DCIT 19(3), MUMBAI vs. MANMOHAN KUMAR JAIN SANKHLA, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 11/12/2012 of the Ld. First Appellate Authority, Mumbai, on the ground that the First Appellate Authority erred in deleting the addition of Rs.17,88,919/-, on account of hypothetical taxes, relying upon the decision from Hon'ble Bombay High Court in the case of Jaidev H. Raja ignoring the fact as in the case of Jaidev H. Raja, the tax was borne by the employee himself, whereas, in the present appeal employer has paid the taxes on behalf of the employee i.e. the assessee.

3 Shri Manmohan Kumar Jain Sankhla section 6(6) of the Income Tax Act, 1961 (hereinafter the Act) for the relevant year. The assessee for Assessment Year 2006- 07, declared total income of Rs.1,14,38,557/- in his return on 31/10/2006 by claiming that hypothetical taxes amounting to Rs.17,88,919/- does not constitute income, taxable in India, therefore, the same was offered of tax in the return of income. The assessment was framed u/s 143(1), resulting into refund of Rs.69,260/-. Notice u/s 143(2) of the Act was issued to the assessee. It is noted that CA Inc. had a tax equalization policy, under which it effectively bears the assessee’s additional tax liability arose due to his overseas assignment. As per the tax equalization policy, the salary entitlement is reduced by the amount of hypothetical taxes. The hypothetical tax amount is determined based on home country liability. Since, the employee was not entitled to salary, to the extent of hypothetical tax, he has not vested right on such part of the salary. Accordingly, the assessee offered his salary income, net off hypothetical tax in his return of income. However, the ld. Assessing Officer, to keep the matter alive, added the, hypothetical tax, ignoring the decision of the Tribunal in the case of Roy Marshal (ITA No.2038/Mum/2006) order dated 15/10/2008 by observing that this decision of the Tribunal was challenged before the Hon'ble High Court, which is still pending.

On appeal before the Ld. Commissioner of Income Tax (Appeal), the factual matrix was considered and since, the Hon'ble High Court had decided the issue in the case of Roy

4 Shri Manmohan Kumar Jain Sankhla Marshal (Supra), therefore, the issue was decided in favour of the assessee and deleted the addition. The Revenue is aggrieved and is in appeal before this Tribunal.

2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts available on record, there is no dispute to the fact that the Tribunal vide order dated 15/10/2008, decided the issue in favour of the assessee. The whole case of the ld. Assessing Officer as well as the contention of the ld. DR is that the case of Roy Marshal was taken in appeal before the Hon'ble High Court. However, we find that the Hon'ble High Court affirmed the decision of the Tribunal and decided the issue in favour of the assessee vide order dated 25/09/2012 (ITA No.87 of 2000). The relevant portion of the same is reproduced hereunder for ready reference:-

“According to the revenue the following questions of law arise out of the order of the ITAT dated 30/03/1999 a) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that tax borne by the employee is not part of the pay? b) Whether on the facts and circumstances of the case and in law the Tribunal was justified in holding that notional interest on interest free deposit made for accommodation is not part of perquisite of the assessee? 2) The assessment year involved herein is AY 1994- 1995.

5 Shri Manmohan Kumar Jain Sankhla 3) The respondent-assessee a resident but not ordinarily resident individual was an employee of Coca-Cola Inc. USA and had income under the head “Salalries”. Under the Tax Equalization Policy framed by the said company, the assessee's tax liability arising out of his foreign assignment was to be borne by the company but restricted only to the extent of liability arising out of such foreign assignment. As the assessee had foreign assignment in India during the assessment year in question, the company under its tax equalization policy was liable to reimburse the tax payable on total salary which the assessee was entitled to receive in India.

4) In the assessment year in question the assessee had returned income of Rs.1.13 crores and paid tax there on the said income at Rs.50.00 lakhs. Since the assessee had received Rs.77.00 lakhs in India and the tax payable thereon was Rs.35.00 lakhs which was to be reimbursed by the employer, the assessee had included Rs.35.00 lakhs to the salary income of Rs.77.00 lakhs and offered Rs.113.00 lakhs (round figure) to tax. Though tax on Rs.113.00 lakhs at Rs.50.00 lakhs was paid, the assessee claimed that out of Rs.50.00 lakhs only Rs.35.00 lakhs was includible in the total income and not the balance amount of Rs.15.00 lakhs. The Assessing officer rejected the contention of the assessee, CIT(A) upheld the decision of the Assessing Officer.

5) On further appeal, the ITAT in Paragraph 11 of its order has recorded a finding that the total salary received by the assessee in India was Rs.77.00 lakhs on which the tax payable at the maximum rate of 44.8% comes to Rs.35.00 lakhs. Since the 6 Shri Manmohan Kumar Jain Sankhla assessee under the Tax Equalization Policy was entitled to get reimbursement of the tax payable on the amount of Rs.77.00 lacs, the assessee was justified in computing the salary income at Rs.113.00 lakhs (Rs.77.00 lacs plus Rs.35.00 lacs) which almost tallies with the income declared by the assessee. The Tribunal has further recorded that though the assessee had paid tax amounting to Rs.50.00 lakhs, the assessee was entitled to reimbursement of tax amounting to Rs.35.00 lakhs and thebalance Rs.15.00 lakhs was borne out of the salary income received by the assessee in India. The Tribunal has recorded a finding that the confusion has arisen, because, the assessee in his computation had added Rs.50.00 lakhs as income and deducted Rs.15.00 lakhs from the income, when in fact the said amount of Rs.15.00 lakhs was not received from the company but paid out of the salary amount received in India. In other words, though the assessee had paid tax of Rs.50.00 lakhs, since the assesses was entitled to reimbursement of Rs.35.00 lakhs from the Company, the salary income (Rs.77.00 lakhs) received by the assesses had to be enhanced by Rs.35.00 lakhs only and not the balance Rs.15.00 lakhs which is paid by the assesses from the salary income. In these circumstances, the Tribunal was justified in holding that the tax amounting to Rs.15.00 lakhs paid by the assessee from the salary income (not reimbursed by the company) could not be added to that income of the assessee. Accordingly the first question cannot be entertained.

6) As regards the second question is concerned, the Tribunal has allowed the claim of the assesee by following the decision of this 7 Shri Manmohan Kumar Jain Sankhla Court in the case of M.A.E. Paes reported in 230 ITR 60. Accordingly, the second question cannot be entertained.

7) The appeal is accordingly dismissed with no order as to costs.”

The Hon'ble High Court duly considered the question, arose from the order of the Tribunal and finally decided in favour of the assessee, by affirming the decision of the Tribunal. The whole case of the Revenue, before us, is that the matter is pending before the Hon'ble High Court. Since, the High Court has affirmed the decision of the Tribunal, and in favour of the assessee, therefore, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal). It is affirmed. Finally, the appeal of the Revenue is dismissed. This Order was pronounced in the open court in the presence of ld. DR at the conclusion of the hearing on 22/12/2016.

Sd/- Sd/- (Ashwani Taneja) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated :22/12/2016 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR,

8 Shri Manmohan Kumar Jain Sankhla