Jayalakshmi Badiga, Secunderabad, Hyderabad V. ITO, (International Taxation)-I, Hyd, Hyderabad

ITA 857/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2506 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 17-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 857/HYD/2017 ASSESSMENT YEAR: 2012-13 JAYALAKSHMI BADIGA, HYDERABAD [PAN: ACVPB8273D] VS INCOME TAX OFFICER, INTERNATIONAL TAXATION-1, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SMT N. SWAPNA, DR DATE OF HEARING : 17-10-2017 DATE OF PRONOUNCEMENT : 25-10-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-10, HYDERABAD, DATED 30-03-2017 ON THE ISSUE OF BRINGING TO TAX AN AMOUNT OF RS. 23,81,376/-. 2. BRIEFLY STATED, ASSESSEE IS A NON-RESIDENT INDIVIDU AL, FILED RETURN OF INCOME ADMITTING TAXABLE INCOME OF RS. 4,33,7 30/-. THE ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAS RECEI VED AN AMOUNT OF RS. 23,81,376/- FROM M/S. GALAXY ARCHITECTS AND BUILDERS PVT. LTD., AS SERVICE FOR ADVISORY SERVICES RENDERED IN USA WHICH WAS REMITTED IN US DOLLARS ($). SINCE ASSESSE E COULD NOT FURNISH NECESSARY EVIDENCE THAT THE AMOUNT WAS OFFERED TO TAX IN US, AO BROUGHT THE AMOUNT TO TAX, AS RECEIVED IN INDIA. LD.CIT(A) CONFIRMED THE SAME. I.T.A. NO. 857/HYD/2017 :- 2 - : 3. AT THE OUTSET, IT WAS SUBMITTED THAT THE ISSUE IS COVER ED IN FAVOUR OF ASSESSEE BY THE ORDERS OF THE CO-ORDINATE BE NCH IN ITA NOS. 168 & 169/HYD/2017 DT.11-08-2017, WHEREIN THE CO-ORDINATE BENCH HAS CONSIDERED THE ISSUE AS UNDER: 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE FACTS ON RECORD, IT IS SEEN THAT THE ASSESSEE IS AN NRI AND THAT SHE HAS RENDERED ADVISORY SERVICES TO THE INDIAN COMPANY FO R MAKING INVESTMENT IN A US COMPANY GREEN CLINICAL SYSTEMS I NC; 379 THORHALL STREET, EDISON, NEW JERSEY. THUS, THE SITU S OF THE ACTIVITY OF INVESTMENT IS OUTSIDE INDIA AND THEREFO RE, THE INCOME HAS ACCRUED OR ARISEN TO THE ASSESSEE OUTSID E INDIA. IN SUCH CIRCUMSTANCES, THE EXCEPTION CARVED OUT IN CLAUSE (B) TO SECTION 9(1)(VII) WOULD APPLY AS THE RESIDENT CO MPANY HAS MADE INVESTMENT IN A COMPANY IN US FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE OUTSIDE INDIA. THUS, T O BRING TO TAX, THE FTS IN INDIA, THE TERRITORIAL LIVE LINK IS NECESSARY WHICH IS MISSING IN THE CASE BEFORE US. THE QUESTIO N AS TO WHAT IS A SOURCE OF INCOME HAS BEEN CONSIDERED BY T HE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HAV ELLS INDIA LTD, IN ITA NO.55 & 57/2012 DATED 21.5.2012 AND AT PARAS 12 & 13 OF THE SAID JUDGMENT, IT WAS HELD AS UNDER: 12. THE QUESTION AS TO WHAT IS A SOURCE OF INCOME H AS BEEN DEALT WITH IN SOME AUTHORITATIVE PRONOUNCEMENT S. THE JUDICIAL COMMITTEE IN RHODESIA METALS LTD. V. COMMISSIONER OF INCOME TAX, (1941) 9 ITR (SUPPL.) 4 5 OBSERVED THAT A SOURCE MEANS NOT A LEGAL CONCEPT BUT ONE WHICH A PRACTICAL MAN WOULD REGARD AS A REAL SO URCE OF INCOME. THIS OBSERVATION WAS ADOPTED BY MALIK, J . IN HIS SEPARATE BUT CONCURRING JUDGMENT IN THE CASE OF RAN I AMRIT KAUR V. CIT, (1946) 14 ITR 561, A DECISION OF THE FULL BENCH OF THE ALLAHABAD HIGH COURT. A SOURCE OF INCOME WAS DESCRIBED BY R. S. PATHAK, J. (AS HE THE N WAS) IN THE FOLLOWING WORDS IN SETH SHIV PRASAD V. CIT, (1972) 84 ITR 15 (ALL.) AT PAGE 18: - A SOURCE OF INCOME, THEREFORE, MAY BE DESCRIBED AS THE SPRING OR FOUNT FROM WHICH A CLEARLY DEFINED CHANNEL OF INCOM E FLOWS. IT IS THAT WHICH BY ITS NATURE AND INCIDENTS CONSTITUTES A DISTINCT AND SEPARATE ORIGIN OF INCOME, CAPABLE OF CONSIDERATION AS SUCH IN ISOLATION FROM OTHER SOURCES OF INCOME, AND WHICH B Y THE MANNER OF DEALING ADOPTED BY THE ASSESSEE CAN BE TREATED S O. THE OBSERVATIONS OF THE JUDICIAL COMMITTEE (SUPRA) AS TO WHAT IS A SOURCE OF INCOME HAVE BEEN APPROVED BY TH E I.T.A. NO. 857/HYD/2017 :- 3 - : SUPREME COURT IN CIT V. LADY KANCHANBAI, (1970) 77 ITR 123. THE LOCATION OR SITUS OF A SOURCE OF INCOME IS ANOTHER ASPECT. THE THIRD ASPECT IS THE ACCRUAL OF THE INCO ME. THOUGH IT IS TRUE, AS HELD BY KANIA, C.J., SPEAKING FOR A CONSTITUTION BENCH OF THE SUPREME COURT IN CIT V. AHMEDBHAI UMARBHAI, (1950) 18 ITR 472 (SC) AT PAGE 479, THAT THE PLACE WHERE THE SOURCE OF INCOME IS L OCATED MAY NOT NECESSARILY BE THE PLACE WHERE THE INCOME A LSO ACCRUES, THAT QUESTION IS NOT MATERIAL IN THE PRESE NT CASE BECAUSE HEREIN WE ARE CONCERNED ONLY WITH THE QUEST ION AS TO THE LOCATION OF THE SOURCE. THE REAL QUESTION IS WHETHER THE EXPORT SALES PROCEEDS RECEIVED FROM GOODS MANUFACTURED AND EXPORTED FROM INDIA CONSTITUTE A S OURCE INSIDE OR OUTSIDE INDIA. TO DECIDE THE SAME WE HAVE TO TAKE A PRAGMATIC AND A PRACTICAL VIEW AND NOT APPROACH T HE QUESTION FROM A THEORETICAL PERSPECTIVE. 13. SECTION 9(I)(VII)(B) CONTEMPLATES A SOURCE LOCA TED OUTSIDE INDIA. IT IS DIFFICULT TO CONCEPTUALISE THE PLACE/ SITUS OF THE PERSON WHO MAKE PAYMENT FOR THE EXPORT SALES AS THE SOURCE LOCATED OUTSIDE INDIA FROM WHICH ASSESSEE EA RNED PROFITS. THE EXPORT CONTRACTS OBVIOUSLY ARE CONCLUD ED IN INDIA AND THE ASSESSEE S PRODUCTS ARE SENT OUTSIDE INDIA UNDER SUCH CONTRACTS. THE MANUFACTURING ACTIVITY IS LOCATED IN INDIA. THE SOURCE OF INCOME IS CREATED A T THE MOMENT WHEN THE EXPORT CONTRACTS ARE CONCLUDED IN I NDIA. THEREAFTER THE GOODS ARE EXPORTED IN PURSUANCE OF T HE CONTRACT AND THE EXPORT PROCEEDS ARE SENT BY THE IM PORTER AND ARE RECEIVED IN INDIA. THE IMPORTER OF THE ASSE SSEE S PRODUCTS IS NO DOUBT SITUATED OUTSIDE INDIA, BUT HE CANNOT BE REGARDED AS A SOURCE OF INCOME. THE RECEIPT OF T HE SALE PROCEEDS EMANATE FROM HIM FROM OUTSIDE INDIA. HE IS , THEREFORE, ONLY THE SOURCE OF THE MONIES RECEIVED. THE INCOME COMPONENT OF THE MONIES OR THE EXPORT RECEIP TS IS LOCATED OR SITUATED ONLY IN INDIA. WE ARE MAKING A DISTINCTION BETWEEN THE SOURCE OF THE INCOME AND TH E SOURCE OF THE RECEIPT OF THE MONIES. IN ORDER TO FA LL WITHIN THE SECOND EXCEPTION PROVIDED IN SECTION 9(1)(VII)( B) OF THE ACT, THE SOURCE OF THE INCOME, AND NOT THE RECEIPT, SHOULD BE SITUATED OUTSIDE INDIA. THAT CONDITION IS NOT SA TISFIED IN THE PRESENT CASE. THE TRIBUNAL, WITH RESPECT, DOES NOT APPEAR TO HAVE EXAMINED THE CASE FROM THIS ASPECT. ITS CONCLUSION THAT THE TECHNICAL SERVICES WERE NOT UTI LISED FOR THE ASSESSEE S BUSINESS ACTIVITY OF PRODUCTION IN INDIA DOES NOT BRING THE ASSESSEE S CASE WITHIN THE SECOND EXCEPTION IN SECTION 9(1)(VII)(B) OF THE ACT. IT DOES NOT BRI NG THE CASE UNDER THE FIRST EXCEPTION EITHER, BECAUSE IN ORDER TO GET THE BENEFIT OF THE FIRST EXCEPTION IT IS NOT SUFFICIENT FOR THE I.T.A. NO. 857/HYD/2017 :- 4 - : ASSESSEE TO PROVE THAT THE TECHNICAL SERVICES WERE NOT UTILISED FOR ITS BUSINESS ACTIVITIES OF PRODUCTION IN INDIA, BUT IT IS FURTHER NECESSARY FOR THE ASSESSEE TO SHO W THAT THE TECHNICAL SERVICES WERE UTILISED IN A BUSINESS CARR IED ON OUTSIDE INDIA. THEREFORE, WE CANNOT ALSO APPROVE OF THE TRIBUNAL S CONCLUSION IN PARA 29 OF ITS ORDER TO THE EXTENT IT SEEMS TO SUGGEST THAT THE ASSESSEE SATISFIES THE CONDITION NECESSARY FOR BRINGING ITS CASE UNDER THE FIRST EXC EPTION. BE THAT AS IT MAY, AS WE HAVE ALREADY POINTED OUT, SINCE THE SOURCE OF INCOME FROM THE EXPORT SALES CANNOT BE SA ID TO BE LOCATED OR SITUATED OUTSIDE INDIA, THE CASE OF THE ASSESSEE CANNOT BE BROUGHT UNDER THE SECOND EXCEPTION PROVID ED IN THE SECTION. IN THE CASE BEFORE US, THE ADVISORY SERVICES HAVE B EEN RENDERED OUTSIDE INDIA FOR INVESTMENT OUTSIDE INDIA AND THE FEE HAS ALSO BEEN PAID OUTSIDE INDIA IN FOREIGN CUR RENCY. THEREFORE, THE SAME IS NOT TAXABLE IN INDIA BY VIRT UE OF SECTION 9 (1)(VII)(B) OF THE I.T. ACT. 3.1. RESPECTFULLY FOLLOWING THE ABOVE DECISION, I AM OF THE OPINION THAT THE ADVISORY SERVICES RENDERED FOR INVESTMENT OUTSI DE INDIA, THE FEES PAID OUTSIDE INDIA IN FOREIGN CURRENCY IS NO T TAXABLE IN INDIA BY VIRTUE OF SECTION 9(1)(VII)(B) OF THE ACT. SINCE THE FACTS BEING SAME, I DIRECT THE AO TO EXCLUDE THE ABOVE AMOUNT. 4. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 25 TH OCTOBER, 2017 TNMM I.T.A. NO. 857/HYD/2017 :- 5 - : COPY TO : 1. JAYALAKSHMI BADIGA, C/O. P. MURALI & CO., CHARTE RED ACCOUNTANTS, 6-3-655/2/3, I FLOOR, SOMAJIGUDA, HYDERABAD. 2. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION-1 , HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-10, HYDERABA D. 4. THE COMMISSIONER OF INCOME TAX (IT & TP), HYDERA BAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.