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Facts
The assessee, a non-resident employed with HPCL in Dubai, declared salary income. The assessee claimed relief under section 90/91 for TDS deducted on salary earned outside India, later withdrawing the claim and stating the income was not chargeable. The AO disallowed the relief, and the CIT(A) upheld this decision.
Held
The Tribunal noted that the chargeability of salary income for a non-resident depends on services rendered in India as per Section 9(1)(ii). The AO and CIT(A) did not verify this crucial aspect. Therefore, the issue was remanded to the AO for necessary verification.
Key Issues
Whether salary income earned by a non-resident from services rendered outside India is taxable in India, and whether the AO/CIT(A) correctly disallowed the relief claimed by the assessee without proper verification of the conditions for chargeability.
Sections Cited
Sec. 4, Sec. 5, Sec. 9(1)(ii), Sec. 90/91, Sec. 139, Sec. 143(1), Sec. 142(1), Sec. 197, Sec. 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SMT BEENA PILLAI & SHRI PRABHASH SHANKAR
O R D E R Per Beena Pillai, JM: Present penalty appeal is filed by the assessee against order dated 16/02/2024 passed by Ld.CIT(A)/NFAC, Delhi for Assessment Year 2019-20 on following grounds of appeal:
Subhendu Mohanty; A. Y.2019-20 1.1. “The order passed u/s 250 dated 31-10-2022 for A.Y. 2019-20 by CIT(A) NFAC, Delhi upholding the disallowance of relief of Rs.17,46,133/- by treating salary income earned outside India as taxable income in India is wholly illegal, unlawful and against the Act. 1.2. The Ld. CIT(A) has grievously erred in law and/or on facts in treating salary income as taxable without providing an opportunity of hearing so that there is gross violation of principles of natural justice. 1.3. The Ld. CIT(A) has grievously erred in law and/or on facts in upholding the findings of AO of treating the impugned salary income earned outside India pursuant to services rendered outside India as taxable in the hands of non-resident appellant. 1.4. That Ld. CIT(A) has grievously erred in law and/or on facts in upholding the findings of AO of not appreciating provisions of the Act in true spirit of Law. 1.5. The Ld. CIT(A) has grievously erred in law and/or on facts in rejecting the claim of relief u/s 90/91 of the Act of the appellant and not considering the contention of non-chargeability of salary income in the hands of non-resident. 1.6. The Ld. CIT(A) has grievously erred in law and/or on facts in not allowing the claim of appellant towards non-chargeability. The Ld CIT(A) ought not to have rejected the same. It is, therefore, prayed that rejection of claim of Rs.17,46,133/- upheld by Ld CIT(A) deserves to be deleted.”
Brief facts of the case are as under: 2. The assessee is an individual and was non-resident during the year under consideration. It is submitted that, he was employed with Hindustan Petroleum Corporation Limited (HPCL) & was serving to its Dubai UAE Arm as CEO. The assessee derived incomes under the head salary, house property and other sources. The return of income (ROI) u/s 139 was filed on 10/2/2021 declaring total income at Rs.58,52,070. The return of income was processed u/s 143(1) and the case was selected for complete Subhendu Mohanty; A. Y.2019-20 scrutiny assessment under E-Assessment Scheme, 2019 on issues like Large relief allowed u/s 90/91 and claim of refund. 2.1. The assessee was issued notice u/s 142(1), calling for various details and information in respect of the claims made in the return of income. The assessee filed reply stating that income under the head salary was non-chargeable to tax as the assessee was non- resident during the year, because he was outside India for more than 182 days and was deputed to HPCL Middle East FZCO (a wholly owned subsidiary of HPCL) operating in Dubai and the services were rendered by the assessee outside India. The necessary evidences to this effect were also provided by the assessee. 2.2. During the course of assessment proceedings, Ld.AO noticed that, the relief claimed u/s 90/91 of the Act amounting to Rs.17,46,133/- being TDS deduced by HPCL on salary paid abroad was claimed by the assessee. It was stated before Ld.AO that assessee applied for no deduction/lower deduction of TDS u/s 197 of the Act and certificate to that effect was awaited. 2.3. It was submitted before Ld.AO that, due to mistake on part of the tax consultant while preparing return of income, the said claim of TDS on salary of Rs.17,46,133 was claimed as relief u/s 90/91 of the Act. The assessee during the assessment proceedings requested for withdrawal of said claim. It was submitted that, the assessee should have claimed it as income not chargeable to tax since the said income was neither received or is deemed to be received in Subhendu Mohanty; A. Y.2019-20 India, nor accrue or arise in India and nor deemed to accrue or arise in India. 2.4. The assessee had submitted that, it is settled legal proposition that any claim inadvertently made in the return of income or any claim left out in the return of income can be made good during the course of assessment proceedings. Thereby a claim can be made good till culmination of assessment proceedings and Ld.AO could consider the same within the parameters of law. 2.5. The Ld.AO in the assessment order alleged to have issued show cause notice on 20/9/2021 proposing to make addition of Rs.17,46,133/- towards relief claimed u/s 90/91 of the Act but no such notice was received by the assessee. Therefore, no reply could be furnished. 2.6. The Ld.AO thus disallowed the relief of Rs. 17,46,133 claimed u/s 90/91 of the Act but also did not considered the legal submission towards non-chargeability of Salary income in India so that TDS was supposed to be refunded to the assessee. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before Ld.CIT(A).
The contentions raised during assessment proceedings were reiterated by the assessee, mainly that, income is not chargeable to tax being not received in India, not deemed to receive in India, not accrue or arise in India, not deemed to accrue or arise in India so Subhendu Mohanty; A. Y.2019-20 that it does not qualify the tests of total income nor scope of total income. 3.1. The CIT(A) considered the submission of assessee but rejected assessee’s submissions. 3.2. The Ld. CIT(A) rejected the submission made during the course of appellate proceedings and upheld the findings of AO making disallowances of Rs.17,46,133.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. The Ld.AR submitted that, charge of tax is governed by S.4 of the Act, provides for charge on the total income of a person during the previous year. It is submitted that, the scope of total income in respect of various type of persons is governed by S.5 of the Act, that provides for income of a non-resident will be chargeable to tax, only if it is received/deemed to be received in India and accrue or arise or is deemed to accrue or arise in India during such year. 4.1. He further submitted that as per provision of section 9(1)(ii), income deemed to accrue or arise in India deals with income under the head Salary and the said provision categorically provides that income under the head salary in the hands of a non-resident shall be chargeable to tax in India, only if, services were rendered in India. Thus, the chargeability of salary in the hands of a non- resident is conditional upon the services to be rendered in India. The Ld.AR thus submitted that, impugned salary earned by the Subhendu Mohanty; A. Y.2019-20 assessee outside India, pursuant to services rendered outside India does not pass the fundamental tests for chargeability laid down under the law. We have perused the submissions advanced by both sides in the light of records placed before us.
It is mainly submitted that taxability of a receipt is governed by S.4 of the Act which provides for charge on the total income of a person during the previous year. At the same time, scope of total income in respect of various type of persons is governed by S.5 of the Act which specifically provides that income of non-resident is chargeable to tax which is received / deemed to be received in India and accrue or arise or is deemed to accrue or arise in India during such year. 5.1. The provisions of section 9 (1)(ii) categorically provides that income under the head salary in the hands of non-resident shall be chargeable to tax in India only if services were rendered in India. Thus, the chargeability of salary in the hands of non-resident is conditional mainly upon the condition that services rendered in India. 5.2. We note that, the Ld.AO/CIT(A) never verified if the salary income earned by the assessee outside India pursuant to services rendered outside India pass through fundamental tests for chargeability in India under the Act. We are of the view that, the finding of Ld.AO as well as Ld. CIT(A) are grossly misplaced to the Subhendu Mohanty; A. Y.2019-20 finding that the impugned income is chargeable to tax, then under which provision of the Act is not clear. Merely because claim of regarding chargeability of income is not acceptable to Ld.AO will not it automatically lead to its taxability. We therefore remand the issue to the Ld.AO for necessary verification of necessary facts and to consider assessee’s claim in accordance with law. Accordingly the grounds raised
by the assessee stands partly allowed for statistical purposes. In the result the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 16-12 -2024. Sd/- Sd/- PRABHASH SHANKAR BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 16.12.2024. Snehal C. Ayare, Stenographer/ Dragon Copy of the Order forwarded to :
1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT //True Copy/ (Dy./Asstt. Registrar) ITAT, Mumbai