GANESH CHANDRASEKARAN,CHENNAI vs. ITO, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The appeal filed by the assessee is directed against order of the Commissioner of Income-tax (Appeals)-16, Chennai in ITA

No.40/CIT(A)-16/2014-2015, dt 06.11.2015 for the assessment year 2011-2012 passed u/s.143(3) and 250 of the Income Tax Act, 1961

(herein after referred to as ‘the Act’).

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The assessee has raised the following grounds of appeal:- 2.

‘’1 On the facts and in the circumstances of the case, the impugned order passed by the learned Commissioner of Income Tax (Appeals) is erroneous based on the facts of the case, contrary to the principles of natural justice and bade in law.

2 The learned CIT(A) erred in not providing adequate opportunity of being heard to the Appellant thereby violating the principles of natural justice.

3 The learned CIT(A) erred in concluding that Fujitsu Network communication, Inc ("the company" or "Fujitsu Inc") had a Permanent Establishment ("PE") in India without providing an opportunity of being heard to the Appellant and hence the given order is in gross violation of the principles of natural justice.

4 The learned CIT(A) erred on facts and in law by failing to appreciate that the local address in India was provided by Fujitsu Inc only for obtaining the Tax Deduction Account Number.

5 The learned CIT(A) erred on facts and in law in concluding that the Fujitsu Inc had a local address from where the company was carrying out managerial aspects needed for functioning the company.

6 The learned CIT(A) erred on facts and in law by failing to appreciate that the Permanent Account Number and Tax Deduction Account Number was that of Fujitsu Inc and not of any entity in India.

7 The learned CIT(A) erred on facts and in law by confirming the action of the Assessing Officer in taxing the salary income received by the Appellant in India.

8 The learned CIT(A) erred on facts and circumstances of the case and in law in not allowing the claim of Short Stay Exemption as per Article! 6(2) of the Treaty on the premise that Fujitsu Inc had a PE in India.

10 The learned CIT(A) erred on facts and in law by failing to appreciate that the activity carried out by the Appellant is supervisory in nature and no managerial services were rendered in India.

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11 The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto. 12 The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law’’.

The Brief facts of the case is that the assessee is an 3.

individual and filed return of income electronically on 29.07.2010

admitting Nil total income and the assessee is having income from

salary, house property and interest income. The assessee is also a

non-resident and citizen of USA and filed return of income with refund

claim of �20,05,973/- and the return of income was processed

u/s.143(1) of the Act on 13.06.2012 determining refund including

interest �21,37,650/- was issued but the cheque remained undelivered

due to change of the assessee’s address. Subsequently, under

scrutiny norms, the case was selected and notice u/s.143(2) of the Act

was issued. Since there was no response, show cause notice was

issued for proposing to complete the assessment u/s.144 of the Act

with the available information on record. In response to the notice,

the ld. Authorised Representative of assessee appeared and produced

documents, supporting the proof of non-resident status with copy of

passport with immigration stamping in support of assessee’s travel in

and out of India and stay in India. The assessee in the said financial

year stayed in India for a period of 138 days and the determined

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status as non resident for income tax purpose. The assessee is an

employee of M/s.Fujitsu Network Commutations Ind(Fujitsu Inc.) USA

and work in vendor locations at Wipro Limited, Aricent Technologies

Pvt. Ltd, India for providing supervising services in India as per

assignment dated 29.06.2010 and continued till August, 2012. During

his stay the salary of the assessee including other benefits were paid

outside India as directed by M/s. Fujitsu Inc. USA and the assessee

under Income Tax laws filed return of income for the assessment year

2011-12 and has not admitted salary income but claimed credit of

�20,05,973/- deducted by the employer in India M/s. Fujitsu Network

Communications Inc. The facts being that the assessee is on pay rolls

of USA company and resident of USA. But form No. 16 for salary was

issued by the Indian Company and same was claimed as exemption.

The ld. Authorised Representative explained the status were the

assessee was resident in India in financial year 2010-2011 for 138

days being less than 182 days, and non-resident as per the provisions

of Sec. 6(1) of the Act. The ld. Assessing Officer considered the facts

that the assessee has left India for the purpose of employment in USA

and staying in India for assisting an overseas entity on assignment

under supervision of US Company. The assessee has a dual

employment in USA and India. In India assessee was working for M/s.

