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Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN
Per N. V. Vasudevan, Vice President
This is an appeal by the assessee against the order dated 29.03.2021 of CIT(A)-12, Bengaluru, relating to Assessment Year 2017-18.
The assessee is an individual. The Assessee was deriving income in the form of salary from Nike Sourcing India Private Limited. During the previous year relevant to Assessment Year 2017-18, the Assessee was on sent on assignment by his employer to Nike Sourcing Guanzhou Co.Ltd., China, ("Nike China") effective 3 July 2016 to 10 September 2019. During the above period he had rendered services in China. For the assignment duration, the Assessee was working wholly and exclusively for the benefits of the overseas entity. During the Assessment year 2017-18, the Assessee had stayed in India for 135 days. The Assessee is a citizen of India and had left India for purposes of employment outside India. Thus, the Page 2 of 7 assessee qualified to be a Non-Resident for AY 2017-18. During the assignment period, the assessee received remuneration from Nike Sourcing India Private Limited (Nike India) by credit to the assessee's bank account in India. The said amount paid to the assessee was cross charged by Nike India to Nike China. As the payroll continued in India, Nike India had duly deducted and deposited the taxes under section 192 of the Act on the entire salary paid to assessee and had accordingly issued a Form 16 to the assessee.
The assessee had filed the tax return for AY 2017-18 in which the assessee did not declare income of Rs.25,44,717 received for services rendered ouside India during the period of assignment to Nike China. The details of income offered to tax by the assessee was as follows:
Amount (in INR) Particulars Total Salary income 37,82,631 Less: Salary income exempt (25,63,896) Taxable salary income 12,18,735 Income from other sources 34,211 Gross Total Income 12,52,946 Less: Deduction U/s Chapter VI 'A (1,77,127) Total Income 10,75,820 Tax thereon (including Cess 1,52,178 @3%) Less: TDS on salary (9,30,088) Refund (7,77,910)
Thus in effect the TDS return filed by the Nike India (Form 26AS) included the salary earned by the assessee for services rendered outside India but the income so earned for services rendered in China was not offered to tax by the assessee in the return of income filed for AY 2017-18.
The Central Processing Centre (CPC) by its intimation u/s.143(1) of the Act dated 18.1.2019 considered the entire global income of the assessee as found in Form No.26AS as the total income of the assessee. Against the order of Page 3 of 7 the CPC, assessee filed application u/s.154 of the Act, which was dismissed by an order dated 3.7.2019.
Against the order dated 3.7.2019, the assessee filed appeal before CIT(A). Before CIT(A), it was submitted that the revenue has wrongly assumed that Nike India is the employer of the assessee and has held that assessee and the employer are situated in India. It was submitted that during the period of assignment, the assessee worked directly under the control and supervision of Nike China and hence Nike China was the economic employer of the assessee and that it was only on account of personal connection of the assessee in India, Nike India paid the salary to the assessee in Bank Account in India on behalf of Nike China. The salary paid to the assessee was duly cross charged to Nike China by Nike India. It was submitted that the CPC has made the said addition due to difference as per Form 26AS and income tax return filed by the assessee since Nike India had deducted taxes on the entire salary income paid on a conservative basis. The assessee submitted that as per the provisions of section 6(1) of the Act read with Explnationj-1(a) of Sec.6(1) of the Act, the assessee was a non-resident in India during the relevant previous year as he was not in India in that year for a period or periods amounting in all to 182 or more. The assessee pointed out that his stay in India was less than 182 days during FY 2017-18 (i.e. 135 days) and therefore the assessee would be a non- resident of India for FY 2017-18. The assessee also pointed out that in terms of Section 5(2) of the Act a non-resident would be liable to tax in India in respect of all income from whatever source derived, which is received or is deemed to be received in India in such year by or on behalf of such person; or which accrues or arises or is deemed to accrue or arise in India during such year. The provisions of Section 5(2) stipulate that the said provision is subjected to the other provisions of the Act. As per Provisions of Section 9(1)(ii) of the Act, income is deemed to accrue or arise in India in the form of salary, only if it is earned in India in respect of services rendered in India. The relevant extract of section 9 is as follows:
Page 4 of 7 "Section. 9: Income deemed to accrue or arise in India. — (ii) income which falls under the head "Salaries" if it is earned in India: Explanation. —For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for — (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India;]" It was thus contended by the assessee that the provisions of Section 9(1)(ii) of the Act read with Explanation to clause (b) is very clear that salary income be deemed to accrue or arise in India, only if it is earned in India in respect of services rendered in India. The assessee placed reliance on the decision of the jurisdictional Karnataka High Court in the case of Prahlad Vijendra Rao (198 Taxman 551) (Kar) wherein it was held that salary received by Mr. Prahlad Vijendra Rao in India is not taxable as the assesse was non-resident in India and was working outside India. The salary relating to the period of services rendered outside India has not accrued in India and hence not taxable in India. Reliance was also placed on the decision in the case of CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260 (Born.) wherein the Bombay HC held that salary received by the nonresident marine engineer for services rendered by him on a foreign going Indian ship which mainly remained away from the Indian coast during the relevant accounting year accrued outside India and was not taxable in India.
The CIT(A) however did not agree with the contention put forth by the assessee. The CIT(A) held that in terms of section 5(2)(a) of the of the Act, income received in India is taxable in India. The CIT(A) also held that since salary income as per Form 26AS was brought to tax, the action of the AO in bringing the same to tax was justified.
Against the order of the CIT(A), assesseee is in appeal before the Tribunal. Before the Tribunal, assessee has filed application for admitting the Page 5 of 7 documents as additional evidence viz., assignment letter by which Nike Sourcing India Pvt. Ltd., sent the assessee to China and passport copy to show that the assessee was not in India for a period more than 182 days during the relevant previous year which makes the status for the purpose of Income Tax Act as a non-resident. The reasons for filing these documents before the Tribunal have been explained as owing to the the fact that the information in this regard was communicated to the Revenue Department via the Income-tax portal and also before the CIT(A) but the CIT(A) dismissed the appeal without providing any opportunity for personal hearing. Hence, the assessee was unable to furnish the said documents. The documents are therefore now being filed before the Tribunal.
I have heard the rival submissions which was a reiteration of submissions made before the revenue authorities. I am of the view that the issue with regard to taxability of a sum of Rs.25,44,717/- which is claimed by the assessee not to have accrued in India and hence not taxable, requires to be considered afresh by the AO in the light of the additional evidence now filed by the assessee before the Tribunal, which is admitted as additional evidence as it is necessary for rendering a decision on the issue in the appeal. I am of the view that the principles with regard to taxability in India in such circumstances have been explained by the Hon’ble ITAT, Bengaluru Bench, in the case of Bholanath Pal Vs. ITO (2012) 23 taxmann.com 177 (Bang. Tribunal). In that case, the facts were that the assessee was a former employee of one M India [a company incorporated and situated in India]. During May. 2000 the assessee joined one M Japan [a company incorporated and situated in Japan] and worked as the Managing Director of M Japan until April, 2006. During the previous year 2005- 06, the assessee had aggregate stay in India for 83 days including the days of arrival and of departure. The assessee's visits to India were in connection with business and not for rendering employment services for any Indian entity. However, M India on behalf of M Japan, for administrative convenience, paid salary to the assessee. In the return of income, the assessee declared his status as non-resident and claimed that the entire salary income was not taxable in Page 6 of 7 India. The Assessing Officer disallowed the claim of the assessee and brought to tax (a ) the salary income for the days the assessee was in India between 1-4- 2005 and 31-12-2005, i.e., 45 days, and (b) the entire salary income for the period between 1-1-2006 and 31-3-2006, i.e., 90 days. The Tribunal on the above facts held that it was an admitted fact that the assessee worked as the Managing Director of M Japan during .lay. 2000 to April, 2006. his also an admitted position that for the previous year 2005-06 [1-4-2005 to 31-3-2006, the assessee was a tax resident in Japan and salary was earned in Japan for which taxes were paid in Japan. Salary accrues where the employment services are rendered. In the instant case, for the assessee, the normal place where the employment services rendered is in Japan and not in India. His visits to India are in connection with business and not for rendering employment services for any Indian entity. There is no employment agreement for• having rendered any services for Indian entity. In the instant case, the salary accrues to the assessee in Japan and the accrued salary is partly delivered by M India in India. Hence, there is no accrual of salary in India. In terms of section 9(i)(ii ) income chargeable under the head 'salaries' under section 15 shall be deemed to accrue or arise in India if it is earned in India, i.e., if the services under the agreement of employment are or were rendered in India. In the instant case, the employment services were entirely rendered outside India. Hence, the salary is not earned for rendering services in India. Therefore, salary for the entire year is not taxable. Therefore, the salary which was received by the assessee for the services rendered in Japan for the period 1-4-2005 to 31-3-2006 was not liable to tax in India.
The AO will keep in mind the principles laid down in the aforesaid decision while deciding the issue in the set aside proceedings. The AO will afford opportunity of being heard to the assessee in the set aside proceedings. With these observations, we allow the appeal of the assessee for statistical purposes.
Page 7 of 7 10. In the result, the appeal of the assessee is treated as allowed for statistical purposes.