2015 (2) TMI 283 - AT - Income Tax

NRI consultant's foreign income exempt from tax under Section 9(1)(vii)(b)

The case involved the taxability of income earned by an NRI individual working as a consultant for an Indian company outside India. The ITAT upheld the ... Income deemed to accrue or arise in India - Non deduction of tds on commission paid to non-residents for services rendered outside India - Held that:- The assessee has submitted copy of bank account maintained outside India showing credit of his earnings in dollars. We also note that the same issue came up for consideration in case of the assessee for A.Y. 2008-09 and the Hon’ble ITAT 'A' Bench, Chennai following its earlier decision reported [2012 (6) TMI 404 - ITAT CHENNAI] held that in respect of payments made by M/s. Ajapa Integrated Project Management Consultancy Pvt. Ltd. to non-residents, disallowance cannot be made u/s. 40A(1) for the reason that income is taxable in the hands of the non-residents who rendered services abroad vide paragraph 18 in the order of the ITAT reported in ( 2012 (9) TMI 285 - ITAT, CHENNAI). Similar view has been taken by ITAT Chennai Bench in the case of Mahindra Holidays & Resorts India Ltd. vs. JCIT (2013 (10) TMI 925 - ITAT CHENNAI). Therefore, in the light of the ratio of aforementioned cases, in our opinion, the AO is not correct in bringing to tax the amount of ₹ 81,45,025 in the hands of the assessee. Hence, the addition made by the Assessing Officer is directed to be deleted. Decided in favour of assessee. Issues:1. Taxability of income earned by an NRI individual working as a consultant outside India for an Indian company.2. Interpretation of Section 9(1)(vii)(b) regarding fees for technical services utilized in India.3. Application of amendments to Section 9 for determining taxability of non-resident income.4. Disallowance of consultancy charges received by the assessee for services rendered outside India.Analysis:1. The case involved the taxability of income earned by an NRI individual working as a consultant for an Indian company outside India. The assessee filed a return of income for the assessment year 2010-11, claiming a refund. The assessment was completed with significant additions to the income, including interest received from a bank in India.2. The Assessing Officer (AO) determined that the income deemed to accrue or arise in India, based on the services rendered by the assessee outside India but utilized for the Indian company. The AO relied on the interpretation of Section 9(1)(vii)(b) to establish that fees for services utilized in India are taxable, regardless of where the services were rendered.3. The AO also referred to amendments to Section 9 introduced through the Finance Bill, 2010, emphasizing that the taxability of non-resident income is determined based on income arising and accruing in India. The AO highlighted that the assessee received the income in India, even though the services were performed outside the country.4. During the appeal proceedings, the appellant argued that the consultancy fees received for services rendered in Nigeria should be exempt under Section 9(1)(vii)(b) of the Income Tax Act. The appellant provided evidence of receiving income in foreign currency and cited previous decisions by the Income Tax Appellate Tribunal supporting the exemption of such income.5. The Commissioner of Income Tax (Appeals) (CIT(A)) analyzed the agreement between the assessee and the Indian company, confirming that the services were indeed rendered outside India, and the income was earned from a source outside India. The CIT(A) disagreed with the AO's contention that the services were utilized for the Indian company and that the income was received in Indian currency.6. The CIT(A) relied on previous decisions by the ITAT and held that the consultancy charges received by the assessee for services rendered outside India should be exempt from taxation. The CIT(A) concluded that the AO's disallowance of the consultancy charges was unjustified, leading to the deletion of the addition made by the Assessing Officer.7. Ultimately, the ITAT upheld the CIT(A)'s decision, dismissing the Departmental appeal and directing the deletion of the addition made by the Assessing Officer. The judgment emphasized the tax treatment of income earned by non-residents for services rendered outside India, highlighting the exemption under Section 9(1)(vii)(b) for such income.