Fujitsu Network Communications Inc., and the ld.

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Assessing Officer relied on the provisions of DTAA for the claim of

relief of double taxation between India and USA under Article 16 and

further observed that the assessee was resident of USA filed his return

of income in USA admitting income earned in India because of

employment in Indian origin. The ld. Assessing Officer finally observed

the employment status of India and income earned in India is taxable

and dealt on the provisions of Sec.5(2) of the Act with the

explanations and concluded that the salary income received in India is

taxable and completed assessment taxing the salary as per form

No.16 issued by the employer in India for the assessment year 2011-

12 and observed that the income of the assessee is taxable in India

and the relief claimed u/s.90 & 91 of the Act in accordance with the

provisions of Article 16 of DTAA are rejected and assessed the salary

income �69,78,492/-. Aggrieved by the order, the assessee filed an

appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative argued the grounds and objected the action of ld.

Assessing Officer erred in not allowing claim of benefit of short stay

exemption of DTAA between India and USA treaty and there is no

employer in the name of M/s. Fujitsu Network Communications Inc.,

Tamil Nadu (TN) and was wrongly considered wereas actual form

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No.16 was issued by M/s. Fujitsu Inc. USA with TAN Number allotted

in India and the claim of the assessee was rejected on denial of benefit

under Article 16(2) were assessee has satisfied the conditions and the

salary income is eligible for exemption under 16(2) of the treaty.

Further, the tax refund determined by the ld. Assessing Officer

u/s.143(1) of the Act �24,38,150/- including interest was not paid to

the assessee. The ld. CIT(A) considered the submissions and the

arguments of the assessee and the finding of the ld. Assessing

Officer and has dealt on the written submissions of the assessee at

para 4 of his order on DTAA and also pointwise clarification on the

taxes, treaty, assessment order and Tabular chart explaining the

transaction criteria of benefits available under Article 16(2) of the Act

and exhaustively dealt on the resident provisions and judicial

decisions, on the crux of the issue being permanent establishment

(PE) in India. The ld. Commissioner of Income Tax (Appeals) based

on the ITAT decisions and documents filed in respect of TAN

allotment discussed elaborately in his order at para 6 to 10 and

concludes that the assessee substantiate the facts of employer M/s.

Fujitsu Inc. USA company has no permanent establishment in India

and the local address was used for obtaining TAN No for Income Tax

purpose and the ld. Commissioner of Income Tax (Appeals) concludes

that the assessee is not eligible for concession under treaty Article

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16(2) as employer company has a permanent establishment in India

and concurred with the findings of the ld. Assessing Officer and

dismissed the ground and gave direction to The ld. Assessing Officer in

respect of refund and partly allowed the appeal. Aggrieved by the

Commissioner of Income Tax (Appeals), the assessee assailed an

appeal before Tribunal.

Before us, the ld. Authorised Representative reiterated the 5.

grounds and explanations made in the assessment and appellate

proceedings and emphasized that THE assessee is a non-resident and

citizen of USA and in the financial year 2010-2011, the status is non

resident for income tax purpose. The ld. Commissioner of Income Tax

(Appeals) has erred in concluding that the assessee employer M/s.

Fujitsu Inc. USA having a permanent establishment in India without

providing an opportunity of being heard and thus gross violation of

principles of natural justice and on the disputed issue of addition, the

ld. Authorised Representative expressed that local address in India was

provided to obtain Tax Deduction Account Number (TAN) and the

company was not carrying out any managerial aspects and functioning

as alleged. The employer M/s. Fujitsu Inc. USA has applied for PAN

and TAN due to compliance of Income Tax Act and Rules and does

not have any establishment in India. The ld. Commissioner of Income

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Tax (Appeals) has concurred with the findings of the ld. Assessing

Officer in taxing the salary income and denial of concession of short

stay exemption as per Article 16(2) of treaty. M/s. Fujitsu Inc. USA

has no permanent establishment (PE) in India and the assessee

satisfies the conditions as per Article 16(2) of DTAA and eligible for tax

exemption in India and the activities of the assessee are of supervisory

in nature and being assignee of M/s. Fujitsu Inc. USA but not

managerial services and prayed for allowing the appeal.

orders of Commissioner of Income Tax (Appeals) and vehemently

opposed the grounds.

We heard the rival submissions, perused the material on 7.

record. The crux of the issue lies were the assessee being a non-

resident and citizen of USA has come on assignment to supervise the

works on behalf of M/s. Fujitsu Inc. USA for a period of two years.

During financial year 2010-2011, the assessee received salary income

and tax was deducted and form No. 16 was issued by M/s. Fujitsu Inc.

USA. The ld. Authorised Representative explained that employer

company has no permanent establishment in India and the assessee

filed return of income by claiming concession under Article 16(2) and

complied with the conditions of DTAA. The fact remains that the

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assessee has disclosed salary income in his return of income filed in

USA as observed by the ld. Assessing Officer in his assessment order

at page 4 para 14 and on availing the concession of short stay under

Article 16(2) of DTAA and filed return of income in India for claim of

refund of tax �20,05,973/-. Further, the assessee stayed in India for a

period of 138 days as per passport endorsements being less than 182

days and the assessee qualified for non resident status. The disputed

issue arised were the ld. Assessing Officer treated the income of the

assessee as taxable in India irrespective of the fact that the assessee

has come to India as assignee for a period of two years on agreement

with USA employer. The ld. Assessing Officer has rejected the claim of

the assessee under Article 16(2) of DTAA and levied tax. The ld.

Authorised Representative mentioned that the assessee has not

received the refund cheque as it was undelivered due to change of

address. But the ld. Assessing Officer has treated the refund of tax as

paid in his assessment order u/sec. 143(3) of the Act which is not in

accordance with law. The ld. Commissioner of Income Tax (Appeals)

has discussed on permanent establishment (PE) being a new

dimension brought to the assessment proceedings of the employee.

The employer company M/s. Fujitsu Inc. USA applied for TAN and

PAN Nos. for compliance of Income Tax Provisions with local address.

The ld. Authorised Representative explained that there is no

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establishment of USA company in India and the local address was used

only for the purpose of obtaining Tax Deduction Account Number

(TAN) which is mandatory for payment of TDS and issue of form

No.16. The ld. CIT(A) elaborately discussed on this aspect and

confirmed the order of the ld. Assessing Officer. The ld. AR filed

voluminous paper book and vehemently argued that the assessee was

prevented from submitting information on permanent

establishment(PE) which was highlighted in the Appellate proceedings

and no proper and fair opportunity was provided to the assessee to

prove with bonafide evidence that there is no permanent

establishment of M/s. Fujitsu Inc. USA in India. The ld.

Commissioner of Income Tax (Appeals) has passed the order

dismissing the appeal in gross violation of principles of natural justice.

The principles of natural justice is a concept of common law and

represents higher procedural principles developed by the Courts, which

every judicial, quasi-judicial and administrative authority must follow

while taking any decision adversely affecting the rights of the assessee

and implies fairness, equity and equality. It is a elementary principle of

Natural Justice in the Law of Taxation is that the assessee should have

knowledge of the material which is being used against him which

assessee can defend his case and fair opportunity to rebut the facts.

Considering the apparent facts, provisions of law and principles of

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natural justice, material evidences and Article of DTAA treaty, we are of the opinion that assessee should not be deprived to present the case with material evidence and proper opportunity of hearing should be provided before deciding the case. Accordingly, we remit entire file to the ld. Commissioner of Income Tax (Appeals) to adjudicate the case afresh after providing adequate opportunity of hearing to the assessee before passing the order. The appeal of the assessee is allowed for statistical purpose.

Order pronounced on Thursday, the 23rd day of June, 2016, at Chennai.

Sd/- Sd/- (चं� पूजार�) (जी. पवन कुमार) (CHANDRA POOJARI) (G. PAVAN KUMAR) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:23.06.2016 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF