Shri Hans O Glittenberg, Gandhi Nagar V. The Commissioner of Income Tax, Gandhi Nagar

ITA 959/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6910 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-03-2011
• Assessment Year: misc
• Appeal Filed On: 31-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: S N SOPARKAR SRAR
• Keywords: Salary income; Double taxation relief; Advance ruling; Competent authority; Assessment record
• Section: 143(3); 263; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI D.K.TYAGI, HONBLE JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, HONBLE ACCOUNTANT MEMBER ITA NO.959/AHD/2009 ASSESSMENT YEAR:2004-05 DATE OF HEARING31.3.11 DRAFTED:5.4.11 SHRI HANS O GLITTENBERG, C/O SHELADIA ASSOCIATES, PLOT NO.487/2, SECTOR-7B, GANDHINAGAR PAN NO.AHDPG2753L V/S . COMMISSIONER OF INCOME-TAX, GANDHINAGAR (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S.N.SOPARKAR SR-AR RESPONDENT BY:- SHRI SHELLEY JINDAL, CIT-DR O R D E R PER D.K.TYAGI, JUDICIAL MEMBER:- THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF COM MISSIONER OF INCOME-TAX, GANDHINAGAR PASSED U/S.263 OF THE I.T. ACT 1961 DATED 22-01- 2009. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- THE LEARNED CIT HAS GROSSLY ERRED IN LAW AND ON FA CTS IN ASSUMING JURISDICTION U/S.263 OF THE ACT ON THE ERRONEOUS GR OUND THAT THE IMPUGNED ASSESSMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2. LD. CIT GROSSLY ERRED IN NOT APPRECIATING THAT I N ORDER TO INVOKE S. 263 TWO CONDITIONS MUST BE FULFILLED VIZ. HE IMPUGN ED ASSESSMENT ORDER MUST BE ERRONEOUS AND THAT ERROR MUST BE PREJUDICIA L TO THE INTEREST OF THE REVENUE. IN THE PRESENT CASE, LD. AO HAS ACCEPT ED THAT THE ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 2 APPELLANT RECEIVED FEES FOR TECHNICAL SERVICES (FDT S) AND SINCE THE APPELLANT WAS A PERSON ORDINARILY RESIDENT OF SOUTH AFRICA, HE WAS GRANTED THE BENEFIT OF DTAA ADDITION THEREFORE THER E WAS NO ERROR IN THE IMPUGNED ASSESSMENT ORDER SO AS TO JUSTIFY ACTION U /S.263 OF THE ACT. UNDER THE CIRCUMSTANCES, THE VERY ASSUMPTION OF POW ER U/S.263 OF THE ACT IS UNJUSTIFIED AND BAD IN LAW AND THEREFORE, OR DER U/S. 263 OF THE ACT DESERVED TO BE QUASHED. 3. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE GROUN D RAISED HEREINABOVE, ON MERITS, LD. CIT HAS ERRED IN HOLDING HAT THE ASS ESSEE WAS NOT TO BE TAXED @ 10% OF THE FTS AND ALSO ERRED IN HOLDING TH AT THE NON- RESIDENT STATUS OF APPELLANT IS NOT CORRECT. UNDER THE FACT AND CIRCUMSTANCES OF THE CASE, THE ACTION OF LD. AO OUG HT TO HAVE BEEN UPHELD. 4. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE GROUN DS RAISED HEREINABOVE, ON MERITS, LD. CIT HAS ERRED IN NOT AP PRECIATING THAT THE ASSESSEE WAS NON-RESIDENT IN SO FAR AS INDIAN INC OME TAX IS CONCERNED AND THEREFORE BENEFIT OF DTAA HAS TO BE GRANTED TO HIM. 5. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE GROUN DS RAISED HEREINABOVE, ON MERITS, LD. CIT HAS ERRED IN NOT AP PRECIATING THAT THE SERVICES PROVIDED BY THE ASSESSEE WERE IN THE NATUR E OF INDEPENDENT PERSONAL SERVICE AND THEREFORE THE SAME COULD NOT BE TAXED IN INDIA IF THE APPELLANT HAS FULFILLED THE CONDITIONS FOR THE SAME. 6. LD. CIT ERRED IN NOT CONSIDERING VARIOUS FACTS, SUBMISSIONS, EXPLANATIONS AND CLARIFICATIONS AS GIVEN BY THE APP ELLANT AND FURTHER ERRED IN NOT APPRECIATING THE FACTS AND LAW IN THEI R PROPER PERSPECTIVE. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PROFESSIONALLY QUALIFIED ENGINEER AND GIVING TECHNICAL CONSULTANCY SERVICES TO SHELADIA ASSOCIATES INC, A U.S. BASED COMPANY OPERATING ITS ACTIVITY I N INDIA. THE ASSESSEE PROVIDES CONSULTANCY SERVICES FOR DESIGN AND SUPERV ISION OF HIGHWAY IN TERMS OF CONTRACT WITH THE SAID COMPANY. DURING ASSESSMEN T PROCEEDINGS, IT WAS ALSO BROUGHT ON RECORD BY THE ASSESSEE THAT HE IS A CITIZEN OF SOUTH AFRICA AND THAT HE HAS RECEIVED FEES FOR TECHNICAL SERVICES RE NDERED BY HIM FOR SHELADIA ASSOCIATES INC. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE DATED 24- 07-2006 AS TO WHY THIS TECHNICAL CONSULTANCY FEES S HOULD NOT BE TREATED AS SALARY INCOME AND TAXED ACCORDING AS PER THE I.T AC T AS IT WAS SEEN FROM THE AGREEMENT THAT THERE EXISTS EMPLOYER-EMPLOYEE RELA TION BETWEEN THE ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 3 ASSESSEE AND THE COMPANY. AFTER RECEIVING THE REPLY OF THE ASSESSEE DATED 27-09-2006 THE CONTENTION OF THE ASSESSEE THAT MONE Y RECEIVED BY HIM WAS PURELY IN LIEU OF TECHNICAL CONSULTANCY SERVICE PRO VIDED TO THE COMPANY WAS ACCEPTED BY ASSESSING OFFICER AND HE ACCEPTED THE I NCOME DECLARED BY ASSESSEE AT RS.44,68,206/-. SUBSEQUENTLY LD. CIT ON GOING THROUGH THE CASE RECORD OF ASSESSEE NOTICED THAT ASSESSING OFFICERS ORDER DATED 20-11-2006 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE. ACCORDING TO HIM, THE ASSESSMENT ORDER IN QUESTION HAS BEEN PASSED IN CAVALIER FASHION AND WITHOUT MAKING RELEVANT ENQUIRY ESPECIALLY WITH REF ERENCE TO THE METHOD OF ACCOUNTING ADOPTED BY ASSESSEE FOR THE PURPOSE OF W ORKING OUT ITS TAXABLE PROFIT. HE THEREFORE ISSUED FOLLOWING SHOW-CAUSE NO TICE DATED 08-12-2008 FOR THE PURPOSE OF INITIATING PROCEEDINGS U/S.263 OF TH E ACT:- 'ON EXAMINATION OF YOUR ASSESSMENT RECORD FOR THE A CCOUNTING PERIOD RELEVANT TO I A.Y.2004-2005 REVEALS THAT THE ASSESS MENT ORDER PASSED BY THE I.T.O. WARD -3,' GANDHINAGAR U/S 143( 3) ON 2O- 11-2006 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REASONS MENTIONED HEREINAFTER. THE RETURN OF INCOME WAS FILED ON 23.09.2004 IN THE STATUS OF NON RESIDENT! DECLARING TOTAL INCOME OF RS.44,68,206/-. THE ASSES SEE PAID TAX @ 10% ON THE; INCOME DERIVED IN INDIA ON THE BASIS OF DOUBLE TAXATION AVOIDANCE AGREEMENT' BETWEEN INDIA AND SOUTH AFRICA. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASE AND THE NOTICE U/S. 143(2) OF T HE ACT WAS ISSUED ON 27.7.2005. THIS ASSESSMENT WAS COMPLETED U/S. 143(3 ) OF THE ACT ON 20.11.2006 DETERMINING THE INCOME ON RETURNED BY TH E ASSESSEE. THE ASSESSING OFFICER HAD ISSUED A SHOW CAUSE NOTIC E TO TREAT THE INCOME RETURNED BY THE ASSESSEE AS SALARY AS AGAINST THE C LAIM OF TECHNICAL CONSULTANCY INCOME. HOWEVER, THE CONTENTION OF THE ASSESSEE THAT HE WAS DERIVING INCOME UNDER AN AGREEMENT WITH M/S SHELADI A ASSOCIATES INC. ('SHELADIA') SITUATED IN THE STATE OF MARYLAND IN T HE USA AND THE ASSESSEE IS OF SOUTH AFRICAN NATIONALITY AND THE SE RVICES RENDERED BY HIM WERE PURELY IN THE CAPACITY AS A PROFESSIONAL ON CO NTRACTUAL TERMS, WAS ACCEPTED BY THE A.O. WITHOUT MAKING ANY ENQUIRIES T HEREOF. THE ASSESSEE WAS ALSO GIVEN THE BENEFIT OF TAXATION @10% BASED ON THE DTAA WITH SOUTH AFRICA. ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 4 FROM THE EVIDENCE COLLECTED DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT IS SEEN THAT THE ASSESSEE WAS ENGAG ED AS A PROFESSIONAL ON CONTRACTUAL BASIS. IT WAS ALSO STIPULATED IN THE AGREEMENT THAT THE IT WILL NOT CREATE ANY EMPLOYER-EMPLOYEE RELATIONSHIP BETWE EN THE ASSESSEE AND THE AMERICAN COMPANY. AS PER THE TERMS OF THE AGREE MENT THE ASSESSEE WAS TO BE PAID PROFESSIONAL FEES IN AMERICAN DOLLAR @ 35 PER HOUR SUBJECT TO A MAXIMUM OF $ 7,000 PER MONTH. THE ASSESSEE WAS ALSO ENTITLED FOR REIMBURSEMENT OF RS.2Q,000 PER MONTH FOR HOUSING FA CILITY ON PRODUCTION OF RECEIPT FOR THE EXPENDITURE. IN THE ALTERNATIVE, THE COMPANY -WAS OBLIGED TO GIVE RESIDENTIAL ACCOMMODATION. IN ADDITION THE ASSESSEE WAS ENTITLED FOR RS, 10,000 PER MONTH AS LIVING EXPENSES WHILE O N DUTY. ON PERUSAL OF THE DTAA BETWEEN INDIA AND SOUTH AFRI CA THE DEFINITION OF 'RESIDENT' IS CONTAINED IN ARTICLE 4 AS UNDER: FOR THE PURPOSE OF THIS AGREEMENT, THE TERM 'RESIDE NT OF A CONTRACTING STATE' MEANS: (A) IN INDIA, ANY PERSON WHO, UNDER THE LAWS OF IND IA, IS LIABLE TO TAX THEREIN BY REASON OF HIS DOMICILE, RESIDENCE , PLACE OF MANAGEMENT OR ANY OTHER CRITERION OF A SIMILAR NATU RE, BUT THIS TERM DOES NOT INCLUDE ANY PERSON WHO IS LIABLE TO T AX IN INDIA IN RESPECT OF ONLY OF INCOME FROM SOURCES IN INDIA. (B) IN SOUTH AFRICA, ANY INDIVIDUAL WHO IS ORDINARI LY RESIDENT IN SOUTH AFRICA AND ANY OTHER PERSON WHICH HAS ITS PLA CE OF EFFECTIVE MANAGEMENT IN SOUTH AFRICA;' THERE IS NOTHING ON RECORD TO ESTABLISH THAT THE AF ORESAID CONDITIONS ARE BEING FULFILLED BY THE ASSESSEE. SIMILARLY, ARTICLE 12 LAYS DOWN THE DEFINITION OF R OYALTIES AND TECHNICAL SERVICE; ASUNDER: 1. ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTI NG STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES OR FEES FOR TECHNICAL SE RVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE, AND ACCORDING TO THE LAWS OF THE STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE T AX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS; AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES.' ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 5 THE ASSESSEE WAS ENGAGED BY A COMPANY ESTABLISHED I N AMERICA AND WAS TO BE PAID IN AMERICAN DOLLARS. IT IS, THEREFOR E, EVIDENT THAT THE SAID AGREEMENT WAS NOT WITH SOUTH AFRICA AND THE ASSESSE E. THERE IS NOTHING ON RECORD TO ESTABLISH THAT THE ASSESSEE HAD OBTAIN ED THE APPROVAL OF THE COMPETENT AUTHORITY IN INDIA VIZ. THE MINISTRY OF F INANCE, DEPARTMENT OF REVENUE IN HIS INDIVIDUAL CAPACITY FOR AVAILING OF THE BENEFIT UNDER THE DTAA OF THE REMUNERATION EARNED BY HIM FROM THE AME RICAN COMPANY. THE ASSESSEE HAD ALSO NOT ESTABLISHED THAT THE INCO ME HAS SUFFERED TAX IN SOUTH AFRICA SO AS TO 'ENTITLE HIM TO BE TAXED IN I NDIA AT THE RATE OF 10% ON THE GROSS AMOUNT OF THE TECHNICAL FEES RECEIVED. IN VIEW OF THE ABOVE REASONS, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE A.O. HA S WRONGLY GIVEN YOU THE STATUS OF RESIDENT INSTEAD OF NON-RESIDENT, CLAIMED BY YOU. YOU ARE, THEREFORE, HEREBY GIVEN AN OPPORTUNITY TO SHOW CAUS E AS TO WHY THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (S UPRA) SHOULD NOT BE CANCELLED U/S.263 OF THE I. T. ACT.1961 AND DIRECTE D TO MAKE FRESH ASSESSMENT AS PER THE LAW. YOUR EXPLANATION IN THE MATTER SHOULD REACH THE UNDERSIGNED WITHIN 7 DAYS OF THE RECEIPT OF THI S NOTICE.' THIS SHOW-CAUSE NOTICE WAS REPLIED BY ASSESSEE BY M AKING FOLLOWING SUBMISSIONS:- 'IT IS SUBMITTED THAT THE ASSESSING OFFICER PASSED ASSESSMENT ORDER U/S 143(3) OF THE ACT AFTER DUE ENQUIRY. THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICAL TO THE INTEREST OF THE REV ENUE AND THEREFORE, IT IS NOT REQUIRED TO BE CANCELLED U/S 263 OF THE ACT. THE ASSESSEE IS ENGAGED BY SHELADIA ASSOCIATES INC. , A COMPANY INCORPORATED IN USA, AS A PROFESSIONAL UNDER THE PR OFESSIONAL AGREEMENT BETWEEN THE ASSESSEE AND SHELADIA ASSOCIATES INC OF AUGUST, 2002 ( COPY ENCLOSED) AS A PROFESSIONAL ON CONTRACTUAL TERMS TO WORK ON ITS PROJECT IN INDIA, GUJARAT. THE PROFESSIONAL AGREEMENT EXPRESSL Y STATES THAT THE ENGAGEMENT OF THE ASSESSEE IS ON CONTRACTUAL TERM A ND THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THEM. IT FUR THER STATES THAT THE ASSESSEE PROFESSIONAL SHALL BE AT LIBERTY TO ENGAGE HIMSELF ON OTHER PROFESSIONAL ASSIGNMENTS. THE SCOPE OF THE ASSIGNMENT INCLUDES REVIEWING ENGI NEERING DESIGN AND DRAWINGS, BILL OF QUANTITIES, UNIT COST ANALYSIS AN D DOCUMENT CONSTRUCTION. THE PROJECT ASSIGNMENT OF THE ASSESSEE IS CALLED 'C ONSULTANCY SERVICES, FOR CONSTRUCTION, SUPERVISION OF GUJARAT STATE HIGH WAY 1 . THE CONTRACT BEGINS ON OR ABOUT 17 TH SEPTEMBER, 2002. . ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 6 THE PROFESSIONAL AGREEMENT SPECIFICALLY STATES THAT THE ASSESSEE IS SOUTH AFRICAN CITIZEN. THE ADDRESS OF THE ASSESSEE IN THE AGREEMENT IS OF SOUTH AFRICA AS UNDER:- HANS O. GLIETNBERG, P.O. BOX 1031 PAULSHOF 2056, SAQNDTON, REPUBLIC OF SOUTH AFRICA THE PROFESSIONAL AGREEMENT PROVIDES FOR FOLLOWING C OMPENSATION: PROFESSIONAL FEES AT THE RATE OF US $ 35 PER HOUR OF INPUT SUBJECT TO A MAXIMUM OF US $ 7000 PER MONTH. HOTEL. ACCOMMODATION 20,000 INDIAN RUPEES PER MONT H (RECEIPTS REQUIRED) SHALL BE REIMBURSED TO THE PROFESSIONAL O R SHELADIA SHALL PROVIDE APPROPRIATE HOUSING FACILITY. 10,000 INDIAN RUPEES PER MONTH WHILE ON PROJECT. THE ASSESSEE FILED RETURN OF INCOME (COPY ENCLOSED) DECLARING GROSS RECEIPTS OF TECHNICAL CONSULTANCY FEE OF RS.44,68,206/- AS H IS TOTAL INCOME. IN NOTES FILED WITH THE RETURN, THE ASSESSEE DECLARED AS UND ER:- ASSESSEE IS A SOUTH AFRICAN AND IS TECHNICAL CONSU LTANT TO M/S SHELADIA ASSOCIATES INC, USA FOR THEIR WORLD BANK AIDED ROAD PROJECT IN GUJARAT BEING UNDERTAKEN BY THE GOVERNMENT OF GUJARAT. IN VIEW OF THE DOUBLE TAX AVOIDANCE AGREEMENT (DTA A) IN FORCE BETWEEN INDIA AND SOUTH AFRICA, TAX HAS BEEN CALCULATED AT SPECIAL RATE OF 10% AS PER SUB-CLAUSE 2 OF ARTICLE 12 OF THE SAID DTAA ON GROSS AMOUNT TECHNICAL FEES RECEIVED. NO EXPENSES HAVE BEEN CLAIMED WHILE CALCULATING THE TOTAL INCOME. TDS CERTIFICATE OF RS.4,91,503/- IS ENCLOSED. THE ASSESSING OFFICER AFTER ENQUIRING INTO THE TERM S OF ENGAGEMENT OF THE ASSESSEE, THE CONSULTANCY SERVICES PROVIDED BY THE ASSESSEE AND THE NATIONALITY OF THE ASSESSEE PASSED THE ASSESSMENT ORDER U/S 143 (3) OF THE ACT ON 20-11- 2009 (COPY ENCLOSED). IN THE ASSESSMENT ORDER, HE H ELD THAT AS PER THE TERMS OF ENGAGEMENT, THE ASSESSEE HAS RECEIVED FEE FOR TECHN ICAL CONSULTANCY PROVIDED BY HIM AND THAT HE IS A CITIZEN OF SOUTH AFRICA. HE HAS, THEREFORE, TAXED THE GROSS TECHNICAL FEE RECEIVED BY THE ASSESSEE @ 10%. THE SHOW CAUSE NOTICE U/S 263 OF THE ACT STATES THA T THE ASSESSING,.0FFICER HAD ACCEPTED SOUTH AFRICAN NATIONALITY OF THE ASSESSEE AND THE PROFESSIONAL FEES FOR RENDERING TECHNICAL SERVICES WITHOUT MAKING ANY ENQ UIRIES. THE SHOW CAUSE NOTICE FURTHER STATES THAT THERE IS NOTHING ON RECORD TO ESTABLISH THAT THE ASSESSEE SATISFIES THE CONDITIONS OF ARTIC LE-4 AND ARTICLE-12 OF DTAA BETWEEN INDIA AND