MR. J. MUTHUKUMAR,CHENNAI vs. ITO, INTL. TAXATION, WARD 1(2), CHENNAI

आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER Assessee has filed this appeal with a delay of 254 days. Condonation petition has been filed by the assessee. Reasons shown by the assessee for the delay read as under:- ‘’3. The impugned order of the CIT CA) in dated 16.09.2016 was collected by Mr. Kousik Ganesh, my C.A. from the office of the CITCA) in person on 1/11/2016 and it was sent to Appellant's residence in the address mentioned above on 3/11/2016 by ordinary post.

We have heard the contentions. Assessee was a Non 3.

Resident for all assessment years other than the impugned assessment year. Hence, in our opinion, there is much strength in his submission that he could not keep track on the developments with regard to his tax assessments in India. Reasons shown being justified, we condone the delay and admit the appeal.

Grounds taken by the assessee are reproduced hereunder:- 4.

1) The order of the CIT(A) is contrary to the law, facts and circumstances of the case.

2) The CIT(A) erred in confirming the assessment made under Sec. 143(3) r.w.s. 147 of the Act.

3) The CIT(A) erred in confirming the addition of Rs.72,51,990/- relating to the income which accrued during the period when the appellant was a non- resident but received the said sum in the year under consideration when he was a resident.

4) The CIT(A) erred in holding that the appellant is not right in claiming that the amount in question is exempt from tax under Sec. 9(1)(vii)(b) of the IT Act, 1961. 5) The CIT(A) should have appreciated that when the amount was accrued outside India, the appellant was a non resident. Instead of taking the accrual basis of offering and claiming exemption of the income earned outside India, the appellant genuinely believed that on cash basis of accounting, when the said amount was received, the appellant had consistently taken the stand that the amount in question is not liable to tax. Just because the appellant had become resident during the impugned year, the character of taxability should not be altered to the disadvantage of the appellant, other things remaining constant. 6) The CIT(Appeals) erred in his observation in para 3 of his order to the effect that the proof adduced before him in the form of bank statements etc, was not acceptable and at the same time he observed that the appellant was not in a position to produce any proof to show that the income claimed was exempt. 7) The appellant craves to adduce additional grounds of appeal at the time of hearing’’.

Through the above grounds, assessee is assailing addition of 5.

�72,51,990/-. Facts apropos are that assessee, Director of one M/s.

Ajapa Integrated Project Management Consultants Private Limited (herein after referred as (‘’M/s. AIPMCPL’’), had filed his return of income for the impugned assessment year disclosing income of �83,07,180/-. During the course of the assessment proceedings, it was noted that by the ld. Assessing Officer that assessee had claimed a sum of �72,51,990/- as exempt being income, as earned from services rendered outside India. As per the ld. Assessing Officer, status of the assessee for impugned assessment year was ‘’Resident and not ordinarily resident’’ and he was liable to pay tax in India for the income earned overseas also. Assessee was queried by the ld. Assessing Officer on this aspect. In reply, assessee filed a letter dated 24.12.2014 from M/s. AIPMCPL, which interalia confirmed that assessee had raised four invoices on 31.03.2009 for consultancy services rendered by him to them. Ledger extract in the books of the said company was also produced. Ld. Assessing Officer thereupon, issued a notice u/s.133(6) of the Income Tax Act, 1961 (in short ‘’the Act’’) to M/s. HDFC Bank Limited regarding remittances received in dollars by the assessee. It seems ld. Assessing Officer received information from the said bank showing that payments to the assessee by M/s. AIPMCPL was in US Dollars, towards salary and software consultancy services rendered by the assessee. As per the ld. Assessing Officer, assessee could not furnish any proof for its claim that payments received were for services rendered outside India.

According to him, status of the assessee was that of a ‘’Resident but Not Ordinarily Resident’’ for the impugned assessment year, and he was liable to be taxed in India on his global income. As per the ld. Assessing Officer, assessee could not produce any evidence to show that the sum of �72,51,990/- was taxed as income in any other country. Exemption claimed was denied and an addition made accordingly.

Aggrieved, assessee moved in appeal before the ld. 6.

Commissioner of Income Tax (Appeals). Contention of the assessee was that he was a Non Resident for all the earlier years except for impugned assessment year and also for all subsequent assessment years. As per the assessee, payments received were for services rendered by him to M/s. AIPMCPL abroad, in the earlier years, when he was a Non Resident. According to him, such income accrued to him outside India when he was a Non Resident. Assessee also pointed out that receipts were credited in a Non Resident (external) account, in US dollars. Relying on Section 9(1) (vii) b of the Act, assessee argued that such income could not be deemed as accruing or arising in India.

Assessee once again relied on the letter dated 24.02.2014 from M/s.

AIPMCPL, which stated as under:-

‘’This is state and, conform that the following bills have been accounted in the books of our company M/s AJAPPA INTEGRATED PROJECTS CONSULATANTS PVT LTD. on accrual basis in respect of Mr. J Muthukumar, our consultant during the FY 2008-09. The payments in respect of these bills have been paid during the FY 2009-10, the copies of the company's ledger extract for the invoices accrued and payment made is attached and duly certified.

Sl. Invoice No. Invoice Deduct Paid Invoice Invoice No Amount ion Amount accrued on paid on 1 Invoice / Nov.08 $38,400.00 $25.00 $38,375.00 31.03.2009 16.04.09 $25.00 2 Invoice / Dec. 08 $28,800.00 $28,775.00 31.03.2009 05.05.09 $25.00 3 Invoice /Jan 09 $28,800.00 $28,775.00 31.03.2009 16.06.09 $25.00 4 Invoice /Feb 09 $35,200.00 $35,175.00 31.03.2009 21.07.09 $25.00 5 Invoice /Mar 09 $9,600.00 $9,575.00 31.03.2009 21.07.09

‘’Thus from the perusal of the information furnished by the appellant it becomes crystal clear that assessee Mr J. Muthu kumar is a director in a Indian company M/s AJAPPA INTEGRATED PROJECTS CONSULATANTS PVT LTD. who has made payment in us dollars for consultancy provided by the assessee. However the appellant is not able to produce any proof that he has been made payments for rendering services outside India. The appellant is also not in a position to produce any proof to show that the income claimed exempt had already been taxed abroad. In absence of such proof the assessee does not qualify to claim. exemption u/s 90 or u/s 91 of the income tax act 1961. Assessee has conformed before the AO that he is a resident during FY2009-1O and for resident global income earned outside India by the assessee is also taxable in India. In view of the above I confirm the action of assessing officer bringing to tax the amount of Rs.72,51,990/- as the same would not qualify as exempt income under the income tax act 1961. The appellant do not succeed in appeal and therefore the ground of appeal on this issue is dismissed’’.

Now before us, ld. Authorised Representative strongly 8. assailing the orders of the lower authorities submitted that assessee was a consultant in oil exploration and was doing work for M/s.

AIPMCPL outside India. As per the ld. Authorised Representative, assessee was a Non Resident all through except for the impugned assessment year when he was constrained to visit and stay back in India for the education needs of his children. According to him, assessee was a permanent resident of Dubai and there was no tax on income levied in Dubai. As per the ld. Authorised Representative, there was no rule of law that an income if it was not taxed in a country should be taxed in another country. Further, according to him, the definition of ‘’income deemed to accrue or arise in India’’ given under Section 9 of the Act specifically excluded fees payable for services utilized for the business or profession carried on outside India.

As per the ld. Authorised Representative confirmation from the M/s.

AIPMCPL clearly proved that income had accrued to the assessee prior to the impugned assessment year. Thus, as per the ld. Authorised Representative, assessee could not have been taxed for such amount in India.

Per contra, ld. Departmental Representative strongly supporting 9.

the orders of the authorities below submitted assessee was the authorized signatory of M/s. AIPMCPL in his capacity as its Director.

As per the ld. DR, money given by M/s. AIPMCPL to the assessee, was reflected in the accounts of the said company as director’s remuneration. Thus, as per the ld. DR, remuneration received by the assessee in his position as director of the company was nothing but income accruing in India earned and received in India.

We have considered the rival contentions and perused the 10. orders of the authorities below. It is not disputed that assessee was a Non Resident all through, except for impugned assessment year. For the impugned assessment year status of the assessee was that of a ‘’Resident but Not Ordinary Resident’’. Revenue has not disputed the claim of the assessee that he was based in Dubai. Letter dated 24.12.2014 issued by M/s. AIPMCPL clearly state that the invoices raised by the assessee were for the months of November, 2008 to March, 2009. The date of which the amounts became outstanding was shown by them as 31.03.2009. Or in other words, it is clear that invoices raised by the assessee were for services rendered prior to 31.03.2009, and it was so accepted and accounted by M/s. AIPMCPL.

It might be true that assessee was paid by M/s. AIPMCPL only during the previous year relevant to impugned assessment year viz after 01.04.2009. However the confirmation of the company clearly indicate that services rendered by the assessee were for the period November, 2008 to March, 2009 or earlier.

11. At this juncture it will be useful to have a look at Section 5 of the Act, which defines the scope of total income.

‘’(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’’. Sub Section (1) of the Section 5 is clear in that a Resident, apart from his income in India, is taxable on income which accrues or arises to him outside India during a given year. However Sub Section (2) makes it clear that a Non Resident is not liable for ‘’income accruing or arising outside India’’. The sum of �72,51,990/- received by the assessee in US dollars had accrued to him in an earlier previous year.

Services were rendered by the assessee to M/s. AIPMCPL during previous year ending 31.03.2009. There is no dispute that for assessment year 2009-2010 assessee was a Non Resident. So at the point of time when the income accrued to the assessee he was a Non Resident. In our opinion receipt in a later year, of an income which accrued or arose in an earlier year, will not render such amount taxable in the year of receipt. What the assessee received during the impugned assessment year was income which already accrued to him in an earlier year, when he was a Non Resident. An amount can be income either at the time of accrual or at the time of receipt, under the circumstances mentioned in Section 5 of the Act. However, once an assessee recognizes his income at the point of accrual, it cannot again be considered as income at the point of receipt. That apart, Section 9(1)(vii) (b) of the Act clearly excludes from the definition of ‘’income deemed to accrue or arise in India’’, fees payable in respect of services utilized in a business of profession carried on outside India.

Assessee’s claim that he earned the income from services rendered by him to M/s.AIPMCPL was never rebutted by the Revenue. We are therefore of the opinion that the sum of �72,51,990/- could not have been taxed in the hands of the assessee for the impugned assessment year. Such addition stands deleted. Orders of the lower authorities are set aside.

In the result, the appeal of the assessee is allowed. 12.