Venu Gopal Chintada , Hyderabad V. Dy. Commissioner of Income Tax , Circle-12(1), Hyderabad

ITA 87/Hyd/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2298 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 05-12-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 25-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: SIDDHARTH SURANA
• Keywords: Salary income; Diversion of income
• Section: 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI V.DURGA RAO, JUDICIAL MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 86/HYD/2019 2015-16 VIJAYARAGHAVAN PUSHPAGIRI, HYDERABAD [PAN: AESPV3196E] DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(1), HYDERABAD 87/HYD/2019 VENU GOPAL CHINTADA, HYDERABAD [PAN: ADWPC4948A] FOR ASSESSEE : SHRI AKSHAY SURANA & SHRI SIDDHARTH SURANA, ARS FOR REVENUE : SHRI KIRAN KATTA, DR DATE OF HEARING : 05-12-2019 DATE OF PRONOUNCEMENT : 05-12-2019 O R D E R PER D.KARUNAKARA RAO, A.M. : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1 , HYDERABAD, FOR THE AY.2015-16. SINCE THE ISSUES INVOLVED IN THES E APPEALS ARE COMMON AND IDENTICAL, THESE APPEALS WERE HEARD TOGETHE R AND ARE BEING DISPOSED-OF BY WAY OF THIS COMMON ORDER. 2. AT THE OUTSET, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WERE COUPLE OF ISSUES FOR ADJUDICATION IN THE GR OUNDS RAISED IN BOTH THE APPEALS. ITA NOS. 86 & 87/HYD/2019 :- 2 -: 3. ISSUE NO.1 RELATES TO ALLOWABILITY OF SOCIAL SECUR ITY TAX AS DEDUCTION NOT TAXABLE IN INDIA FROM GROSS SALARY. RELY ING ON VARIOUS DECISIONS, LD.COUNSEL SUBMITTED THAT THIS ISSUE CAN BE REMANDED TO THE FILE OF AO FOR FRESH ADJUDICATION, FOR CONSIDERING THE SAID DECISIONS AND FOR WANT OF FRESH DECISION IN THE MATTER. 3.1. ISSUE NO.2 RELATES TO ENTITLEMENT TO TAX CREDITS FOR STATE TAXES PAID OUTSIDE INDIA. RELYING ON VARIOUS DECISIONS, IN CLUDING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF PRITESH RAJESH KOTAK, HYDERABAD VS. ITO, WARD-12(2), [HYDERABAD TRIBUNAL], LD.COUNSEL SUBMITTED THAT THIS ISSUE SHOULD A LSO BE REMANDED TO THE FILE OF AO IN HONOURING THE SAID DEC ISION OF THE CO-ORDINATE BENCH. IN THIS REGARD, LD.COUNSEL FOR THE ASSESSEE FILED WRITTEN SUBMISSIONS, WHICH ARE EXTRACTED AS UNDER: 1. ALLOWABILLTY OF SOCIAL SECURITY TAX AS DEDUCTION NOT TAXABLE IN INDIA FROM GROSS SALARY THE APPELLANT HAS PAID SOCIAL SECURITY TAX IN US FR OM THE SALARY INCOME EARNED IN US. WAGES PAID IN US TO NON-RESIDENT ALIE NS ARE SUBJECT TO SOCIAL SECURITY/MEDICARE TAXES FOR SERVICES PERFORMED WITH IN UNITED STATES, REGARDLESS OF CITIZENSHIP OR RESIDENCE. THESE TAXES CONTRIBUTE TO THEIR COVERAGE UNDER U.S. SOCIAL SECURITY SYSTEM. EMPLOYE R MUST DEDUCT THESE TAXES EVEN IF THE EMPLOYEE DO NOT