SOUTH AFRICA. ARTICLE-4 DEFINES ' RESIDENT' AS UNDER:- 1. FOR THE PURPOSE OF THIS AGREEMENT, THE TERM ''RE SIDENT OF A CONSTRACTING STATE MEANS; ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 7 (A) IN INDIA, ANY PERSON WHO, UNDER THE LAWS OF IND IA, IS LIABLE TO TAX THEREIN BY REASON OF HIS DOMICILE, RESIDENCE, PLACE OF MANAGEMENT OF ANY OTHER CRITERION OF A SIMILAR NATURE, BUT THIS T ERM DOES NOT INCLUDE ANY PERSON WHO IS LIABLE TO TAX IN INDIA IN RESPECT OF ONLY OF INCOME FROM SOURCES IN INDIA. (B) IN SOUTH AFRICA, ANY INDIVIDUAL WHO IS ORDINARI LY RESIDENT IN SOUTH AFRICA AND ANY OTHER PERSON WHICH HAS ITS PLACE OF EFFECTIVE MANAGEMENT IN SOUTH AFRICA. ARTICLE-12 OF THE DTAA PROVIDES FOR TAXATION OF ROY ALTIES AND FEES FOR TECHNICAL SERVICES AS UNDER:- 1. ROYALTIES OF FEES FOR TECHNICAL ARISING IN A CON TRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE M AY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STALE IN WHICH THEY ARI SE, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE T AX SO CHARGED SHALL NOT EXCEED 10PER CENT OF THE GROSS AMOUNT OF THE RO YALTIES OR FEES FOR TECHNICAL SERVICES. THE SHOW CAUSE NOTICE FURTHER SAYS THAT - I) THE ASSESSEE IS ENGAGED BY AN AMERICAN COMPANY A ND IS PAID IN AMERICAN. DOLLARS, THEREFORE, THE AGREEMENT IS NOT BETWEEN SOUTH AFRICA AND ASSESSEE. II) THERE IS NOTHING ON RECORD THAT ASSESSEE HAD OB TAINED APPROVAL OF THE COMPETENT AUTHORITY IN INDIA WHICH IS MINIST RY OF FINANCE, DEPARTMENT OF REVENUE FOR AVAILING THE BENEFIT UNDE R THE DTAA FOR THE REMUNERATION EARNED BY HIM FROM THE AMERICAN CO MPANY. III) THE ASSESSEE HAS ALSO NOT ESTABLISHED THAT TH E INCOME EARNED BY HIM HAD SUFFERED TAX IN SOUTH AFRICA SO AS TO EN TITLE HIM TO BE TAXED IN INDIA @ 10% OF THE GROSS TECHNICAL FEES RECEIVED BY HIM. I T IS SUBMITTED THAT THE PROPOSED REVISION OF THE ORDE R U/S 263 OF THE ACT IS NOT CALLED FOR IN THIS CASE FOR THE FOLLOWIN G REASONS - I) THE ASSESSEE IS A SOUTH AFRICAN NATIONAL EARNING TECHNICAL FEE FROM CONSULTANCY ON A PROJECT IN INDIA. HIS COU NTRY OF RESIDENCE IS SOUTH AFRICA AND COUNTRY OF SOURCE OF TECHNICAL FEE IS INDIA. HIS INCOME IS, THEREFORE, LIABLE TO T AX IN SOUTH AFRICA ON THE BASIS OF RESIDENCE AND INDIA ON THE B ASIS OF ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 8 SOURCE. THEREFORE, THE DOUBLE TAX AVOIDANCE AGREEME NT BETWEEN INDIA AND SOUTH AFRICA IS APPLICABLE IN RES PECT OF THE INCOME EARNED BY HIM FROM CONSULTANCY FEE IN INDIA. THE CONDITIONS OF ARTICLE-4 OF DTAA BETWEEN INDIA AND S OUTH AFRICA ARE FULFILLED IN THIS CASE. THE FACT THAT HE IS ENGAGED BY A US COMPANY AND THE FEE IS PAID IN US DOLLAR DOES NOT ALTER THIS POSITION IN RESPECT OF TAXATION OF THE CONSULT ANCY FEE EARNED BY HIM IN INDIA. II) THERE IS NO REQUIREMENT OF APPROVAL BY THE MINI STRY OF FINANCE, DEPARTMENT OF REVENUE OF THE AGREEMENT OF HIS ENGAGEMENT AS A CONSULTANT FOR AVAILING OF THE BENE FIT UNDER DTAA IN RESPECT OF TECHNICAL CONSULTANCY FEE EARNED BY HIM ON A PROJECT IN INDIA. III) ARTICLE-12 OF DTAA BETWEEN INDIA AND SOUTH AFR ICA PROVIDES THAT THE FEE FOR TECHNICAL SERVICES MAY BE TAXED BY THE COUNTRY OF RESIDENCE (SOUTH AFRICA) AND THAT TH E FEE FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE COUNTRY OF SOURCE (INDIA) AT THE RATE NOT EXCEEDING 10%. THUS, THE FE E FOR TECHNICAL SERVICES IS LIABLE TO TAX IN SOUTH AFRICA . BUT, AS HELD IN MOHSINALLY ALIMOHAMMED RAFIK (1995) 213 ITR 317 (AAR), IT IS NOT NECESSARY THAT IT SHOULD BE FACTUALLY AND ACTUALLY SUBJECTED TO TAX IN THAT COUNTRY FOR PURPOSES OF AV AILING OF THE BENEFIT OF DTAA. IV) THE ASSESSEE IS A NATIONAL OF SOUTH AFRICA, IS HAVING HIS HOME AND ABODE THERE AND FILES HIS TAX RETURNS THER E. THE FEE FOR TECHNICAL SERVICES IS EARNED BY HIM IN INDIA. I T IS PAID INTO HIS BANK ACCOUNT IN INDIA/SOUTH AFRICA. THE ASSESSI NG OFFICER HAS MADE DUE ENQUIRY INTO THESE FACTS. IT IS AMPLY CLEAR FROM THE ASSESSMENT ORDER (PARA 3,4 & 5).THE RELEVANT CORRESPONDENCE IN THE MATTER IS ON RECORD OF ASSESS ING OFFICER. AFTER TAKING INTO CONSIDERATION THE ABOVE SUBMISSIO N OF ASSESSEE LD. CIT CANCELLED THE ORDER PASSED BY ASSESSING OFFICER WIT H A DIRECTION TO MAKE FRESH ASSESSMENT BY OBSERVING AS UNDER:- (I) AT THE OUTSET, IT MAY BE POINTED OUT THAT THE MOHSINALLY ALIMOHAMMED RAFIK (1995) 213 ITR 317 (AAR) RELIED UPON BY THE L EARNED COUNSEL IS DISTINGUISHABLE FROM THE FACTS OF THIS CASE. IN THI S CASE, THE APPLICANT WAS A NONRESIDENT INDIAN NATIONAL, LEFT INDIA IN 1976 AND HAD HIS RESIDENCE AT DUBAI. HE WAS WORKING AS A MANAGER OF A FIRM OF CHA RTERED ACCOUNTANTS. HE RETAINED A HOUSE IN INDIA WHICH HE USED AS A PLA CE OF STAY IN INDIA ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 9 DURING HIS OCCASIONAL VISITS TO INDIA. DOUBLE TAXAT ION AVOIDANCE AGREEMENT WAS ENTERED INTO BETWEEN INDIA AND UNITED ARAB EMIRATES ON 29-4-1992. THERE WAS NO LAW IMPOSING INCOME-TAX ON INDIVIDUALS ON ANY OF THE EMIRATES. THE INCOME BY WAY OF INTEREST AND DIV IDEND RECEIVED OR RECEIVABLE IN INDIA WAS LIABLE TO BE TAXED AT LOWER RATE SPECIFIED IN ARTICLE 11 OF THE AGREEMENT. IN THE LIGHT OF THE AFORESAID DECISION OF THE AUTHORITY FOR ADVANCE RULING (SUPRA) II IS QUITE EVIDENT THAT THERE WAS NO INCOME-TAX ON INDIVIDUALS IN ANY OF THE EMIRATES ON THE OTHER HAND, IN THE CASE OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND SOUTH AFRICA, THERE IS TAX ON INDIVIDUALS IN BOTH THE COUNTRIES O N THE BASIS OF RESIDENCE, DOMICILE, ETC. IN OTHER WORDS, THE INCOME SHOULD BE SUBJECT TO TAX IN THE CONTRACTING STATE, I.E. SOUTH AFRICA. IN THE PRESE NT CASE, THE INCOME OF THE ASSESSEE HAS NOT BEEN SUBJECT TO TAX IN SOUTH AFRIC A. (II) THE ASSESSEE IS NOT ORDINARILY RESIDENT IN SOU TH AFRICA NOR DOES HE HAVE ANY PLACE OF EFFECTIVE MANAGEMENT IN SOUTH AFR ICA. (III) THE ASSESSEE HAD BEEN ENGAGED BY A COMPANY, N AMELY, M/S SHELADIA ASSOCIATES INC, SITUATED IN THE USA. HE WAS TO BE P AID IN AMERICAN DOLLARS. IN OTHER WORDS, THE PROVISIONS OF THE DOUB LE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SOUTH AFRICA WOULD NOT BE APPLICABLE IN THIS CASE UNLESS IT HAS BEEN SUBJECTED TO TAX IN SOUTH A FRICA SO AS TO ENABLE HIM TO BE TAXED IN INDIA AT THE RATE OF 10% ON THE GROSS AMOUNT OF THE TECHNICAL FEE RECEIVED. (IV) ON PERUSAL OF THE DTAA BETWEEN INDIA AND SOUTH AFRICA , THE DEFINITION OF 'RESIDENT' IS CONTAINED IN ARTICLE-4 AS UNDER:- '1. FOR THE PURPOSE OF THIS AGREEMENT, THE TERM 'RE SIDENT OF A CONTRACTING STATE' MEANS: (A) IN INDIA, ANY PERSON WHO UNDER THE LAWS OF INDI A, IS LIABLE TO TAX THEREIN BY REASON OF HIS DOMICILE, RESIDENCE PLACE OF MANAGEMENT OR ANY OTHER CRITERION OF A SIMILAR NATURE, BUT THIS T ERM DOES NOT INCLUDE ANY PERSON WHO IS LIABLE TO TAX IN INDIA IN RESPECT OF ONLY OF INCOME FROM SOURCES IN INDIA. (B) IN SOUTH AFRICA, ANY INDIVIDUAL WHO IS ORDINARI LY RESIDENT IN SOUTH AFRICA AND ANY OTHER PERSON WHICH HAS ITS PLACE OF EFFECTIVE MANAGEMENT IN SOUTH AFRICA. THERE IS NOTHING ON REC ORD TO ESTABLISH THAT THIS CONDITION HAS BEEN FULFILLED BY THE ASSES SEE, IN OTHER WORDS, HE HAS NOT ORDINARILY RESIDENT NOR HAD ANY BUSINESS ) CONNECTION IN SOUTH AFRICA DURING THE ACCOUNTING PERIOD UNDER CON SIDERATION. (V) SIMILARITY, ARTICLE-12 LAYS DOWN THE DEFINITION OF ROYALTIES AND TECHNICAL SERVICES AS UNDER:- ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 10 1. ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTI NG STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARI SE, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE T AX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE R OYALTIES OR FEES FOR TECHNICAL SERVICES'. THE ASSESSEE WAS ENGAGED BY A COMPANY ESTABLISHED I N AMERICA AND WAS TO BE PAID IN AMERICAN DOLLARS. IT IS, THEREFOR E, EVIDENT THAT THE SAID AGREEMENT WAS NOT WITH SOUTH AFRICA AND THE ASSESSE E. THERE IS NOTHING ON RECORD TO ESTABLISH THAT THE ASSESSEE HAS OBTAIN ED THE APPROVAL OF THE COMPETENT AUTHORITY OF INDIA, VIZ, THE MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, IN HIS INDIVIDUAL CAPACITY FOR AVAILING OF THE BENEFIT UNDER THE DTAA OF THE REMUNERATION EARNED BY HIM FROM THE AME RICAN COMPANY. THE ASSESSEE, HAS ALSO NOT ESTABLISHED THAT THE INC OME HAS BEEN SUBJECTED TO TAX IN SOUTH AFRICA SO AS TO ENABLE HI M TO BE TAXED IN INDIA AT THE RATE OF 10% ON THE GROSS AMOUNT OF THE TECHNICA L FEES RECEIVED. 12. IN VIEW OF THE AFORESAID REASONS, THE TAXING OF THE ASSESSEE @ 10% OF THE TECHNICAL FEES RECEIVED IS BASED ON A FALLACIOU S, MISTAKEN APPROACH. APART FROM THE ABOVE, THE STATUS HAS BEEN TAKEN AS RESIDENT AS AGAINST THE NON-RESIDENT STATUS CLAIMED BY THE ASSESSEE. NATURE OF BUSINESS HAS ALSO BEEN MENTIONED WRONGLY IN THE ASSESSMENT ORDER AS S ALARY INCOME. 13. ACCORDINGLY, THE ORDER PASSED BY THE THEN ASSES SING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. THE SAID ASSESSMENT ORDER IS CANCELLED WITH A DIRECTION TO MAKE A FRESH ASSESSMENT BY CORRECTLY VERIFYING THE FACTS OF THIS CASE BY AFFORDING REASO NABLE OPPORTUNITY TO THE ASSESSEE. 4. AGGRIEVED BY THIS ORDER OF LD. CIT NOW ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. AT THE TIME OF HEARING ARGUMENTS ADVANCED BY LD. COUNSEL FOR THE ASSESSEE WERE TWO FOLD. FIRSTLY, HE ARGUED THAT BEF ORE ACCEPTING THE RETURN INCOME OF THE ASSESSEE ASSESSING OFFICER HAS MADE P ROPER INQUIRIES BY ISSUING SHOW-CAUSE NOTICE AS TO WHY THE TECHNICAL C ONSULTANCY SERVICES SHOULD NOT BE TREATED AS SALARY INCOME WHICH IS CLE ARLY EVIDENT FROM THE ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 11 ASSESSMENT ORDER ITSELF. AO AFTER TAKING INTO CONSI DERATION THE SUBMISSION OF ASSESSEE HAS TAKEN A PERMISSIBLE VIEW ON THIS SUBJE CT AND THEREFORE LD. CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISION OF SECT ION 263 OF THE ACT IN THIS CASE. FOR MAKING THIS SUBMISSION, HE PLACED RELIANC E ON AN ORDER OF HONBLE ITAT IN THE CASE OF ANKUSH HOLDINGS LTD V. CIT-I AHMEDABAD IN ITA NO.1617/AHD/2010 DATED 25-03-2011, WHICH WAS PASSED AFTER TAKING IN TO CONSIDERATION VARIOUS CASE LAWS ON THE ISSUE. THE S ECOND ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE WAS THAT SINCE ASSESSEE IS A CITIZEN OF SOUTH AFRICA AND HE IS GOVERNED BY THE PROVISION OF DTAA BETWEEN INDIA AND SOUTH AFRICA AND IN TERMS OF SECTION 90 OF THE INCOME-TAX ACT, T HE PROVISION OF DTAA WILL OVERRULE THE PROVISION OF INCOME-TAX ACT TO THE EXT ENT THAT THEY ARE BENEFICIAL TO THE ASSESSEE. SINCE, THE ASSESSING OFFICER HAS D ONE THE SAME, THE ORDER PASSED BY HIM CANNOT BE HELD TO BE ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE THE ORDER PASSED BY LD. CI T U/S 263 MAY KINDLY BE SET ASIDE. ON THE OTHER HAND, LD. CIT-DR PLACED HEA VY RELIANCE ON THE ORDER PASSED BY LD. CIT AND PRAYED THAT ORDER PASSED BY H IM MAY KINDLY BE UPHELD. 6. HEARD BOTH THE PARTIES AND PERUSED THE RECORD AN D CASE LAWS RELIED BY THEM. WE FIND THAT DURING THE ASSESSMENT PROCEEDING S WRITTEN SUBMISSION DATED 20-07-2006 WAS FILED BY THE ASSESSEE WHICH IS AVAILABLE AT PAGE 1-2 OF THE PAPER BOOK. ACCORDING TO THIS COPY OF PASSPORT OF THE ASSESSEE WAS FILED. NATURE OF SERVICE RENDERED BY ASSESSEE WERE EXPLAIN ED AND AFTER DISCUSSING THE RELEVANT CLAUSES OF THE DTAA BETWEEN INDIA AND SOUTH AFRICA, IT WAS SUBMITTED THAT AS PER SECTION 90 OF INCOME-TAX ACT, PROVISION OF DTAA WILL BE APPLICABLE TO THE EXTENT THEY ARE BENEFICIAL TO THE ASSESSEE AND NOT THE PROVISION OF INCOME-TAX ACT. SUBSEQUENTLY THE ASSES SING OFFICER ISSUED SHOW CAUSE NOTICE DATED 24-07-2006 AS TO WHY THE TECHNIC AL CONSULTANCY FEES RECEIVED BY ASSESSEE SHOULD NOT BE TREATED AS SALAR Y INCOME AND TAXED ACCORDINGLY, AS IT WAS SEEN BY HIM FROM THE AGREEME NT THAT THERE EXIST EMPLOYER AND EMPLOYEE RELATIONSHIP BETWEEN ASSESSEE AND THE COMPANY. IN REPLY TO THIS SHOW-CAUSE NOTICE ASSESSEE SUBMITTED A DETAILED REPLY DATED 27- ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 12 09-2006 WHICH IS AVAILABLE IN THE PAPER BOOK FROM P AGE 3-8 COVERING ALL THE POINTS RAISED BY THE ASSESSING OFFICER IN HIS SHOW- CAUSE NOTICE. AFTER TAKING INTO CONSIDERATION THIS DETAILED REPLY, THE ASSESSI NG OFFICER TOOK A VIEW THAT THE INCOME SHOWN BY THE ASSESSEE WAS CORRECT AND AS SESSED HIM ON RETURNED INCOME. IN THE LIGHT OF THESE FACTS, IT CANNOT BE S AID THAT ASSESSMENT ORDER WAS PASSED BY ASSESSING OFFICER WITHOUT MAKING THE RELE VANT ENQUIRIES OR IT HAS BEEN PASSED IN CAVALIER FASHION. THE LAW IS WELL SE TTLED THAT IF ASSESSING OFFICER AFTER MAKING ENQUIRIES HAS TAKEN A PERMISSI BLE VIEW ON A ISSUE WHILE PASSING THE ASSESSMENT ORDER AND IF ON THE SAME FAC TS LD. CIT HAS A DIFFERENT OPINION REVISIONARY PROCEEDINGS U/S 263 CANNOT BE I NITIATED BY HIM. THEREFORE, IN OUR CONSIDERED OPINION IT WAS NOT A FIT CASE FOR INITIATING PROCEEDINGS U/S 263. ON MERITS ALSO WE FIND THAT SINCE ASSESSEE IS A CITIZEN OF SOUTH AFRICA AND THERE EXIST A DTAA BETWEEN SOUTH AFRICA AND IND IA HE WILL BE GOVERNED BY THE PROVISION OF DTAA IN TERMS OF SECTION 90 OF INCOME-TAX ACT AND THOSE PROVISION OF DTAA WILL OVERRULE THE PROVISION OF IN COME-TAX ACT WHICH ARE BENEFICIAL TO THE ASSESSEE. SINCE IN THIS CASE, ASS ESSING OFFICER HAS DONE THE SAME HIS ACTION CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 8. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE CONSIDERED OPINION THAT ORDER PASSED BY LD. CIT U/S .263 IS NOT SUSTAINABLE IN LAW AND SAME IS HEREBY SET ASIDE AND THAT OF ASSESS ING OFFICER IS RESTORED. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 08/04/2011 SD/- SD/- (D.C.AGRAWAL) (D.K. TYA GI) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 08/04/2011 ITA NO.959/AHD/2009 A.Y. 2004-05 SH HANS O GLITTENBERG V CIT-GNG PAGE 13 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT- GNG 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD