TaxTMI 
TaxTMI 
2011 (4) TMI 120
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....Services (FDTS) and since the appellant was a person ordinarily resident of South Africa, he was granted the benefit of DTAA addition therefore there was no error in the impugned assessment order so as to justify action under section 263 of the Act. Under the circumstances, the very assumption of power under section 263 of the Act is unjustified and bad in law and therefore, order under section 263 of the Act deserved to be quashed. 3. Alternatively and without prejudice to the ground raised hereinabove, on merits, ld. CIT has erred in holding that the assessee was not to be taxed @ 10 per cent of the FTS and also erred in holding that the 'non-resident' status of appellant is not correct. Under the fact and circumstances of the case, the action of ld. Assessing Officer ought to have been upheld. 4. Alternatively and without prejudice to the grounds raised hereinabove, on merits, ld. CIT has erred in not appreciating that the assessee was 'non-resident' insofar as Indian Income-tax is concerned and therefore benefit of DTAA has to be granted to him. 5. Alternatively and without prejudice to the grounds raised hereinabove, on merits, ld. CIT has erred in not appreciating th....
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....revenue for the reasons mentioned hereinafter. The return of income was filed on 23-9-2004 in the status of non-resident declaring total income of Rs. 44,68,206. The assessee paid tax @ 10 per cent on the income derived in India on the basis of Double Taxation Avoidance Agreement between India and South Africa. The case was selected for scrutiny and the notice under section 143(2) of the Act was issued on 27-7-2005. This assessment was completed under section 143(3) of the Act on 20-11-2006 determining the Income on returned by the assessee. The Assessing Officer had issued a show-cause notice to treat the income returned by the assessee as salary as against the claim of technical consultancy income. However, the contention of the assessee that he was deriving income under an Agreement with M/s. Sheladia Associates Inc. ('SHELADIA') situated in the State of Maryland in the USA and the assessee is of South African nationality and the services rendered by him were purely in the capacity as a professional on contractual terms, was accepted by the Assessing Officer without making any enquiries thereof. The assessee was also given the benefit of taxation @10 per cent based on t....
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....d Agreement was not with South Africa and the assessee. There is nothing on record to establish that the assessee had obtained the approval of the Competent Authority in India viz., the Ministry of Finance, Department of Revenue in his individual capacity for availing of the benefit under the DTAA of the remuneration earned by him from the American company. The assessee had also not established that the income has suffered tax in South Africa so as to 'entitle him to be taxed in India at the rate of 10 per cent on the gross amount of the technical fees received. In view of the above reasons, the assessment order is erroneous and prejudicial to the interest of revenue. The Assessing Officer has wrongly given you the status of resident instead of non-resident, claimed by you. You are, therefore, hereby given an opportunity to show cause as to why the assessment order passed by the Assessing Officer (supra) should not be cancelled under section 263 of the Income-tax Act, 1961 and directed to make fresh assessment as per the law. Your explanation in the matter should reach the undersigned within 7 days of the receipt of this notice." This show-cause notice was replied by assessee....
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.... l In view of the Double Tax Avoidance Agreement (DTAA) in force between India and South Africa, tax has been calculated at special rate of 10 per cent as per sub-clause 2 of Article 12 of the said DTAA on gross amount technical fees received. No expenses have been claimed while calculating the total income. l TDS certificate of Rs. 4,91,503 is enclosed. The Assessing Officer after enquiring into the terms of engagement of the assessee, the consultancy services provided by the assessee and the nationality of the assessee passed the assessment order under section 143(3) of the Act on 20-11-2009 (copy enclosed). In the assessment order, he held that as per the terms of engagement, the assessee has received fee for technical consultancy provided by him and that he is a citizen of South Africa. He has, therefore, taxed the gross technical fee received by the assessee @ 10 per cent. The show-cause notice under section 263 of the Act states that the Assessing Officer had accepted South African nationality of the assessee and the professional fees for rendering technical services without making any enquiries. The show-cause notice furthe....
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.... His country of residence is South Africa and country of source of technical fee is India. His income is, therefore, liable to tax in South Africa on the basis of residence and India on the basis of source. Therefore, the Double Tax Avoidance Agreement between India and South Africa is applicable in respect of the income earned by him from consultancy fee in India. The conditions of Article-4 of DTAA between India and South Africa are fulfilled in this case. The fact that he is engaged by a US company and the fee is paid in US Dollar does not alter this position in respect of taxation of the consultancy fee earned by him in India. (ii) There is no requirement of approval by the Ministry of Finance, Department of Revenue of the agreement of his engagement as a consultant for availing of the benefit under DTAA in respect of Technical Consultancy Fee earned by him on a project in India. (iii) Article-12 of DTAA between India and South Africa provides that the fee for technical services may be taxed by the country of residence (South Africa) and that the fee for technical services may also be taxed in the country of source (India) at the rate not exceeding 10 pe....
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.... any place of effective management in South Africa. (iii) The assessee had been engaged by a company, namely, M/s. Sheladia Associates Inc., situated in the USA. He was to be paid in American Dollars. In other words, the provisions of the Double Taxation Avoidance Agreement between India and South Africa would not be applicable in this case unless it has been subjected to tax in South Africa so as to enable him to be taxed in India at the rate of 10 per cent on the gross amount of the technical fee received. (iv) On perusal of the DTAA between India and South Africa, the definition of 'resident' is contained in Article-4 as under:- "1. For the purpose of this Agreement, the term "resident of a Contracting State" means: (a) In India, any person who under the laws of India, is liable to tax therein by reason of his domicile, residence place of management or any other criterion of a similar nature, but this term does not include any person who is liable to tax in India in respect of only of income from sources in India. (b) In South Africa, any individual who is ordinarily resident in South Africa and any other person which has its pl....
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....appeal before us. 5. At the time of hearing arguments advanced by Ld. Counsel for the assessee were two fold. Firstly, he argued that before accepting the return income of the assessee Assessing Officer has made proper inquiries by issuing show-cause notice as to why the technical consultancy services should not be treated as salary income which is clearly evident from the assessment order itself. Assessing Officer after taking into consideration the submission of assessee has taken a permissible view on this subject and therefore Ld. CIT was not justified in invoking the provision of section 263 of the Act in this case. For making this submission, he placed reliance on an order of Hon'ble ITAT in the case of Ankush Holdings Ltd. v. CIT [IT Appeal No. 1617/Ahd./2010 dated 25-3-2011], which was passed after taking into consideration various case laws on the issue. The second argument of Ld. Counsel for the assessee was that since assessee is a citizen of South Africa and he is governed by the provision of DTAA between India and South Africa and in terms of section 90 of the Income-tax Act, the provision of DTAA will overrule the provision of Income-tax Act to the extent tha....