2014 (3) TMI 537 - AT - Income Tax

Foreign income not taxable in India as per Income-tax Act

Shri Shiv Puri Versus JCIT, Range 48, New Delhi

The tribunal allowed the appeal of the assessee, determining that the amount received for services rendered outside India was not taxable in India under ... Chargeability of income u/s 5(1) of the Act – Services rendered by the NRI outside India – Income deemed to accrue or arise in India u/s 9(1)(vii)(c) of the Act - Held that:- The assessee rendered services in relation to setting up of fund in Mauritius and looked to find seed investors abroad - income in respect of services which were rendered outside India, accrue or arise to assessee outside India and it was not derived from business controlled in or profession setting up in India - the assessee's case is covered by the proviso to section 5(1) of the Income-tax Act, 1961 and the income is not chargeable to tax in India – the amount was received by the assessee in his bank account maintained outside India and it has been transferred to India only after receiving the same first outside India – relying upon Keshav Mills vs. CIT [1953 (1) TMI 5 - SUPREME Court] - the word 'received' shows that the point of first receipt has to be seen – also in CIT vs. A.P. Kalyanakrishnan [1991 (6) TMI 32 - MADRAS High Court] what is contemplated u/s 5(1)(a) of the Income-tax Act, 1961 is that the amount received in India after having received in another country was not assessable in India. It is a matter of fact that the amount was received in various tranches in the bank account maintained by the assessee abroad – thus, it cannot be said that the amount was received in India - Thus, the amount was received outside India is remitted to India on the subsequent dates - Decided in favour of Assessee. Issues:Taxability of income received by the assessee under section 9(1)(vii)(c) of the Income-tax Act, 1961.Analysis:The appeal involved a dispute regarding the taxability of an amount of Rs.8.10 crores received by the assessee, deemed to accrue or arise in India as per section 9(1)(vii)(c) of the Income-tax Act, 1961. The Assessing Officer added this amount to the assessee's income, considering it as fee for technical services received in India. The CIT (A) upheld this decision, stating there was no evidence of services rendered outside India. However, the assessee argued that as a non-ordinary resident during the relevant period, income earned and received outside India should not be taxable in India. The assessee claimed the amount was received for services rendered abroad in setting up an investment fund in Mauritius, prior to June 2004, and later remitted to India. The assessee provided evidence of services rendered outside India, confirmed by entities involved in the transactions.The tribunal analyzed the provisions of the Income-tax Act, noting that for a non-ordinary resident individual, income accruing or arising outside India is not taxable in India unless derived from a business controlled or profession set up in India. The tribunal found the assessee was a non-ordinary resident during the relevant period, having stayed in India for less than 729 days in the preceding years. It was established that the services for which the amount was received were rendered outside India, related to setting up an investment fund in Mauritius and finding seed investors abroad. The tribunal reviewed various evidences submitted by the assessee, confirming the nature of services provided outside India.The tribunal held that the income in question accrued or arose outside India and was not derived from business controlled or profession set up in India. The tribunal emphasized that the amount was first received by the assessee outside India and only later remitted to India, following precedents that the point of first receipt determines taxability. The tribunal cited relevant case laws to support its decision. As a result, the tribunal allowed the appeal of the assessee, concluding that the amount was not taxable in India.In conclusion, the tribunal's decision revolved around the taxability of income received by the assessee under section 9(1)(vii)(c) of the Income-tax Act, 1961. The tribunal found that the amount in question, received for services rendered outside India, was not chargeable to tax in India due to the non-ordinary resident status of the assessee and the nature of the income earned and received outside India. The tribunal's analysis considered the factual matrix, evidences provided, and relevant legal provisions to reach the conclusion that the amount was not taxable in India.