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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”, HYDERABAD
Before: SHRI R.K. PANDA & SHRI LALIET KUMAR
निर्धारितीती द्वारा /Assessee by: Shri Kishore Phadke, CA. राजस्व द्वारा/Revenue by: Ms. TH Vijaya Lakshmi, CIT-DR. ई की तारीखरीख/Date of hearing: 09.10.2023 सुनवाई की तारीखरीख/Pronouncement on: 17.10.2023 घोषणा O R D E R PER LALIET KUMAR, J.M.
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Income Tax Officer, (International Taxation) – 2, Hyderabad dated 04.05.2023 invoking proceedings under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short, “the Act”) for the A.Y. 2020-21 on the following grounds :
2. The grounds raised by the assessee read as under :
“General 1. The learned DRP-1, Bengaluru (hereinafter referred to as "DRP") erred in law and on facts in confirming the total income of the appellant at Rs 24,51,111/- as proposed by ATO (Int Taxn)-2, Hyderabad (hereinafter referred to as "AO") instead of returned income of Rs 820/- as declared in the return of income filed by the appellant. Salary not taxable in India as per Income Tax Act, 1961
The learned AO, as well as the learned DRP (hereinafter jointly referred to as "lower IT authorities"), erred in law and on facts in not appreciating the fact that the salary received in India of Rs. 24,50,291 (out of Rs. 26,69,720) is not taxable u/s 9(1) (ii) r.w.s 4 & 5 of ITA, 1961 since services were performed outside India i.e. in USA by the appellant and that for AY 2020-21, the appellant was a non¬resident as per Section 6(1) of the ITA, 1961.
3. The learned lower IT authorities erred in law in not appreciating that, once the income is not taxable under ITA, 1961, there is no need to refer to DTAA. 4. The learned lower IT authorities erred in not deliberating / not following the various judicial precedents on the identical points/issue involved therein. The learned lower IT authorities further erred in not deliberating / not adopting views of parallel DRP authorities on exact identical points / issue. Tax Residency Certificate (TRC) is not mandatory for claiming DTAA benefit 5. The learned lower IT authorities erred in law and on fact in holding that TRC is a mandatory condition for claiming the DTAA benefit between India and USA. 6. While arriving at the erroneous conclusion of insisting for TRC, the learned lower IT authorities failed to appreciate: Page 1of 2 a. The ratio of the various judicial pronouncements submitted by the appellant wherein it was held that DTAA benefit cannot be denied merely on the basis that TRC could not be produced before the lower IT authorities. b. The other documents submitted by the appellant such as passport and return filed in the USA to prove the residential status. Non-Grant of Credit of taxes paid in the USA 7. The learned AO erred in law and on facts in not granting appropriate credit of taxes paid in the USA on salary taxed in the USA on an "accrual" basis, as against the doubly taxed salary income in India on a "receipt" basis. Further, the learned DRP erred in law and facts in not adjudicating the said ground of appeal.
Jurisdiction of the appellant 8. Appellant contends that the jurisdiction assumed by ITO (Int Taxn)-2, Hyderabad is incorrect as the appellant stays in Pune for the last many years.”
The brief facts of the case are that the assessee filed his return of income for A.Y. 2020-21 on 14.12.2020 declaring total income of Rs.18,48,270/- towards salary income from John Deere India Pvt. Ltd. Subsequently, the assessee filed revised return declaring income of Rs.820/- after claiming exemption of Rs.24,50,291/- under DTAA between India and USA. The case was selected for scrutiny under CASS to examine the issues of reduction in taxable income shown in revised return when compared to original return and large refund being claimed in the revised return, salary income shown in ITR was less than salary income as per 26AS, Salary income in TDS Schedule was higher than salary income shown, etc. Hence, notice u/s 143(2) and 142(1) of the Act were issued and served on the assessee by NFAC. In response, the assessee filed reply and submitted that his status was non-resident. The AO after examining the details furnished and the submissions made disallowed the claim of exemption of Rs.24,50,291/- as the assessee had failed to submit Tax Residency Certificate as mandated under sec.90(4) of the I.T. Act,1961 and added back to the returned income.
Feeling aggrieved with the draft assessment order, assessee preferred an appeal before the DRP and the DRP vide his directions dt.21.04.2023 dismissed the objections of the assessee by holdings as under :
“2.5.5 Having considered the submissions, TRC is issued by the Income Tax Department for confirming the residential status of an assessee which in turn helps the assessee avoid being taxed twice. Thus, TRC being proof of residence is mandatorily to be obtained by an assessee while availing the benefits of DTAA. This also helps the Revenue to check genuineness of the assessee availing this benefit. 2.5.6 The AO is correct in holding that production of TRC is mandatory for claiming exemption under DTAA. The words used in the Sec.90 (4) of the Act is that an assessee claiming relief "shall not" be entitled unless a Certificate is obtained by him from that Govt. of the country. Hence, the objection is dismissed.”
Based on the directions issued by the DRP, the Assessing Officer has passed the final assessment order reiterating the earlier finding given at Paragraphs 5.4 and 5.5 of the order, which is to the following effect :
“5.4 The reply of the assessee is verified. It is noticed from the return of income, that the assessee has claimed the salary received of Rs.24,50,291/- as exempt income not chargeable to tax as per DTAA. As per the provisions of Sec.90(4) of IT Act, 1961, it is mandatory that the Tax Residency Certificate (TRC) from the host country is to be submitted for claiming the exemption under the provisions of Double Taxation Avoidance Agreement (DTAA) The relevant provisions of Sec 90(4) are reproduced he as under : (4) An assessee, not being a resident, to whom an agreement referred to in subsection (1) applies shall not be4 titled to claim any relief-under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India as the case may be, is obtained by him from the-Government of that country, or specified territory”. 5.5 In the said section it is mentioned that, unless a certificate of residence i.e., TRC is obtained by the assessee, he "shall not" be entitled to claim any relief. In the instant case, the assessee could not submit the said certificate (TRC), hence as per the provisions of Sec. 90(4), the assessee shall not be entitled to claim relief. In view of the same, the exemption of Rs. 24,50,291/- claimed by the asssessee under the provisions of DTAA in the revised return of income filed for A.Y. 2020 - 21 is disallowed and added back to the returned income.”
It was submitted by the ld. AR before us that the whole basis of denying tax credits to the assessee that the assessee was not able to obtain Tax Residency Certificate from the department of Treasury, USA, certifying that the assessee was taxed in U.S.
6.1. It was submitted that the assessee has filed an application for admission of additional documents before the Tribunal and Tax Residency Certificates for Calendar Year 2019 and 2020 issued by the U.S.A. Treasury on the request of the assessee, which are placed at page nos. 182 to 184 of the paper book, respectively. It was submitted that the application was given by the assessee in the assessment year 2019-20 itself. However, the Certificate was issued by the Department of Treasury, USA only on 03.07.2023. It was submitted that the delay in filing the additional document was on account of the time taken by the Department of Treasury to issue the certificate in favour of the assessee. The ld.AR has submitted that the additional documents filed before the Tribunal may kindly be admitted and the matter may kindly be remitted back to the file of the Assessing Officer with a direction to grant relief to the assessee.
Per contra, the ld. DR relied upon the orders passed by the lower authorities.
We have heard the rival contentions of the parties and perused the material available on record. The sole reason for denying relief to the assessee as per the Assessing Officer in Para 5.4 and 5.5 supra and DRP in para 5.2.5 and 5.2.6 was non- production of Tax Residency Certificate by the assessee from the USA.
As stated hereinabove, the assessee has filed an application for admission of additional documents and Tax Residency Certificates for Callender Years 2019 and 2020, placed at Pages 182 to 184 of the paper book and also provided the reasons for not furnishing the said evidence at assessment / appellate stage. In our view, the law is fairly settled that a party who had failed to produce the evidences despite his best efforts at the assessment / appellate stage and such evidence are necessary for just and fair disposal of the proceedings, then those documents are required to be admitted. The above said principle has been duly incorporated in Rule 29 of the ITAT Rules. In the light of the above, we are of the opinion that the documents now produced before us are required to be admitted as additional evidence as the same goes to the root of the matter and hence, we admit the same.
Having admitted the documents filed by the assessee which are in the nature of additional documents which show that the assessee was tax resident in USA during the relevant assessment year. Accordingly, we remand back the matter to the file of Assessing Officer with a direction to consider the Tax Residence Certificate and decide the issue afresh and pass a reasoned speaking order after affording of opportunities of hearing to the assessee in accordance with law. The assessee is further directed to appear before the Assessing Officer on the date of hearing fixed and shall file all the documents / evidence in support of his case. In case, the assessee failed to file any documents in support of his case, Assessing Officer shall decide the matter in accordance with the law. Accordingly, the appeal of assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.