EXPECT TO QUALIFY FOR SOCIAL SECURITY OR MEDICARE BENEFITS. LAW IS WELL SETTLED THAT THE DOCTRINE OF DIVERSION OF INCOME BY REASON OF OVERRIDING TITLE APPLIES ONLY IN CASES WHERE THE IN COME NEVER REACHES THE APPELLANT AS HIS INCOME. THERE IS A DIFFERENCE BETW EEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH, BY THE NATURE OF THE OBLIGATION, CANNOT BE SAID TO BE A PA RT OF HIS INCOME. WHERE BY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REAC HES THE APPELLANT, IT IS DEDUCTIBLE. FURTHER, THE APPELLANT GETS NO VESTED RIGHT AT THE TIME OF PAYMENTS TOWARDS SOCIAL SECURITY AND MEDICARE TAXES. THEY AR E ALL CONTINGENT PAYMENTS TO WHICH THE EMPLOYEE HAS NO RIGHT TILL TH E CONTINGENCY OCCURS ITA NOS. 86 & 87/HYD/2019 :- 3 -: FURTHER RELIANCE IS PLACED ON THE FOLLOWING JUDGMEN TS - A. L.W.RUSSEL'S CASE [SUPREME COURT] THE HON'BLE SUPREME COURTSPELT OUT A WIDER AND FUND AMENTAL PRINCIPLE, I.E. WHEN THE AMOUNT DOES NOT RESULT IN A DIRECT PR ESENT BENEFIT TO THE EMPLOYEE WHO DOES NOT ENJOY IT, BUT ASSURES HIM A F UTURE BENEFIT, IN THE EVENT OF CONTINGENCY, THE PAYMENT MADE BY THE EMPLO YER, DOES NOT VEST IN THE EMPLOYEE. B. YOSHIO KUBO V. COMMISSIONER OF INCOME-TAX [2013] 36 TAXMANN.COM 1 (DELHI) THE HIGH COURT OF DELHI HELD THAT 'THE ASSESSEE DOES NOT- IN ANY APPEAL, GET A VESTED RIGHT AT THE TIME OF CONTRIBUTION TO THE FUND BY THE EMPLOYER. THE AMOUN T STANDING TO THE CREDIT OF THE PENSION FUND ACCOUNT, SOCIAL SECURITY OR MEDICAL OR HEALTH INSURANCE WOULD CONTINUE TO REMAIN INVESTED TILL TH E ASSESSEE BECOMES ENTITLED TO RECEIVE IT. IN THE CASE OF MEDICAL BENE FIT, THE REVENUE COULD NOT SUPPORT ITS CONTENTIONS BY CITING ANY PROVISION IN ANY POLICY OR SCHEME WHICH IS THE SUBJECT MATTER OF THESE APPEALS, WHICH ENTITLE THE VESTING RIGHT TO RECEIVE THE AMOUNT UNDER THE SCHEME OR PLA N DID NOT OCCUR. THIS COURT IS ALSO OF THE OPINION THAT THE JUDGMENT OF T HE SUPREME COURT IN L.W. RUSSEL APPLIES. THERE, IT WAS HELD THAT ONE CANNOT BE SAID TO ALLOW A PERQUISITE TO AN EMPLOYEE IF THE EMPLOYEE HAS NO RI GHT TO THE SAME. IT CANNOT APPLY TO CONTINGENT PAYMENTS TO WHICH THE EM PLOYEE HAS NO RIGHT TILL THE CONTINGENCY OCCURS. THE EMPLOYEE MUST HAVE A VESTED RIGHT IN THE AMOUNT. IN THIS CONTEXT, IT WOULD BE USEFUL TO RECO LLECT THE DECISION OF THIS COURT IN CIT V. MEHAR SINGH SAMPURAN SINGH CHAWLA ( 1973) 90 ITR 219 (DEL) WHERE IT WAS HELD THAT THE CONTRIBUTION MADE BY THE EMPLOYEE TOWARDS A FUND ESTABLISHED FOR THE WELFARE OF THE E MPLOYEES WOULD NOT BE DEEMED TO BE A PERQUISITE IN THE HANDS OF THE EMPLO YEES CONCERNED AS THEY DO NOT ACQUIRE A VESTED RIGHT IN THE SUM CONTR IBUTED BY THE EMPLOYER.' C. GALLOTTI RAOUL V. ASSISTANT COMMISSIONER OF INCO ME-TAX [1997] 61 ITD 453 (MUMBAI) [19-01-1997] ITAT MUMBAI BENCH 'B' HELD THAT THE CONCEPT OF COMP ULSORY CONTRIBUTION TO SOCIAL SECURITY IS NOT PREVALENT IN INDIA. THE CONC EPT OF SOCIAL SECURITY PAYMENT, IS THAT EVERY NATIONAL HAS TO CONTRIBUTE T O THE SOCIAL SECURITY REGARDLESS OF HIS PLACE OF WORK. BY THIS PROCESS TH E SOCIAL SECURITY ORGANIZATION DERIVES OR LEVIES A PRIOR CHARGE ON TH E INCOME OF ITS PARTNER. THIS TREATMENT OF CONTRIBUTION TO THE SOCIAL SECURI TY AS A PRIOR CHARGE IS SO TAKEN BY CONSIDERING THAT THE ORGANIZATION PARALLEL Y CARRIES OUT VARIOUS FUNCTIONS. THE AFFILIATION BEING COMPULSORY, MAKING THE SOCIAL SECURITY ORGANISATION AN EARNING PARTNER ALONGSIDE OF THE AS SESSEE, I.E., THE ASSESSEE EARNED NOT ONLY FOR HIMSELF BUT ALSO FOR T HE SOCIAL SECURITY ITA NOS. 86 & 87/HYD/2019 :- 4 -: ORGANISATION, THE EXTENT OF THE AMOUNT RELATABLE TO SOCIAL SECURITY ORGANISATION, THE ASSESSEE HAD NO RIGHT OVER IT AT ALL AND THEREBY NO DOMAIN ON IT. HENCE, THE SOCIAL SECURITY CHARGES WE RE TO BE DEDUCTED FROM THE SALARY INCOME AS A PRIOR CHARGE BY OVERRIDING T ITLE AND IT WAS ONLY THE NET SALARY AFTER SUCH DEDUCTION THAT SHOULD BE TREA TED AS GROSS SALARY WITHIN THE MEANING OF SECTION 16. D. SUNIL SHIN DE V. ASSISTANT COMMISSIONER OF INCOM E-TAX, CIRCLE- 14(1), BENGALURU [2017] 85 TAXMANN.COM 297 (BANGALORE - TR IB.) ITAT BANGALORE BENCH 'SMC-C' TAX WITHHELD IN USA (F EDERAL AND STATE TAX) SHOULD NOT BE ADDED BACK TO QUANTIFY INCOME TA XABLE IN INDIA. THAT MEDICARE PAID OUTSIDE INDIA IS NOT A TAXABLE PURQUI SITE IN INDIA. PLACING RELIANCE ON ABOVE CITED DECISIONS, THE APPELLANT HE REBY SUBMITS THAT THE SOCIAL SECURITY TAX AND MEDICARE TAX SHALL BE ALLOW ED AS DEDUCTION AND ACCORDINGLY NET INCOME TO BE OFFERED TO TAX. 2. ENTITLEMENT TO TAX CREDITS FOR STATE TAXES PAID OUTSIDE INDIA EVEN AS WE HAVE HELD THAT, IN PRINCIPLE, STATE INCO ME-TAXES PAID IN USA ARE ELIGIBLE FOR BEING TAKEN INTO ACCOUNT FOR THE P URPOSE OF COMPUTING ADMISSIBLE TAX CREDIT UNDER SECTION 91, WE ARE ALIV E TO THE FACT THAT SECTION 91 REFERS TO A SITUATION IN WHICH THE APPELLANT HAS PAID TAX 'IN ANY COUNTRY WITH WHICH THERE IS NO AGREEMENT UNDER SECTION 90 F OR THE RELIEF OR AVOIDANCE OF DOUBLE TAXATION' AND THAT THERE IS IND EED AN AGREEMENT UNDER SECTION 90 WITH UNITED STATES OF AMERICA, AS ALSO WITH CANADA. IF WE ADOPT A LITERAL INTERPRETATION OF THIS PROVISION , AND BEARING IN MIND THE UNDISPUTED POSITION THAT TAX CREDIT PROVISIONS UNDE R SECTION 91 ARE MORE BENEFICIAL TO THE APPELLANT VIS-A-VIS THE TAX CREDI T PROVISIONS IN RELATED TAX TREATIES INASMUCH AS WHILE SECTION 91 PERMITS CREDI T FOR ALL INCOME-TAXES PAID ABROAD - WHETHER STATE OR FEDERAL, RELEVANT TA X TREATIES