MANAB CHANDRA GHOSH,KOLKATA vs. ACIT, CIR. 1(2),IT, KOLKATA

The present appeal is filed by the assessee against the order dated 21.11.2022 of the Commissioner of Income Tax (Appeals)-22, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’) for assessment year 2016-17.

The brief facts of the case are that the assessee is an employee of IBM India Pvt. Ltd. (an Indian company with registered office in Bangalore) and was undergone a short-term assignment to Indonesia during the relevant assessment year. During the financial year 2015-16, the stayed 61 days in India as evident by the passport details submitted before the Assessing Officer. Consequently, the assessee claimed to be a non-resident for the assessment year 2016-17 as per the provisions of the Income Tax Act. During the assessment year in question, the assessee received salary amounting to Rs.29,57,760/- in India, on which Rs.7,06,207/- was deducted as tax at source as per Form No.16 filed by the assessee. During the relevant assessment year, the assessee also received remuneration and other allowances from the foreign assignment amounting to Rs.62,10,499/- in Indonesia. The details of breakup of such allowances are as under: i. Rs.40,40,749/- received from Axis travel currency card; ii. Rs.21,20,960/- as remuneration deposited in ICICI bank a/c iii. Rs.48,790/- related to stock options for service rendered outside India. 2.1 The assessee filed his return of income declaring total taxable income of Rs.49,590/- claiming that the income received and accrued in Indonesia for rendering service outside India, was not taxable u/s 5(2) of the Act. The assessee also claimed a refund Rs.7,13,440/-. During the assessment proceedings, the case of the assessee was selected under CASS followed by notices u/s 143(2) and 142(1) of the Act. The Assessing Officer rejected the claim of the assessee holding that Rs.21,20,960/- claimed as exempt income by the assessee under Article 15(1) of India Indonesia Double Tax Avoidance Agreement (‘DTAA) was taxable as income of the assessee as the assessee failed to produce the valid tax residency certificate (‘TRC’) from Indonesia. Therefore, he added Rs.40,40,749/- received from Axis travel currency card and Rs.48,790/- related to stock options for service rendered outside India as taxable income in India u/s 5(2)(b) of the Act since it was deemed to have accrued or arisen in India to the total income of the assessee raising the total income and also rejected the refund of Rs.7,13,440/- claimed by the assessee as well.

Dissatisfied with the above order, the assessee went in appeal before the ld. CIT(A) contending that the foreign income during service rendered outside India qualifies for exemption u/s 5(2) of the Act and Article 15(1) of the India Indonesia DTAA. However, the ld. CIT(A) dismissed the appeal of the assessee sustaining the findings of the Assessing Officer.

Aggrieved by the above order of the ld. CIT(A), the assessee is now in appeal before this Tribunal. The primary contention of the assessee is as follows: a) the assessee was a non-resident during the relevant assessment year; b) only the income earned or accrued in India is taxable u/s 5(2) of the Act; c) the allowances received from foreign assignment for rendering service in Indonesia, was not taxable in India; d) the addition of Rs.21,20,960/- claimed as exempt under Article 15(1) of the India Indonesia DTAA, is unwarranted; e) the failure to produce TRC should not be invalidate the exemption since substantive compliance was achieved by proving the employment and residential details in India; f) further, the addition of Rs.40,89,539/- as income accrued in India is erroneous as this amount was received for services rendered entirely outside India. 4.1 The ld. AR stated that the foreign allowances of Rs.62,10,499/- received by the assessee outside India for services rendered in Indonesia are not taxable to tax u/s 5(2) of the Act as the assessee qualifies as a non-resident during the relevant assessment year. The ld. AR also stated that under similar circumstances, the Coordinate Kolkata Bench of the Tribunal in the case of DCIT vs. Sudipta Maity reported in [2018] 96 taxman.com 336(Kolkata-Trib.) held that foreign income earned of a non- resident outside India was not taxable in India and the Tribunal led to exclude foreign income earned for services rendered outside India from 3 the taxable income in India. He, therefore, prayed that the addition made by the Assessing Officer and sustained by the ld. CIT(A) should be set aside. 5. On the other hand, the ld. DR contended that the assessee has failed to substantiate the claim of exemption under DTAA by not producing the TRC. Moreover, since the employer was an Indian entity, the salary and allowances should be deemed to have accrued or arisen in India, therefore, the appeal of the assessee should be dismissed in limine.

We, after hearing the rival submissions of the parties and perusing the material available on record, find that based on the passport details, the assessee was present in India for only 61 days during the financial year 2015-16 which qualifies as a non-resident u/s 5(2) of the Act and only income received or deemed to have accrued or arisen in India, is taxable for a non-resident. We undisputedly note that the assessee is a non-resident employee in IBM India Pvt. Ltd. (an Indian Company) and was sent to abroad to Indonesia for rendering services there. We find no dispute that the services were rendered in Indonesia and the foreign assignment allowances received by the assessee for services rendered in Indonesia and no evidence suggests that income accrued or arose in India. We note that the assessee failed to produce the TRC before the Assessing Officer, which is a procedural lapse and does not negate the substantive compliance. After considering the facts and circumstances of the case and following the decision in the case of DCIT vs. Sudipta Maity (supra), we find it necessary to delete the addition made by the Assessing Officer of Rs.21,20,960/-, Rs.40,40,749/- and Rs.48,790/- respectively (totalling to Rs.62,10,449/-) based on the fact that the income related to services rendered received outside India is not taxable in India. The Assessing Officer is also directed to allow the refund of Rs.7,13,440/- as claimed by the assessee. 4

In terms of the above, the appeal of the assessee is allowed. Kolkata, the 27th November, 2024.