WATERWORLD TOURISM COMPANY PRIVATE LIMITED,ALAPPUZHA vs. ITO WARD 1 & TPS, ALAPPUZHA

The learned counsel for the assessee submits that the entire unsecured loans of Rs. 6,67,50,241/- were received from NRE accounts of Smt. Mary Chandy and the AO had not doubted the genuineness of the transaction or identity of the unsecured creditors.

On the other hand, the learned CIT-DR opposed the above submissions and submits that the creditworthiness of Smt. Mary Chandy was not proved. Therefore, the addition was rightly made by the AO.

We have heard the rival contentions and perused the material available on record. The issue that arises for our consideration is whether the CIT(A) was correct in sustaining the addition of Rs. 6,67,50,421/- made u/s. 68 of the Act being unsecured loan received from Mrs. Mary Chandy. It is undisputed fact that the appellant during the previous year relevant to the assessment year under consideration received unsecured loan of Rs. 6,67,50,241/- from Smt. Mary Chandy. When the appellant was called upon to prove the genuineness, identity and creditworthiness of the lender the appellant had filed a detailed explanation stating that the said unsecured loan was received from one Smt. Mary Chandy who made the payment from her NRE account. The AO had not doubted the identify and genuineness of the transaction. However, the AO doubted the creditworthiness of Smt. Mary Chandy for the failure of Water World Tourism Company Pvt. Ltd. the appellant to file Balance Sheet and availability of funds in her bank account maintained in Kuwait. Even on appeal before the CIT(A), the CIT(A) also confirmed the action of the AO. In our considered opinion the approach of the learned lower authorities cannot be accepted in view of the fact that the credits to the NRE account cannot be questioned by the assessing authority. The issue was dealt with the Panaji Bench of the Tribunal in the case of Iqbal Ismail Virani v. CIT [2021] 87 ITR(T) 654 wherein it was held as under: -

The above ratio of the Hon'ble Supreme Court in the case of Keshav Mills Ltd. (supra) was reiterated in series of decisions like Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC); CIT v. Dharamdas Hargovandas [1961] 42 ITR 427 (SC); Benares State Bank Ltd. v. CIT [1970] 75 ITR 167 (SC). This position of law also been accepted by the CBDT vide para 2 of the CBDT Circular No. 5 in [F.No.73A/2(69)-IT (A-II)], dated 20-2-1969. which extracted below :- "Migrant assessee - Money remitted to India through banks - Enquiries by Income-tax Officers regarding origin of money - Instructions regarding. It has been represented to the Board that persons of Indian origin residing abroad but intending to return to India and settle here permanently, apprehend that the money brought in or remitted from abroad by such persons might be subjected to income-tax in India. The apprehension appears to be due to lack of information regarding the correct legal position about the taxability of the remittances of money from abroad. The general position, in this regard, is clarified below :

Cases not covered by the preceding paragraph, namely, (a) where the money (in the case of Mozambique, Zanzibar, Kenya, Tanzania, Uganda, East Pakistan and Burma) and money and/or the personal jewellery (in the case of West Pakistan) claimed to have been brought exceeds Rs. 50,000; or (b) where the assessee had some sources of income either in India or in any foreign country, other than the one from which he had migrated, prior to migration; or (c) where the assessee was assessed as Resident in India either for the assessment year preceding the year of his/her migration or in the earlier years, will not be entitled to any special concession. Thus, any claim by such migrants that the funds or the jewellery have been brought from the abovementioned countries, will be accepted only if the persons concerned produce adequate evidence to show that they had sufficient funds/wealth in those countries and that the transfer of the cash/jewellery to India, can directly be linked with the said funds or wealth. In other words, these migrants will have to lead proper evidence like any other assessees, about the source of the cash/jewellery alleged to have been brought by them from these countries. In support of the claim that they had sufficient funds in those countries, they might produce before the income-tax authorities in India, their bank accounts in those countries as also copies of the assessment orders passed in their cases by the income-tax authorities of those countries. The migrants would also then be required to prove that the amounts brought into India can directly be linked with the funds which they had possessed in those countries."