PERMIT CREDITS IN RESPECT OF ONLY FEDERAL TAXES, IT WILL RESULT IN A SITUATION THAT AN APPELLANT WILL BE WORSE OFF AS A RESULT OF THE PROV ISIONS OF TAX TREATIES. THAT CERTAINLY IS NOT PERMISSIBLE UNDER THE SCHEME OF THE INCOME-TAX ACT. CIRCULAR 621, DATED 19-121991 [(1992) 195 ITR (STAT UTES) 154] ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, WHICH IS BINDING ON THE ASSESSING OFFICER UNDER SECTION 119(2) OF THE ACT, INTER ALIA , OBSERVES THAT 'SINCE THE TAX TREATIES ARE INTENDED TO GRANT RELIEF AND NOT P UT RESIDENTS OF A CONTRACTING STATE AT A DISADVANTAGE VIS-A-VIS OTHER TAXPAYERS, SECTION 90 OF THE INCOME-TAX ACT HAS BEEN AMENDED TO CLARIFY A NY BENEFICIAL PROVISION IN THE LAW WILL NOT BE DENIED TO A RESIDENT OF A CO NTRACTING COUNTRY MERELY BECAUSE CORRESPONDING PROVISION IN A TAX TREATY IS LESS BENEFICIAL'. IN THE CASE OF THE APPELLANT, HOWEVER, TAX CREDIT PROVISIO NS IN INDO US TAX TREATY ARE ADMITTEDLY LESS ADVANTAGEOUS TO THE APPELLANT, BUT JUST BECAUSE THERE IS A TAX TREATY BETWEEN INDIA AND USA, THE BENEFITS OF THE DOMESTIC LAW ITA NOS. 86 & 87/HYD/2019 :- 5 -: PROVISIONS ARE BEING DECLINED TO THE APPELLANT. THA T IS AN INTERPRETATION WHICH LEADS TO ABSURDITY AND CALLS FOR AN INTERPRET ATION HARMONIOUS WITH THE SCHEME OF THE INCOME-TAX ACT. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: A. PRITESH RAJESH KOTAK, HYDERABAD VS INCOME TAX OF FICER, WARD-12(2) [HYDERABAD TRIBUNAL] PLACED RELIANCE ON DECISION OF TATA SONS LTD(SUPRA) AND HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM TAX CREDIT BOTH FEDERAL AS WELL AS STATE TAXES PAID ON THE INCOME EARNED DURIN G THE YEAR. 4. THERE EXISTS USEFUL DECISIONS FOR THE AO TO APPLY TO BOTH THE ISSUES UNDER CONSIDERATION. ADMISSIBILITY OF JUSTICE IS EXTREMELY IMPORTANT. AFTER HEARING BOTH THE PARTIES AND CONSIDERIN G THE ABOVE WRITTEN SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE OPIN ION THAT BOTH THE ISSUES IN BOTH THE APPEALS SHOULD BE REMANDED TO THE FILE OF AO FOR FRESH ADJUDICATION. ACCORDINGLY, THE GROU NDS RAISED BY BOTH THE ASSESSEES ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, BOTH THE APPEALS ARE TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DECEMBER, 2019 SD/- SD/- (V. DURGA RAO) (D. KARUNAKARA R AO) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 5 TH DECEMBER, 2019 TNMM ITA NOS. 86 & 87/HYD/2019 :- 6 -: COPY TO : 1. VIJAYARAGHAVAN PUSHPAGIRI, 6-3-1099/1100, PLOT NO.15B, SOMAJIGUDA, HYDERABAD. 2. VENU GOPAL CHINTADA, PLOT NO.54, SAGAR SOCIE TY, ROAD NO.2, BANJARA HILLS, HYDERABAD. 3. DY.COMMISSIONER OF INCOME TAX, CIRCLE-12(1), HYDERABAD. 4. CIT(APPEALS)-1, HYDERABAD. 5. PR.CIT-1, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.