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® IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF NOVEMBER 2015 PRESENT
THE HON’BLE MR.JUSTICE VINEET SARAN
AND
THE HON’BLE MRS. JUSTICE S. SUJATHA I.T.A. NO. 699 OF 2009
BETWEEN:
SRI. SALIL PUNOOSE No. 248, 4TH CROSS I BLOCK, KORAMANGALA BANGALORE ... APPELLANT
(BY M. V. SESHACHALA, SR. COUNSEL)
AND:
THE INCOME TAX OFFICER INTERNATIONAL TAXATION, WARD 19(2) BANGALORE
… RESPONDENT
(BY K. V. ARAVIND, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA No. 698/BANG/2008 DATED 12/6/2009.
- 2 - THIS ITA COMING ON FOR FINAL HEARING THIS DAY, VINEET SARAN J. DELIVERED THE FOLLOWING:
JUDGMENT
The appellant-assessee was employed by M/s.Best Foods Asia Ltd., at Hongkong as Managing Director from 1997. During the relevant period, he was also appointed as consultant for M/s.CPC Asia Ltd., an American Company having its office at Hongkong, for which, Marketing Consultancy Agreement dated 10.02.1997 was executed, which continued to be in force during the relevant Assessment year 2002-03. The assessee had received a sum of Rs.47,62,999/- on this account and claimed to be exempted from tax.
The present appeal relates to the Assessment year 2002-03. The Assessee had filed his return of income for the said assessment year, which was processed under Section 143(1) of the Income Tax Act, 1961 (for short ‘the Act’) and refund of Rs.7,68,060/- was granted on 27.11.2002. However, the case of the
- 3 - assessee was taken up for scrutiny under Section 143(3) of the Act and vide order dated 11.01.2005, the claim of the assessee, that he was a non-resident Indian, was not accepted, and the further claim that the consultancy fees earned outside India was exempted from tax, was also rejected. It was also held that the assessee was not eligible for deduction under Section 80RRA of the Act. Consequently, the consultancy fees of Rs.47,62,999/-, earned outside India by the assessee, was subjected to tax, which is in dispute.
Challenging the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). By order dated 01.03.2006, the Appellate Commissioner determined the status of the assessee as non-resident Indian and after holding that the consultancy fees received by the assessee was earned outside India, it was held that in view of the status of the appellant being non-resident Indian, the same was
- 4 - not taxable. In view of the above finding, the Appellate Commissioner did not pass any order with regard to the eligibility of the assessee under Section 80RRA of the Act.
The said order of the Appellate Commissioner was accepted by the Revenue, as the same was not challenged before the Tribunal and it had become final. Then on 23.02.2007, the Commissioner of Income Tax (International Taxation), Bangalore, passed an order under Section 263 of the Act, holding that since the Assessing Officer had not looked into the matter of the consultancy fees having been earned outside India in the correct perspective, thus the order of the Assessing Officer was erroneous, insofar as it was prejudicial to the interest of the revenue. Consequently, it set aside the assessment order dated 11.01.2005, and remitted the matter to the Assessing Officer to decide the matter afresh.
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Then, by order dated 06.12.2007, the Assessing Officer passed the assessment order, whereby, the entire income earned by the assessee as consultancy service, was subjected to tax. The appeal filed by the assessee was dismissed by the Appellate Commissioner vide order dated 31.03.2008, and the further appeal of the assessee, filed before the Tribunal, was also dismissed on 12.06.2009. Challenging the said orders, this appeal has been filed, raising the following questions of law:-
“1. Whether on the facts and circumstances of the case, the appellate tribunal was justified in holding that the consultancy income earned outside India by the appellant shall be liable to tax in India?
Whether on the facts and circumstances of the case, the appellate tribunal was justified in coming to conclusion that the consultancy income declared as not liable to tax by the appellant as earned in India without the respondents
- 6 - discharging their burden to prove that such income is earned in India as per the ratio of the Supreme Court Judgment?
Whether on the facts and circumstances of the case, the appellate tribunal is justified in rejecting the deduction claimed by the appellant under Section 80RRA of the Act?
Whether the assessment order dated 11.01.2005 passed u/s.143(3) of the Act, having been set aside by the Appellate Commissioner u/s.251 of the Act, under an order dated 01.03.2006 has merged with the appellate order and the same does not exist for the Revisional Commissioner to invoke Section 263 of the Act, and to set aside the same under an order dated 23.02.2007 which is without jurisdiction?
Whether the Revisional Commissioner invoking Section 263 of the Act, has jurisdiction to reverse an assessment order dated 11.02.2005 which is in favour of the revenue and against the
- 7 - assessee and is not erroneous or prejudicial to the interest of the revenue?
Whether the order of the Appellate Commissioner passed u/s.251 of the Act, dated 01.03.2006 granting relief to the assessee by setting aside the assessment order continues to operate and consequential revisional proceedings, therefore becomes non est and void in law and without jurisdiction?”
