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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M : The present appeal filed by the assessee is directed against the order passed by the CIT(A)-58, Mumbai, dated 20.01.2020 which in turn arises from the order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 29.12.2016.
Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 2. Briefly stated, the assessee who is a non-resident had e-filed his return of income for A.Y 2014-15 on 29.07.2014, declaring an income of Rs. 4,85,550/-. The return of income was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
The issue involved in the present appeal lies in a narrow compass i.e as to whether or not the assessee was eligible to avail special rate of tax on the interest income on fixed deposits & bank interest amounting to Rs. 17,87,709/- @10% and 15% as per the India-USA DTAA. As is discernible from the records, the assessee, a non-resident individual, had inter alia derived interest income, viz. interest on fixed deposits and bank interest during the year under consideration. On the basis of Sec. 90(2) of the Act, the assessee had in his return of income offered for tax the aforesaid interest income as per the special rate of tax on the basis of the India-USA DTAA. However, as the assessee in the course of the assessment proceedings despite specific direction failed to substantiate that the interest income in question was offered for tax in his return of income filed in U.S.A, the A.O, for the said reason declined to apply the beneficial provisions of the India-USA DTAA. Accordingly, the A.O subjected the interest income to tax as per the normal provisions of the Act.
Aggrieved, the assessee assailed the assessment order before the CIT(Appeals). During the course of the appellate proceedings the assessee filed before the CIT(A) by way of additional evidence, viz. (i). Tax Residency Certificate, dated 30.01.2017 (TRC); and (ii). Form 10F, dated 07.05.2019. The A.O vide his „remand report‟ objected to the admission of the aforesaid additional evidence. Rebutting, the objection of the A.O, the assessee demonstrated the reasons that had led to failure on his part to file the aforesaid documents in the course of the assessment proceedings. After deliberating on the assessee‟s claim for allowing of the beneficial provisions of India-USA DTAA, Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 it was observed by the CIT(A) that for claiming the benefits of a DTAA an assessee is required to obtain a TRC and also file information in Form 10F. It was further observed by him that the benefit under the DTAA has to be claimed by an assessee in the return of income itself. Also, the CIT(A) was of the view that as Rule 21AB(2A) of the Income-tax Rules, 1962 casts an obligation on the assessee to maintain such documents and furnish the same to the A.O, therefore, the said information ought to have been available with the assessee at the time of filing of the return of income itself. The CIT(A) observed that the assessee had not obtained the TRC before filing the return of income and had not filed the same in the course of the assessment proceedings. Also, it was observed by him that the Form 10F, dated 07.05.2019 was filed in the course of the appellate proceedings before him on 21.11.2019. In the backdrop of the aforesaid facts, the CIT(A) was of the view that as the assessee had failed to comply with the mandate of sub-sections (4) and (5) of Sec. 90 of the Act, therefore, the A.O had qua the taxability of the assessee‟s interest income rightly declined to apply the beneficial provisions of the India-USA DTAA.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. Authorised Representative (for short „A.R‟) for the assessee that the A.O had declined the assessee‟s claim for applying of special rate of tax on his interest income on the basis of the India- USA DTAA, for the reason, that he had failed to substantiate that such interest income was offered for tax in his return of income filed in U.S.A. Rebutting the aforesaid observation of the A.O, it was submitted by the ld. A.R that the non- submission of the return of income filed by an assessee abroad could not be a condition for declining of special rate of tax as per the DTAA. It was submitted by the ld. A.R that the CIT(A) had most arbitrarily rejected the admission of the additional evidence. It was further submitted by the ld. A.R that though the assessee due to paucity of time and reasons beyond his control could not file the Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 TRC in the course of the assessment proceedings, however, by the time the same was obtained the assessment proceedings stood culminated. It was submitted by the ld. A.R that the TRC of the assessee was filed by the assessee after the conclusion of the assessment proceedings and is available in the records of the A.O.
Per contra, the ld. Departmental representative (for short “D.R”) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had failed to file the TRC and Form 10F, therefore, the lower authorities had rightly declined the assessee‟s claim for applying the special rate of tax on his interest income as per the India-USA DTAA.
We have heard the ld. Authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. As pointed out by the ld. A.R, and rightly so, the A.O had declined to apply the special rate of tax qua the interest income of the assessee, for the reason, that the assessee had failed to substantiate that the interest income in question was offered for tax in his return of income filed in U.S.A. On the contrary, the CIT(A) had concluded that the assessee having failed to file the TRC and Form 10F with the A.O, thus, could not have sought exigibility to tax of the interest income on fixed deposits & bank interest amounting to Rs. 17,87,709/- @10% and 15% on the basis of the India-USA DTAA. Before adverting to the sustainability of the view taken by the lower authorities, we shall briefly cull out the relevant statutory provisions which would have a bearing on the adjudication of the issue in question. Sub-sections (1), (4) and (5) to Section 90 of the Act reads as under : “(1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,— (a) for the granting of relief in respect of— (i) ……………………………….……………………………………………………………………..…………….… Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) to (d)………………….…………………………………………………………………………………………..…… (2) …………………………………………………………………………………………………………………………………….. (3) ………………………………………………………………………………………………………………….…………………. (4) An assessee, not being a resident, to whom an agreement referred to in sub- section (1) applies, shall not be entitled 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) The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed.”
As observed by us hereinabove, sub-section (1)(a)(ii) of Section 90 contemplates that the Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India for, inter alia, granting of relief in respect of income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment. Sub- section (4) of Sec. 90 sets out as a pre-condition, that a non-resident assessee, to whom an agreement referred to in sub-section (1) of Sec. 90 applies shall not be entitled 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. Accordingly, as per the mandate of sub-section (4) of Sec. 90, the beneficial provisions of a DTAA would stand triggered qua an assessee to whom an agreement referred to in sub-section (1) of Sec. 90 applies, subject to obtaining of a TRC by him from the Government of the country or specified territory of which he is a resident. Insofar sub-section (5) of Sec. 90 is concerned, the same supplements sub-section (4) of Sec. 90, with a condition, that a non- resident assessee seeking relief under the DTAA shall also be required to provide such other documents and information as may be prescribed, viz. that Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 provided in Rule 21AB(1) to (2A) and Form 10F. As is discernible from Rule 21AB(1) and (2A), the same reads as under:
Certificate for claiming relief under an agreement referred to in section 90 and 90A. (1) Subject to the provisions of sub-rule (2), for the purposes of sub-section (5) of section 90 and sub-section (5) of section 90A, the following information shall be provided by an assessee in Form No. 10F, namely:— (i) Status (individual, company, firm etc.) of the assessee; (ii) Nationality (in case of an individual) or country or specified territory of incorporation or registration (in case of others); (iii) Assessee's tax identification number in the country or specified territory of residence and in case there is no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory of which the asseessee claims to be a resident; (iv) Period for which the residential status, as mentioned in the certificate referred to in sub- section (4) of section 90 or sub-section (4) of section 90A, is applicable; and (v) Address of the assessee in the country or specified territory outside India, during the period for which the certificate, as mentioned in (iv) above, is applicable. (2) The assessee may not be required to provide the information or any part thereof referred to in sub-rule (1) if the information or the part thereof, as the case may be, is contained in the certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A. (2A) The assessee shall keep and maintain such documents as are necessary to substantiate the information provided under sub-rule (1) and an income-tax authority may require the assessee to provide the said documents in relation to a claim by the said assessee of any relief under an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A, as the case may be.
On a conjoint perusal of sub-section (1), (4) and (5) to Sec. 90 r.w Rule 21AB(1) to (2A), we find, that the same contemplates that for inter alia availing the special rates of tax as per the beneficial provisions of the DTAA, the assessee is required to file TRC and the requisite information prescribed in „Form 10F‟. It is, thus, in the backdrop of the aforesaid mandate of law that we shall hereinafter deliberate on the maintainability of the assessee‟s claim for subjecting of his interest income to tax as per the special tax rates provided in the India-USA DTAA.
Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 8. As is discernible from the records, the assessee had in his return of income offered for tax the interest income on fixed deposits & bank interest amounting to Rs. 17,87,709/- @10% and 15% on the basis of the India-USA DTAA. Admittedly, the assessee had neither filed the TRC nor the Form 10F upto the culmination of the assessment proceedings. Insofar the TRC is concerned, the same is stated to have been filed with the A.O though after the assessment was framed. As observed by us hereinabove, the assessee explaining the reasons as to why the TRC and Form 10F could not be filed in the course of the assessment proceedings had sought for admission of the same as additional evidence by the CIT(A). However, the CIT(A) held a conviction that as per the mandate of Sec. 90(4) and (5) r.w Rule 21AB(2A) the assessee was obligated to have furnished the TRC and „Form 10F‟ before the A.O. Having held so, the CIT(A) was of the view that as the assessee had failed to file the aforesaid documents before the A.O, therefore, no infirmity did emerge from the declining on the latter‟s part to apply the special rates of tax on the interest income of the assessee as per the India-USA tax treaty.
We have deliberated at length qua the issue under consideration and are unable to persuade ourselves to accept the view taken by the lower authorities. As is discernible from the order passed by the CIT(A), the assesee could not furnish the TRC in the course of the assessment proceedings because of paucity of time, which reasons were explained at length by him before the CIT(A), as under: “(i). The ld. ITO asked for TRC for the first time on 21st December, 2016, requiring assessee to furnish TRC in two days before 23.12.2016. This was an impractical requirement. (ii). It took assessee almost four weeks to obtain TRC from USA tax authorities. He applied on 03.01.2017 and got it on 30.01.2017. He could not apply earlier for reasons explained below. (iii). When the ld. ITO demanded the TRC the assessee was in India on pilgrimage. Hence, it was too short a time for him to coordinate with his CPA Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 and USA tax authorities. This was communicated with ld. ITO on 23.12.2010. (iv). Assessee wanted to contact his CPA in USA to explore the possibility for getting TRC within time and hence requested a time upto 28th December, 2016. He did make an attempt to get it by contacting his CPA but could not apply for the TRC because last week of December in USA is a festive season and his CPA did not respond in time. (v). Had the requirement was known earlier than the assessee would have got more time to respond and produce the certificate.”
After perusing the aforesaid facts, we are of the considered view that there were justifiable reasons for the assessee in not filing the TRC in the course of the assessment proceedings. But then, we cannot also remain oblivious of the fact that the A.O had declined to apply the special rate of tax as per the DTAA, for the reason, that the assessee had failed to substantiate that the interest income in question was offered by him for tax in his return of income filed in U.S.A. As observed by us hereinabove, the very basis of rejection of the assessee‟s claim for applying of special rate of tax as per the India-USA DTAA by the A.O is absolutely misconceived and in fact misplaced. As stated by the ld. A.R, and rightly so, the assessee was not seeking credit of taxes paid on his income abroad, but was seeking taxing of his interest income as per the special rates on the basis of the India-USA DTAA. Considering the fact that the assessee had filed the TRC with the A.O though after the conclusion of the assessment, coupled with the reasons that had led to delay in obtaining of the same alongwith the Form 10F, we are unable to persuade ourselves to the summarily rejection or in fact discarding of the same by the CIT(A). We, thus, in the backdrop of our aforesaid deliberations, are of the considered view, that as the assessee had filed the TRC and Form 10F, therefore, there was no justification in declining the applying of the special rate of tax qua the interest income on fixed deposits & bank interest amounting to Rs. 17,87,709/- @10% and 15% that was claimed by him on the basis of the India-USA DTAA in his return of income.
Shri. Haresh C. Sheth vs. ITO (IT), 4(2)(1), Mumbai A.Y 2014-15 10. We, thus, set-aside the order of the CIT(A) and direct the A.O to determine the taxability of the interest income as per the special rate of tax on the basis of India-USA tax treaty.
Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 19/07/2021.