2015 (9) TMI 273 - AT - Income Tax

Tribunal upholds notice validity, rules foreign income not taxable in India

The Tribunal upheld the validity of the notice issued by the Assessing Officer (AO) under section 143(2) and dismissed the jurisdiction challenge by the ... Notice issued under section 143(2) by the ACIT Circle-2 Udaipur challenged - Held that:- The assessee as per section 124(3) had not challenged the jurisdiction before the AO within one month from the date on which he was served notice under section 143(2) of the IT Act as he challenged the jurisdiction of the ADIT (Intl. Taxation), Jaipur on 12.10.2010 whereas first notice under section 143(2) was issued on 22nd September, 2009. Further, even the objection regarding jurisdiction was raised before the AO which can be entertained by the Commissioner or Chief Commissioner from the date of Notification i.e. 1st September, 2008 as per section 124(2) of the IT Act. The case law cited by the assessee are not squarely applicable. The assessee’s status was non-resident but he filed the return before the ACIT Circle-2 Udaipur, PAN was lying with him as is evident from the processing made by the ACIT, Circle-2, Udaipur on 25.06.2009. The jurisdiction of nonresident was decided by the Addl. Director of Income-tax (International Taxation), Jaipur as per direction of the CBDT issued for non-resident assessee. Therefore, there is no need to pass order under section 127 of the IT Act as Additional DIT (International Taxation) Jaipur had passed the order in pursuance of direction of CBDT. The case laws referred by the assessee are not squarely applicable to the facts of this case. The ld. A/R had not controverted the findings given by ld. CIT (A). Therefore, we confirm the order of the ld. CIT (A). - Decided against assessee. Treatment to the over all income of the assessee as belonging to his wife, received in UK which was only remitted to India and clubbing these receipts in the hands of the assessee under section 64 - Held that:- As per Explanation-1, income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Therefore, it is clear from section that in case of assessee non-resident and income accrues or arises outside India shall not be included in the income of the assessee. The shares were held by the assessee. The employer company issued these shares on the basis of Scheme and performance of the assessee. There was a restriction on this Award which proved that these shares were allotted to the assessee but on request same were issued in the name of his wife Smt. Sunita Pathak. It is further held that section 64 is also not applicable on this transaction because assessee is a non-resident and even if it is presumed that these shares were transferred without any consideration to the wife of the assessee who is non-resident being a capital asset not taxable in India on account of status of the assessee. Therefore, same cannot be clubbed in the hands of the assessee as capital asset/capital gain arises/accrued outside India. Further, the case laws relied upon by the assessee are squarely applicable as real owner of the shares was assessee, not his wife. Therefore, same should be taxed in the hands of non-resident assessee but as per section 5(2), this income accrued or arise outside India. Thus there is no tax in the case of the assessee. We are of the considered view that the ld. CIT (A) was not right in upholding the share transaction as taxable in the hands of the assessee. Accordingly we reverse the order of ld. CIT (A). - Decided in favour of assessee. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) and validity of the notice under section 143(2).2. Taxability of foreign income from the sale of shares and its treatment under section 64 of the Income Tax Act, 1961.3. Clubbing of income under section 64 and its applicability to non-resident assessee.4. Excessiveness and justification of the addition of Rs. 41,98,615.Detailed Analysis:1. Jurisdiction of the Assessing Officer (AO) and Validity of the Notice under Section 143(2):The primary issue was whether the notice issued under section 143(2) by the ACIT, Circle-2, Udaipur, was valid. The assessee, a non-resident, argued that the notice was invalid as the jurisdiction lay with the Assistant Director of Income Tax (International Taxation), Jaipur, as per the notification dated 1st September 2008. The Tribunal upheld the CIT (A)'s decision, stating that the assessee had filed the return with the ACIT, Circle-2, Udaipur, and did not challenge the jurisdiction within the stipulated time. The transfer of the case to the ADIT (International Taxation), Jaipur, was deemed appropriate, and the issuance of the notice by ACIT, Circle-2, Udaipur, was considered valid. The Tribunal dismissed the assessee's contention regarding the invalidity of the notice and jurisdiction.2. Taxability of Foreign Income from the Sale of Shares and Its Treatment under Section 64:The second issue revolved around the taxability of Rs. 41,98,615, the sale proceeds of shares of Vedanta Resources Plc. The AO treated this income as belonging to the assessee's wife and taxed it in India, considering it as received in India. The CIT (A) upheld this addition. The Tribunal, however, found that the shares were allotted to the assessee under the Long Term Incentive Plan (LTIP) of Vedanta Resources Plc, and the payment for the shares was deducted from the assessee's salary. The shares were registered in the name of the assessee's wife based on his request. The Tribunal concluded that the real owner of the shares was the assessee, and the capital gain arose outside India. As the assessee was a non-resident, the income was not taxable in India under section 5(2).3. Clubbing of Income under Section 64 and Its Applicability to Non-Resident Assessee:The AO invoked section 64 to club the income in the hands of the assessee, arguing that the shares were transferred to the wife without adequate consideration. The Tribunal found that section 64 was not applicable as the assessee was a non-resident and the income accrued outside India. The Tribunal emphasized that the shares were issued to the assessee based on his performance and were only registered in the wife's name upon his request. Therefore, the income from the sale of shares could not be clubbed in the hands of the assessee.4. Excessiveness and Justification of the Addition of Rs. 41,98,615:The assessee contended that the addition of Rs. 41,98,615 was excessive and without basis. The Tribunal, after considering the additional evidence and the facts of the case, concluded that the income from the sale of shares was not taxable in India. The Tribunal held that the CIT (A) erred in upholding the addition and reversed the order, allowing the appeal of the assessee.Conclusion:The Tribunal dismissed the ground related to the jurisdiction and validity of the notice under section 143(2), upholding the CIT (A)'s decision. However, it allowed the appeal regarding the taxability of the foreign income from the sale of shares, ruling that the income was not taxable in India as the assessee was a non-resident and the income accrued outside India. The Tribunal also held that section 64 was not applicable in this case and reversed the addition of Rs. 41,98,615, allowing the appeal of the assessee.