We have heard Sri.M.V.Seshachala, learned senior counsel along with Smt.H.Vani for the appellant- assessee as well as Sri.K.V.Aravind, learned counsel for the respondent-Revenue and perused the records.
The first three questions raised in this appeal relate to the merits of the case, whereas, last three questions relate to the jurisdiction of the Commissioner to revise the order under Section 263, which has already been confirmed by the Appellate Commissioner
- 8 - and according to the assessee, the initial order of the Assessing Officer could not be said to be prejudicial to the interest of the revenue.
Regarding the first three questions, though it has been argued that in view of the status of the assessee having been determined as non-resident Indian and even if the consultancy fees was received outside India or within India, then too, by combined reading of Sections 5, 6 and 9 of the Act, the amount of consultancy fees so received would not be subjected to tax, but still we would be inclined to decide the last three questions first, because, the same would go to the root of the issues involved in this appeal.
The submission of Sri.M.V.Seshachala, learned senior counsel for the appellant-assessee, is that once the order of the Assessing Officer passed under Section 143(3) of the Act was in favour of the Revenue on all the three counts i.e., with regard to the status of the
- 9 - assessee, the receipt of income as consultancy being outside India, as well as non grant of benefit to the assessee under Section 80RRA of the Act, the same could not be said to be erroneous, insofar as it is prejudicial to the interest of the revenue. It has further being submitted that merely because the said order was set aside by the Appellate Commissioner in the appeal filed by the assessee, which may be erroneous or prejudicial to the interest of the revenue, the same could not be a ground for revising the order of the Assessing Officer, which has merged with the order of the Appellate Commissioner, and if the revenue was so aggrieved, the same could have been challenged by the revenue before the Tribunal, and invoking the provisions of Section 263 of the Act was not warranted in the facts of the present case.
Per contra, Sri.Aravind, learned counsel appearing for the respondent has very fairly stated that
- 10 - though the order of the Assessing Officer had merged with the order of the Appellate Commissioner, but still, since neither the order of the Assessing Officer nor that of the Appellate Commissioner had dealt with the question of consultancy fees or service having been rendered by the assessee outside India, and a finding in that regard had been given by the Assessing Officer without application of mind, the same was erroneous and also prejudicial to the interest of the revenue and thus, passing of the order under Section 263 of the Act was fully justified in law.
From the records, what we find is that the Assessing Officer, vide its order dated 11.01.2005, had held, “as per the provisions of Section 6 of the Income Tax Act, 1961, the assessee’s correct residential status is Resident of India and not Non-resident”. It had further given a finding that “by virtue of the status of the assessee, the entire consultancy income of
- 11 - Rs.47,62,999/- is to be taxed in India” and lastly, it was clearly stated that “In the absence of such prescribed certificates, deduction under Section 80RRA is not considered”. In the end, while determining the income of the assessee, the Assessing Officer had determined the consultancy fees under two heads; one, received in India and the other, earned outside India. In our opinion, all this would go to show that the Assessing Officer had applied its mind with regard to the nature of the consultancy fees which was received by the assessee.
In appeal, the Appellate Commissioner, vide its order dated 01.03.2006, has, after considering the evidence, accepted the status of the assessee to be that of non-resident Indian and thus, gave a categorical finding that the consultancy fees earned outside India would thus become non-taxable. The filing of certificate under Section 80RRA of the Act was not found to be
- 12 - relevant in view of the non-taxability of the consultancy fees. A categorical finding of fact was recorded by the Appellate Commissioner that “the fact remains that the consultancy fees received by the appellant is earned outside India”. This finding of fact has not been challenged by the revenue in appeal. The order of the Assessing Officer passed on 11.01.2005 had merged with the order of the Appellate Commissioner dated 01.03.2006. Once such a categorical finding of fact has been recorded, and a conclusion arrived at by the Appellate Commissioner with regard to the consultancy fees having been received by the assessee, which was earned outside India, we are of the view that the same would be a concluded finding of fact, which could be set aside only in an appeal, if the said order was challenged before the Tribunal.
Reasoning is a process of conclusion, and once such a conclusion has been arrived at and had become
- 13 - final, the same could not be upset by invoking the provisions of Section 263 of the Act, which could only be invoked, if the order of the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue. Whereas in the present case, the order passed by the Assessing Officer could not be said to be in any way prejudicial to the interest of the revenue, as the findings were all given in favour of the revenue, which may have been set aside by the Appellate Commissioner, for the reasons given in the appellate order, which had become final, as the same was not challenged in further appeal by the revenue.
In view of the aforesaid, we are of the clear opinion that invoking of the revisional powers under Section 263 by the Commissioner of Income Tax (International Taxation) was wholly without jurisdiction, and thus, we answer the question Nos.4, 5 and 6 in favour of the assessee and against the revenue.
- 14 - 14. In view of the aforesaid questions having been answered in favour of the assessee, we are of the opinion that the first three questions would be academic in nature and thus, we are not answering the same.
The appeal stands allowed to the extent as indicated above. No order as to costs.
Sd/- JUDGE
Sd/- JUDGE
Srl.