2014 (5) TMI 849 - AT - Income Tax

Overseas Rental Income Not Taxable in India: Tribunal Allows Appeal

Shri Sumit Aggarwal Versus The DCIT Circle VII, Ludhiana

The appeal was allowed in favor of the assessee, directing the Assessing Officer to assess the income or loss from the Australian property in the hands of ... Loss from house property situated outside India - Liability to offer overseas rental income to tax by the resident individual – Held that:- Plain reading of Sec 90(2) shows that wherever DTAA is applicable in case of an assessee then the assessee has an option to apply either Indian Tax Laws or provisions of DTAA if same are more beneficial to the assessee - it is an option of the assessee whether to return income under the Indian tax laws where DTAA is applicable - if the assessee has exercised the option of filing return under Indian law, it could not have been refused simply because DTAA was applicable because it was option of the assessee - the assessee had right to file the return of global income in India and the Revenue is bound to give effect to such return – thus, CIT(A) is not correct in holding that income from house property from Australian property was not assessable in India – the order of the CIT(A) is set aside and the AO is directed to assess the income of house property that is loss from such house property in the hands of the assessee – Decided in favour of Assessee. Issues:1. Taxability of overseas rental income in India2. Applicability of Double Tax Avoidance Agreement (DTAA) in declaring global income3. Interpretation of Sections 4, 5, 9, and 25 of the Income Tax Act, 1961Issue 1: Taxability of overseas rental income in India:The appeal was filed against the order of CIT(A)-II, Ludhiana, regarding the taxability of overseas rental income in India. The Assessing Officer assessed possible income from a property in Australia due to interest payment to ANZ Bank, Australia, without tax deduction. The CIT(A) concluded that the interest payment to the bank did not accrue or arise in India, hence not taxable in India. Additionally, the CIT(A) held that rental income from the Australian property should be filed in Australia, not in India. The appellant was directed to declare the correct gross rent received from the property in Australia for taxation purposes in India.Issue 2: Applicability of Double Tax Avoidance Agreement (DTAA) in declaring global income:The appellant argued that under Sec 90(2), they had the option to declare global income or benefit from DTAA, choosing to declare global income under Indian laws. The appellant contended that the decision in CIT v. PVAL Kulandagan Chettiar was not applicable as the facts differed. The Tribunal found that the appellant had the right to file global income in India, and the income from the Australian property was assessable in India, setting aside the CIT(A)'s order.Issue 3: Interpretation of Sections 4, 5, 9, and 25 of the Income Tax Act, 1961:The Tribunal analyzed Sections 4, 5, 9, and 25 of the Income Tax Act, 1961, in the context of the case. It was held that income accruing or arising outside India for a resident should be assessed in India. The Tribunal emphasized that under Sec 90(2), where DTAA is applicable, the assessee has the option to apply Indian Tax Laws or DTAA provisions, whichever is more beneficial. The Tribunal concluded that the appellant had the right to file global income in India, and the income from the Australian property was to be assessed in India.In conclusion, the appeal was allowed in favor of the assessee, directing the Assessing Officer to assess the income or loss from the Australian property in the hands of the assessee in India.