLY, THE INCOME RECEIVED BY THE PETITIONER FOR SERVICES RENDERED OU TSIDE INDIA HAS TO BE CONSIDERED AS INCOME RECEIVED OUT OF INDIA AND TREATED AS SUCH. THERE IS ANOMALY IN THE QUANTUM OF INCOME RECEIVED BY THE PETITIONER DURING THE PERIOD. IN HIS INCOME TAX RETURN HE HAS INITIALLY STATED THAT HIS INCOME TO BE RS.5,63,850/- WHILE IN THE PROCEEDINGS UNDER SECTION 264, HE CLAIMS TO HAVE RECEIVED A SUM OF RS . 27,92,417/-. IN VIEW OF THE FINDING THAT, THE PETITIONER HAS REC EIVED THE REMUNERATION FROM A FOREIGN COMPANY FOR SERVICES RENDERED OUTSIDE INDIA, THE QUANTUM THAT H E CLAIMS TO HAVE RECEIVED, NAMELY, RS. 27,92,417/- HAS TO BE CONSIDERED AS SUCH. 3 ITA NO. 644/K/16 SMT. PHOOL LATA SOMANI (SUPRA) HAS BEEN RELIED UPON ON BEHALF OF THE PETITIONER. IT HAS HELD THAT, THE POWERS CONFERRED ON THE COMMISSIONER UNDER SECT ION 264 ARE VERY WIDE. THE COMMISSIONER HAS THE DISCRETION TO GRANT OR REFUSE RELIEFS. THERE IS NOT HING IN SECTION 264 WHICH PLACES ANY RESTRICTION ON THE COMMISSIONERS REVISIONAL POWER TO GRANT RELIEF TO THE ASSESSEE IN A CASE WHERE THE ASSESSEE DETECTS M ISTAKE ON ACCOUNT OF WHICH HE WAS OVER ASSESSED AFTER THE ASS ESSMENT WAS COMPLETED. CIRCULAR BEARING NO. 14 (XL-35) DATED APRIL 11, 199 5 PRESCRIBES AS FOLLOWS:- (3) OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVAN TAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPAYER IN E VERY REASONABLE WAY, PARTICULARLY, IN THE MATTER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD THE OFFICERS SH OULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHER E PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICA TE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS A TTITUDE WOULD, IN THE LONG RUN, BENEFIT THE DEPARTMENT FOR IT WOULD INSPIRE CONFIDENCE IN HIM THAT HE BE SURE OF GETTING A SQUARE DEAL FROM THE DEPARTMENT. ALTHOUGH, THEREFOR E, THE RESPONSIBILITY FOR CLAIMING REFUNDS AND RELI EFS RESTS WITH ASSESSEE ON WHOM IT IS IMPOSED BY LAW, OFFICER S SHOULD (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEFS TO WHICH THEY APPEAR TO BE CLEARLY ENTITLED BUT WHI CH THEY HAVE OMITTED TO CLAIM FOR SOME REASON OR OTHER ; (B) FREELY ADVISE THEM WHEN APPROACHED BY THEM AS T O THEIR RIGHTS AND ABILITIES AND AS TO THE PROCEDURE TO BE ADOPTED FOR CLAIMING REFUNDS AND RE LIEFS. IN MAHALAXMI SUGAR MILLS LTD. (SUPRA) THE HONBLE SUPREME COURT HAS HELD THAT, THERE IS A DUTY CAST UPON THE INCOME TAX OFFICER TO APPLY THE RELEV ANT PROVISIONS OF THE INCOME TAX ACT FOR THE PURPOS E OF DETERMINING THE TRUE FIGURE OF THE ASSESSEES TAXAB LE INCOME AND THE CONSEQUENTIAL TAX LIABILITY. IN T HE EVENT, THE ASSESSEE FAILS TO CLAIM BENEFITS OR A SET OF, IT CA NNOT RELIEVE THE INCOME TAX OFFICER OF HIS DUTY TO APPLY THE BENEFITS OF AN APPROPRIATE CASE. TAPAN KUMAR MITRA (SUPRA) HAS HELD THAT, A WRIT PETITION CHALLENGING AN ORDE R PASSED UNDER SECTION 264 OF THE ACT OF 1961 ON THE GROUND OF NON -RECORDING OF REASONS WAS NOT MAINTAINABLE IN VIEW OF THE FACTS OF SUCH CASE. ASHOK MONDAL (SUPRA) IS A CASE WHERE THE ASSESSEE HAS ASSAILED THE ORDE R OF ASSESSMENT UNDER SECTION 264 WITHOUT PREFERRING AN APPEAL. IN THE FA CTS OF THE CASE, IT HAS HELD THAT, THE WRIT PETITIO N WAS NOT MAINTAINABLE INASMUCH AS THE WRIT PETITIONER WAS SE EKING TO CHALLENGE THE ORDER OF ASSESSMENT THROUGH SUCH A PROCESS. THE RE-OPENING OF THE ORDER OF ASSESSMENT THROUGH SUCH MECHANISM WAS NOT PERMITTED BY THE HON BLE DIVISION BENCH. THE IMPUGNED ORDER IS ONE UNDER SECTION 264 OF THE ACT OF 1961. THE POWER UNDER SECTION 264 IS WIDE ENOUGH TO GRANT APPROPRIATE RELIEF TO AN ASSES SEE. IN THE IMPUGNED ORDER, THE COMMISSIONER NOTES THAT, THE INCOME RECEIVED BY THE PETITIONER IS IN RESPECT OF SERVICES RENDERED FOR 286 DAYS OUTSIDE INDIA. THE COMMISSIONER EXERCISING POWERS UNDER SECTION 264 OF THE ACT OF 1961 COULD HAVE PROCEEDED TO GRANT APPROPRIATE RELIEF TO THE PETITIONER BY SETTING ASI DE THE INTIMATION UNDER SECTION 143(1) OF THE ACT O F 1961 AND HOLDING THAT, SUCH INCOME OF THE PETITIONER IS NOT TAXABLE IN RESPECT OF THE RELEVANT ASSESSMENT YEAR. THE COMMISSIONER, HOWEVER, DID NOT DO SO. IT HAS REMAND ED THE MATTER TO THE ASSESSING OFFICER TO DO THE NE EDFUL. 6. WE FIND THAT THE CBDT VIDE CIRCULAR NO. 13/2017 DT. 11-04-2017 AS RELIED ON BY THE ASSESSEE CLARIFIED THE ISSUE AS UNDER:- SUBJECT: CLARIFICATION REGARDING LIABILITY TO INCOM E-TAX IN INDIA FOR A NON-RESIDENT SEAFARER RECEIVING REMUNERATION IN NRE (NON RESIDENT EXTERNA L) ACCOUNT MAINTAINED WITH AN INDIAN BANK. REPRESENTATIONS HAVE BEEN RECEIVED IN THE BOARD THA T INCOME BY WAY OF SALARY, RECEIVED BY NON-RESIDENT SEAFARERS, FOR SERVICES RENDERED OU TSIDE INDIA ON BOARD FOREIGN SHIPS, ARE BEING SUBJECTED TO TAX IN INDIA FOR THE REASON THAT THE SALARY HAS BEEN RECEIVED BY THE SEAFARER INTO THE NRE BANK ACCOUNT MAINTAINED IN IN DIA BY THE SEAFARER. 2. THE MATTER HAS BEEN EXAMINED IN THE BOARD SECTI ON 5(2)(A) OF THE INCOME-TAX ACT PROVIDES THAT ONLY SUCH INCOME OF A NON-RESIDEN T SHALL BE SUBJECTED TO TAX IN INDIA THAT IS EITHER RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA. IT IS HEREBY CLARIFIED THAT SALARY ACCRUED TO A NON-RESIDENT SEAFARER FOR SERV ICES RENDERED OUTSIDE INDIA ON A FOREIGN SHIP SHALL NOT BE INCLUDED IN THE TOTAL IN COME MERELY BECAUSE THE SAID SALARY HAS BEEN CREDITED IN THE NRE ACCOUNT MAINTAINED WITH AN INDIAN BANK BY THE SEAFARER. 7. WE FURTHER FIND THAT THE AO HELD THAT THE ASSES SEE IS A NON RESIDENT AND SALARY WAS ACCRUED OUTSIDE INDIA FROM FOREIGN EMPLOYER. THEREFORE, THE FACTS BEFORE THE HONBLE JURISDICTIO NAL HIGH COURT OF CALCUTTA IN THE CASE OF SUPRA IS APPLICABLE TO THE PRESENT FACTS OF THE CASE AND IN FAVOUR OF ASSESSEE. WE FIND THAT THE SA ID CBDT CIRCULAR SUPRA CLEARLY CLARIFIED THE ISSUE THAT INCOME ACCRUED I N INDIA SHALL NOT BE PART OF TOTAL INCOME BEING TAXABLE IN INDIA. CB DT CLARIFIED THE 4 ITA NO. 644/K/16 ISSUE THAT SALARY ACCRUED TO A NON-RESIDENT SEAFA RER FOR SERVICES RENDERED OUTSIDE INDIA ON A FOREIGN SHIP SHALL NOT BE INCLUDED IN THE TOTAL INCOME MERELY BECAUSE THE SAID SALARY HAS BEE N CREDITED IN THE NRE ACCOUNT MAINTAINED WITH AN INDIAN BANK BY THE S EAFARER. 8. RESPECTFULLY FOLLOWING THE ABOVE AND THE CBDTS CLARIFICATION, WE ARE OF THE VIEW THAT THE CIT-A WAS NOT JUSTIFIED IN HOLDING THAT THE RECEIPT OF FOREIGN SALARY AND ACCRUED OUTSIDE INDIA IS CHARGEABLE TO TAX IN INDIA. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 -08-2017 SD/- SD/- P.M. JAGTAP S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09-08-2017 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/ASSESSEE:SHREE PRAKASH SINGH C/O D.SAHA ( ADV), 22A RAJANI SEN ROAD, ANUPAMA, 1 ST FLOOR, KOLKATA-26. 2 RESPONDENT/REVENUE THE DCIT (IT)-2(1), AAYKAR BHAVA N (POORVA) 110 SHANTIPALLY, KOLKATA-107. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KO LKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA