MARETI SRINIVASALU,CHENNAI vs. ITO, INTNL TAXN WARD-2(2), CHENNAI

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ITTPA 52/CHNY/2022Status: DisposedITAT Chennai20 December 2023AY 2019-208 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee is liable to pay income tax on the salary received from M/s. Engineers India Ltd. during the relevant period. The Tribunal observed that the assessee was an employee of M/s Engineers India Ltd. and was sent to Nigeria on assignment. The salary was paid by the Indian employer after deducting TDS and was credited to the assessee's NRE account maintained in India. Therefore, the Tribunal concluded that the salary income was received in India, making it taxable under section 5(2)(a) of the Income-Tax Act, 1961. The Tribunal noted that the assessee failed to provide evidence of paying income tax in Nigeria. The Tribunal found that the case laws relied upon by the assessee did not deal with section 5(2)(a) of the Act and were therefore not applicable. Accordingly, the order of the AO was upheld. The issue of the non-existent DTAA was implicitly addressed by focusing on the receipt of income in India under the Act.

What were the facts?

The assessee, Mareti Srinivasalu, an individual and non-resident, appealed against the order of the Income Tax Officer, International Taxation Ward-2(2), Chennai, for Assessment Year 2019-20. The assessee was an employee of M/s Engineers India Limited and was sent to Nigeria for services. Salary for this period was paid in India after TDS deduction. The assessee initially declared total income of Rs. 40,24,810, then filed a revised return showing Rs. Nil income and claiming a refund of Rs. 10,60,741. The Assessing Officer (AO) proposed to add Rs. 41,96,748 to the total income, which was upheld by the Dispute Resolution Panel (DRP). The final assessment order was passed under section 143(3) read with section 144C(13) of the Income-Tax Act, 1961.

What were the issues?

1. Whether the salary of Rs. 41,96,748 received by the non-resident assessee for services rendered abroad is taxable in India under section 5(2) of the Income-Tax Act, 1961, especially when the assessee claimed reliance on a non-existent Double Taxation Avoidance Agreement (DTAA) between India and Nigeria. Assessee's contentions: - Salary income for services rendered outside India by a non-resident is not taxable in India. - Salary is taxed on accrual basis, not receipt basis, and accrues where services are rendered. - The AO erred in ignoring the Proviso to section 5(1) and Explanation-1 to section 5(2). - Circular No. 13/2017 applies to non-residents rendering services outside India and receiving salaries into Indian bank accounts. - The DRP and AO relied on an inapplicable decision and ignored relevant case laws. Revenue's contentions: - The assessee was an employee of M/s Engineers India Ltd. and served abroad as their employee. - Salary was paid in India by M/s Engineers India Ltd. after TDS deduction. - There was an employer-employee relationship. - Relied on case laws favourable to the Revenue.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 15,Section 5(1),Section 6(6),Section 5(2),Section 195

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI MANJUNATHA. G & SHRI MANOMOHAN DAS

Hearing: 29.11.2023Pronounced: 20.12.2023

आदेश / O R D E R

PER MANOMOHAN DAS, J.M: This appeal by the assessee is directed against the order of the learned Assessing Officer [AO], International Taxation Ward 2 (2), Chennai dated 20-07-2022 and pertains to the Assessment Year [AY] 2019-20. The grounds of the assessee are as under: “1. The Assessment Order passed in the casc of the Appellant under section 143(3) read with section 144C(13) of Income-Tax Act, 1961 (the Act) on 20/07/2022 for Assessment Year 2019-2020 by the Income-Tax Officer, International Taxation Ward-2(2), Chennai (the learned AO) is erroneous, arbitrary and opposed to the facts and circumstances of the case and the law and deserves to be annulled. 2. The learned AO has erred in bringing to tax salary of Rs.

IT(TP)A No.52/Chny/2022 :- 2 -:

41,96,748 received by the Appellant for services rendered abroad on the basis of a presumption that the Appellant had relied upon a Double Taxation Avoidance Agreement between India and Nigeria, which is non-existent.

3.