The position that emerges from the CBDT Circular as well as the Hon'ble Supreme Court's decision in the case of Keshav Mills Ltd. (supra) is that the money brought in India by Non- Resident for investment or for other purpose is not liable to tax under the provisions of the Income-tax Act. The question of assessment to income tax arises only when there is no evidence to show that amount is question in fact represents remittance from abroad. Admittedly, in the present case, there is ample evidence on record demonstrating that the amounts in question represents remittance from abroad by the appellant himself. The rational behind this legal proposition is that the word "receipt" implies two persons viz. the person who receives and Water World Tourism Company Pvt. Ltd. the person from whom he receives; a person cannot receive a thing from himself.

Admittedly, the appellant herein is Non-Resident for the last 30 years for income tax purpose and citizen of USA. The scope of tax liability of Non-Resident is required to be considered in the light of sections 4 and 5 of the Income-tax Act. The relevant provisions of the Act are extracted as under :— "4. Charge of income-tax.—(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. ** ** ** Scope of total income. 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a 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 ; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the 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. (2) 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. Explanation 1.—Income accruing or 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. Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India."

The provisions of sub-section (2) of section 5 provides that the Non-Resident is liable to tax in respect of (a) income received or deemed to be received in India and (b) income which accrues or arises or is deemed to be accrued or arise to him in India. Considering the totality of facts situation of the case on hand, it can be safely concluded that the remittance received from the appellant's account Bank of Baroda, Dubai to appellant's account to SBI NRE SB Account, Mapusa, Goa Water World Tourism Company Pvt. Ltd. or remittance to the vendors of the properties is neither income received or deemed to received in India or nor was accrued or arisen or deemed to be accrued or arisen in India, therefore, the question of chargeability to income tax in India does not arise. Therefore, the CBDT Circular cited supra also supports the case of the assessee. In the case involving identical facts, the Co-ordinate Bench of the Chennai Tribunal in the case of Smt. Susila Ramasamy (supra) referring to the CBDT Circular No. 5 dated 20-2-1969 (supra) held the same view.

Admittedly, the appellant herein is Non-Resident Indian for income tax purpose for last 30 years. As noted by us (supra), an Indian resident is liable to tax in respect of income received or deemed to be received in India and income which accrues or arises or deemed to be accrued or arisen in India. In the preceding paragraphs, we held that the impugned addition does not represent either income received or deemed to be received in India or income accrued or arisen or deemed to be accrued or arisen in India. The remittance brought to India which are subject matter of impugned additions are obviously income received at first instance outside taxable territories of India or accrued or arisen outside taxable territories of India. Therefore, it is beyond the scope of jurisdiction of the Assessing Officer to go into the source of income earned outside taxable territories of India, once the Assessing Officer is satisfied that the source of money for acquisition of property represent remittance from the abroad from the appellant himself. Therefore, rejection and acceptance of explanation given as to the source of credits in the bank account of Bank of Baroda, Dubai is totally immaterial and had no relevance at all, as the Assessing Officer was not concerned about the taxability or otherwise of income received or accrued and arisen outside the taxable territories of India to Non-Resident. Therefore, the fact that the lower authorities had rejected the explanation as to the sources of credits in the Bank of Baroda, Dubai account does not come in the way of deleting the impugned additions. This is more so, in view of the fact that Water World Tourism Company Pvt. Ltd. there is no material on record to show that the appellant had diverted the income which escaped the assessment to tax in India to deposit the money in the Bank of Baroda, Dubai account, in fact, it is not even the case of the Assessing Officer that the appellant had indulged in round tripping of money and there is no allegation as such against the appellant.”

What follows from the above decision is that the source of credits to the NRE account cannot be questioned by the assessing authority as the AO was not concerned about the taxability or otherwise of income received/accrued arising outside the taxable territory of India. Thus, the source of the money lent to the appellant company stands clearly explained in the facts of the present case. Therefore, the creditworthiness of Smt. Mary Chandy also stands proved and the learned lower authorities ought to have accepted the explanation of the appellant and there is no warrant for making addition u/s. 68 of the Act disbelieving the unsecured loan of Rs. 67,50,241/-. Accordingly we direct the AO to delete the addition made on account of unsecured loans.

In the result, the appeal filed by the assessee stands allowed.