The learned AO has erred in failing to appreciate that existence of an employee-employer relationship has no relevance in the context of section 15, which lays down the criteria for determining the chargeability to tax in India of salary received by a non-resident abroad.

4.

The learned AO has erred in ignoring the Proviso to section 5(1) of the Act, which states that in the case of a person not ordinarily resident in India within the meaning of section 6(6), income which accrues or arises to him outside India shall not be so included, unless it is derived from a business controlled in or a profession set up in India.

5.

The learned AO has erred in ignoring Explanation-l to section 5(2), which provides that income accruing arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

6.

The learned A0 has erred in failing to appreciate that Circular No.13/2017, dated 11.04.2017, issued by Central Board of Direct Taxes, New Delhi (the Board) applies in principle to all non-residents rendering services outside India and receiving salaries into bank accounts maintained in India and not just to seafarers rendering service aboard foreign ships.

7.

The Hon"ble Dispute Resolution Panel (DRP) -2, Bengaluru, and the learned AO have erred in placing reliance on an inapplicable decision of the Chennai Tribunal and in not considering the relevant case laws cited by the Appellant and squarely applicable to his case.

8.

The impugned assessment order is contrary to the provisions of the Act and oppose pronouncements of the Hon'ble Supreme Court, the jurisdictional High Court and Tribunal and various other Courts, which provide that salary received for services rendered outside India cannot be considered to have accrued in India and is therefore outside the mischief of section S(2) of the Act.”

2.

The brief facts of the case are that the assessee Shri Mareti

Srinivasalu (PAN: AHQPS3106G) is a non-resident individual and an

IT(TP)A No.52/Chny/2022 :- 3 -:

employee of M/s Engineers India Limited during the relevant

assessment year. The assessee filed his original return of income for

the A.Y 2019-20 on 22-07-2019 admitting his total income of

Rs.40,24,810/- without claiming any refund. Later, the assessee filed

revised return of income on 03-01-2020 admitting total income of

Rs.Nil but claimed refund of Rs. 10,60,741/-. The case was selected

for complete scrutiny under CASS and notice u/s 143(2) r.w.s. 143(3A)

of the Act and 143(3B) of the Act dated 31-03-2021 was issued by

NFAC and duly served on the assessee. Notice u/s 142(1) of the Act

dated 16-07-2021 issued asking for details and the same was served.

The assessee, in response furnished the details on 03-08-2021. The

issue pertains to the complete scrutiny was “assessee has claimed

large refund out of TDS u/s 195 of the Act of Rs. 10,52,388/-. The

employer of the assessee, M/s Engineers India Ltd. sent the assessee

to Nigeria during the relevant assessment year and salary for that

period was paid in India after deduction of TDS. The assessee vide

revised return of income admitted Rs. 30,794/- as taxable income

under the head “Income from other sources” and claimed

Rs.41,54,348/- as exempted income under the head “salaries”. The

assessee relied upon the Double Taxation Avoidance Agreement

between India and Nigeria to claim the exempted income. The ld. AO

IT(TP)A No.52/Chny/2022 :- 4 -:

rejected the claim of the assessee and completed the assessment by

proposing to add the amount of Rs.41,96,748/- to the total income of

the assessee vide order dated 29-09-2021 and sent the draft

assessment order to the assessee and the Dispute Resolution Panel

(DRP) u/s 144C(1) of the Act. The assessee preferred an appeal

before the DRP against the draft assessment order passed by the ld.

AO. The DRP after consideration of the claim of the assessee rejected

the case of the assessee vide DIN and document

No.ITBA/DRP/S/91/2022-23/1043471198(1) dated 16-06-2022 and

upheld the order of the ld. AO. Thereafter, the ld. AO passed the final

assessment order u/s 143(3) r.w.s. 144C(13) of the Act by adding

Rs.41,96,748/- to the total income of the assessee.

3.

Being aggrieved, the assessee filed the present appeal before

the Tribunal.

4.

Heard the representatives of both the parties and perused the

materials on record. The Ld. AR submitted that salary income for

services rendered outside India by a non-resident is not taxable in

India. The Ld. AR also submitted that salary is taxed on accrual basis

and not on receipt basis and salary accrues where the employee

IT(TP)A No.52/Chny/2022 :- 5 -:

renders services. The assessee relied on certain case laws in support

of the case of the assessee.

5.

Per contra, the Ld. DR submitted that the assessee was an

employee of M/s Engineers India Ltd. and he served outside India as

an employee of M/s Engineers India Ltd. Also, the Ld. DR submitted

that salary was paid to the assessee in India by M/s Engineers India

Ltd. after deduction of TDS. The Ld. DR also submitted that there was

employer and employee relation between the assessee and M/s.

Engineers India Ltd. The Ld. DR also relied on case laws favourable to

Revenue.

6.

We carefully considered the submissions of the parties and also

perused the orders of the lower authorities. We observe that the

assessee was an employee of M/s Engineers India Ltd. The assessee

was sent to Nigeria on assignment by his employer M/s Engineers

India Ltd. The salary for the relevant period was paid to the assessee

by M/s. Engineers India Ltd. employer of the assessee after deduction

of necessary TDS. The salary was received by the assessee through

his NRE account maintained in India.

IT(TP)A No.52/Chny/2022 :- 6 -:

7.

The lower authority considered the matter and found that the

Double Taxation Avoidance agreement is not there between India and

Nigeria. Accordingly, by relying on the relevant provisions of the

Income Tax Act, 1961 rejected the claim of the assessee that his

salary income was not taxable in India.

8.

Regarding the question whether an NRI is liable to pay income

tax in India on his income and the circumstances when an NRI has to

pay income tax in India are already provided in the Income Tax Act,

1961. So, we may refer that provision of the Act so as to dispose of the

issue. Section 5 (2) of the Act on that issue says as under:

“Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which --- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.”

9.

The above provisions of section 5(2) of the Act was considered

in the case of British Gas India (P) Ltd, In Re (2006) 287 ITR 462

(AAR) and it was inter-alia held that, the above provision very clearly

states that the total income of a non-resident includes all income from

whatever source, which is received in India by or on behalf of such

person. This leaves no manner of doubt that the Indian salary of the

IT(TP)A No.52/Chny/2022 :- 7 -:

concerned employees of the applicant is taxable in India. But because

of the provisions of the Double Taxation Avoidance Agreement, no tax

is actually payable in India.

10.

Now another question before us is whether the assessee had

received his salary income in India. If salary for the relevant period

was not received in India by the assessee then the claim of the

assessee may have to be accepted. It is undisputed fact that the

assessee is an employee of M/s Engineers India Ltd. and was getting

his salary from Indian employer. The Indian employer of the assessee

deducted the necessary TDS also on the salary paid to the assessee.

We observe that the assessee has NRE account and the employer

credited the salary for the relevant period in that NRE account.

Accordingly, it is our considered opinion that the assessee received his

salary income in India. Further, there is no evidence from the

assessee that he had paid income tax on the aforesaid salary income

to the Government of Nigeria.

11.

The assessee has relied upon on various case laws in support of

his argument but on perusal of those case laws we find that none of

IT(TP)A No.52/Chny/2022 :- 8 -:

cases dealt with section 5(2)(a) of the Act and therefore, none of them is applicable in the case in our hand.

12.

In view of the aforesaid, it is our considered opinion that the assessee is liable to pay income tax on the salary received from M/s. Engineers India Ltd. during the relevant period. Accordingly, we upheld the order of the Ld. A.O.

13.

In the result, the appeal of the assessee is dismissed.

Order pronounced on 20th December, 2023.

Sd/- Sd/- (मंजुनाथ. जी) (मनोमोहन दास) (Manjunatha. G) (Manomohan Das) �ाियक सद�/Judicial Member लेखा सद�य लेखा सद�य /Accountant Member लेखा लेखा सद�य सद�य चे�ई/Chennai, �दनांक/Dated: 20th December, 2023. EDN/-

आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ+/Appellant 2. ,-थ+/Respondent 3. आयकर आयु./CIT 4. िवभागीय ,ितिनिध/DR 5. गाड) फाईल/GF

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