TaxTMI 
TaxTMI 
2019 (12) TMI 149
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....ke of convenience. 2. The common facts permeating in all the appeals are that all the assessee's are the employees of IBM India Pvt. Ltd. (hereinafter referred to as "IBM") who have been sent to Switzerland on company's foreign assignment. The undisputed facts are that the residential status of all the assessee's for the relevant year is "non-resident" in terms of Section 6 of the Act and that they actually rendered services outside India during the period under consideration. The employer viz., IBM deducted tax at source u/s 192 on the entire gross salary earned by the assessee's. The assessee's however claimed in their respective returns of income that the foreign assignment allowance component inter alia included in the gross salary was received by them outside India and that too for the services rendered outside India and therefore fell outside the ambit of total income u/s. 5(2) of the Act. In the assessments completed u/s 143(3), the AO accepted the assessee's claim for exclusion of such foreign assignment allowance from the ambit of total income. This action of the AO has been interfered with by the Ld. CIT u/s. 263 of the Act on the ground that AO's action is erroneous a....
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..... DR could not point out any difference in the facts as decided by this Tribunal in the case of DCIT Vs. Sandip Maity & Ors. in ITA No. 1128, 416 to 425/Kol/2017 as well as that preferred by Shri Bodhisattva Chattopadhyay (supra) and the distinguishing points raised by the Ld. CIT in his impugned order passed u/s. 263 of the Act has been considered in the order passed on 15.11.2019 in the case of Bodhisattva Chattopadhyay Vs. CIT(IT&TP), Kolkata in ITA No. 1314/Kol/2019 & Ors. for AY 2014-15, we are inclined to follow the same mutatis-mutatis and take note that the Tribunal had quashed the impugned order of the Ld. CIT by holding as under: "2. At the outset itself, it was brought to our notice that the issue involved is, no longer res integra and, therefore, after hearing both the parties, we are inclined to dismiss all the stay applications filed by the assessee and dispose of all the appeals in ITA Nos. 1304, 1306, 1308. 1311, 1314 & 1315/Kol/2019.The common facts permeating in all the appeals, are that all the assessee's are the employees of IBM India Pvt. Ltd. (hereinafter referred to as "IBM") who have been sent to Switzerland on company's foreign assignment. The undi....
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....ome of Rs. 17,52,360/- (comprising only of the salary of Rs. 18,65,767/- received in India) after claiming the deduction of Rs. 1,01,405/- under chapter VIA of the Act. After claiming the credit of taxes deducted at source by the employer u/s 192, the assessee claimed a refund of Rs. 13,27,800/- in his return of income. According to the assessee, the foreign assignment allowance of Rs. 42,97,092/- had been received outside India in connection with the services he rendered outside India and therefore he did not offer it to tax in the return of income filed in India since it did not form part of his total income chargeable u/s. 5(2) of the Act. 5. We note from the documents on record that the case of the assessee was selected for complete scrutiny under CASS wherein one of the parameters for selection was that the income declared under the head 'Salary' in the return of income was lower than the 'salary' reported in Form 26AS. In the course of assessment the AO called for several details in his notice issued u/s 142(1) dated 11.11.2016 along with write-ups on the issues for which the assessee's case was selected under CASS. Before the AO the assessee explained the modalities....
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.... currency. The Ld. CIT also emphasized that the assessee had not offered the foreign assignment allowance in Switzerland nor claimed the benefit of the DTAA and therefore the assessee had allegedly not paid taxes on the foreign assignment allowance either in India or in Switzerland. Relying on the decision of this Tribunal in the case of Tapas Kr Bandopadhyay Vs DDIT (159 ITD 309), the ld. CIT observed that the income paid/loaded in TCC was actually received in India and hence taxable in terms of Section 5(2)(a) of the Act. The Ld CIT in his order u/s. 263 of the Act dated 29.03.2019 thus concluded the order passed by the AO u/s. 143(3) of the Act dated 23.12.2016 for AY 2014-15 is erroneous and prejudicial to the interest of revenue since in his opinion the assessment order was passed without examining the legal issues involved and interpretation, examination of material on record etc. and accepting the assessee's claim that the income of Rs. 42,97,092/- had not been received in India. Invoking Explanation (2) of Section 263of the Act, the ld. CIT set aside the assessment order of the AO directing him to pass a fresh assessment order after making necessary enquiries on al....
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....f the case. As a result the AO passed an order which in the opinion of ld. CIT was unsustainable in law and therefore liable for revision u/s 263 of the Act. Before adjudicating the issues arising from the impugned order of the ld. CIT, we have to remind ourselves as to the scope of revisional jurisdiction u/s. 263 of the Act. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the ld. CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and(ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by th....
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....cause in his subjective opinion the AO did not properly conduct the investigation of the relevant facts and legal aspects concerning taxability of foreign assignment allowance. We however note that the assessee's case was selected for scrutiny assessment on the CASS parameter of "salary income shown in ITR is less than the salary income as per Form 26AS". We find that the assessee's employer, IBM had deducted on the gross salary inter alia including foreign assignment allowance and the TDS was reported in statement 26AS in the assessee's name. In the return furnished, the assessee however did not include the said allowance in his total income on the plea that it was not income earned or accrued in India and therefore not forming part of the total income in terms of Section 5(2) read with Section 9(1)(ii) of the Act. Consequently therefore there appeared difference between the salary income reported in Form 26AS with the salary income declared in the return of income. As a result the assessee's case was selected for scrutiny assessment for making enquiries about such differential amount. We note that in the notice u/s 142(1) of the Act dated 11.11.2016, the AO raised specific query ....
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.... bank, denominated in the currency of that country. Nostro Accounts are used to facilitate settlement of foreign exchange and trade transactions. A Nostro Account is always maintained outside India and denominated in Foreign Currency. In view of the same, since the foreign assignment allowances are paid from Nostro Account situated outside India to the international travel card outside India, the same is not taxable under section 5(2) of the Act in case of Non-residents. In this regard,we have also enclosed a letter issued by Axis bank confirming that the amount is credited to the International Travel Card of the employees outside India through the Nostro Account maintained outside India as Annexure 1 In connection with the same, we would like 10 refer to the letter from Axis Bankissued in case of an employee of IBM India Private Limited (,IBM), MrSudiptaMaity (copy enclosed as Annexure 2) wherein Axis Bank has clarified the methodology of transfer of funds to the Axis Travel Card of employees of IBM from its Nostro Account with ZurcherKantonal Bank (ZKB) outside India. The letter states that the funds are transferred to the international travel card of the employ....
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....IT in his notice dated 26th November, 2009 under Section 263 of the Act reads as follows :-- "1. During the said A.Y., you have received a sum of Rs. 18.00 Crore from M/s. Beierdorf AG., Germany (BDF) as one-time settlement for termination of contracts of producing and selling of the products of the latter company in India as well as issuing a NOC for setting up a 100% subsidiary by them in India. The said receipt should have been considered as income in the ambit of either Sec.28 or Sec.56, if the same is considered as voluntary payment on a goodwill gesture as pointed out by you. But, the said receipt has been allowed to be transferred directly to Capital Reserve Account while passing the assessment order for the A.Y. 2006-07." .... 76. He drew our attention to the notice under Section 142(1) of the Act and in particular to the annexure thereto from which it would appear that the assessing officer wanted the assessee to "furnish in writing and verified in the prescribed manner information called for as per annexures and on the points or matters specified therein before me at my office at 18, RabindraSarani, Poddar Court, 5th Floor, on 04.02.2008 at 11.3....
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....ment order accordingly. It was an entirely different matter that the Commissioner did not agree with the conclusion derived by the A.O. from the enquiries made. Failure to carry out an enquiry is one thing and in such cases the commissioner would be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the Revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the revenue merely because he is of the opinion that some more enquiries are required to be made and he could not agree with the conclusion arrived at by the A.O. from the enquiries made. It was after verifying the books of account and various materials gathered from the assessee during assessment proceeding and after considering the explanation offered by the assessee that the A.O. had exercised a judicial discretion in the matter while completing the assessment u/s 143(3) of the Act. In such circumstances, the view taken by the A.O. cannot be said to be prejudicial to the Revenue nor can it be said to be erroneous simply because in his order the A.O. did not make any elaborate discussions ....
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....aracter of an action between the citizen and the State." 83. He also drew our attention to the judgment in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 /71 Taxman 585 (Bom.) 'The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order, he did not make an elaborate discussion in that regard.' 84. The aforesaid views expressed by the Bombay High Court was quoted in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi). 85. He also drew our attention to a judgment of the Punjab & Haryana High Court in the case of Hari Iron Trading Co. v. CIT [2003] 263 ITR 437/131 Taxman 535, wherein the following views were expressed:-- "The expression "record" has also been defined in clause (b) of the....
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....ch 2008 was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. 88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. 89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the....
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....rt Martial, and for the Central Govt. while rejecting the post confirmation petition of the appellant, to record reasons for the orders passed by them. 96. The function of an Assessing Officer is to estimate the income of the assessee and to recover tax on the basis of such estimate as laid down by the Apex Court in the case of S.S Gadgil (supra). Their Lordships opined that the income tax proceedings do not partake the character of a judicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial authority where there are two contesting parties cannot be made applicable to the proceedings before an Assessing Officer. 97. Mr. Nizamuddin contended the judgments cited by Mr. Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts a....
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....n for the ld. CIT to usurp the revisionary jurisdiction u/s 263 of the Act. 13. In the given facts of the present case, as noted earlier, the AO had made due enquiries into the nature and mode of receipt of foreign assignment allowance as also about its taxability in India. The AO had also obtained declaration from the employer to the effect that the allowance in question was paid in relation to services rendered in Switzerland. The AO had also obtained requisite documentary evidence in support of fact that the applicable taxes on such allowance was paid in Switzerland. After examining the specific details furnished by the assessee, the AO did not find any fault with the claim of the assessee that the foreign assignment allowance was not taxable in India. On these facts, we are therefore of the firm view that not only did the AO enquire into the issue of taxability of foreign assignment allowance but had consciously applied his mind to the facts made available before him and adopted the view permissible in law. For these reasons, we are of the considered view that the assessment order did not suffer from the error of non-enquiry or nonapplication of mind or assump....
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....t allowance was that the assessee was required to render his services in a foreign country viz., Switzerland in this case. In other words, it was only in the event that the assessee left the place where his employment contract was signed and he migrated to a foreign country for rendering services that such foreign assignment allowance was receivable by him. It is not in dispute that the amount in question was received by the assessee in connection with the services which the assessee actually rendered to his employer outside India. In the circumstances therefore before the said foreign assignment allowance was brought within the taxing net, it was necessary for the authorities below to demonstrate that the income chargeable under the salary accrued or deemed to accrue in India, as defined in Section 9(1)(ii) of the Act, which read as follows: "9. (1) The following incomes shall be deemed to accrue or arise in India :- (ii) income which falls under the head "Salaries", if it is earned in India. Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in....
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.... 18. It is also noted that the ld. CIT was factually incorrect in concluding that the payment of foreign assignment allowance was first received by the assessee in India and thereafter remitted to his TCC at his express directions. We note that there no material or evidence was brought on record by the ld. CIT to support this conclusion. As noted in the earlier Para, the modus operandi for receiving the said allowance through TCC was as follows: a) When an employee of IBM India Private Limited is sent on international assignment, Axis Bank upon instruction from IBM, issues a Travel Currency Card (TCC) to an employee who is sent to a foreign assignment. b) IBM maintains an Exchange Earners Foreign Currency (EEFC) Account with Deutsche Bank, Bangalore. c) From the EEFC Account of Deutsche Bank, funds are transferred to the Nostro Account of Axis Bank maintained outside India. d) Upon instruction from IBM, the funds are then transferred from the Nostro Account of Axis Bank maintained outside India to the Axis TCC of the respective employee. 19. From the foregoing, it is evident that the funds were transferred outside India to the foreign c....
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....nt allowance was subjected to tax in Switzerland is therefore per se wrong. 21. In the impugned order the ld. CIT relying on the decision of the coordinate Bench of this Tribunal in the case of Tapas Kumar Bandyopadhyay (supra) held that the amount received by the assessee from his Indian employer which he had received in India was chargeable to tax in terms of Section 5(2) of the Act. According to ld. CIT, the judgment of the Hon'ble Calcutta High Court reported in 397 ITR 406, overturning the decision of the Tribunal in that case was of no help to the assessee because the Hon'ble High Court had reversed the decision of the Tribunal keeping in view the concession granted by the Board to the specific class of assessee's being sea-farers. Since the assessee in the present case was not a 'seafarer', it was the ld. CIT's stand that the benefit of the CBDT Circular No.13 of 2017 as well as the judgment of the Hon'ble Calcutta High Court was of no help to the assessee. After due consideration of the facts and material on record, we are unable to agree with the ld. CIT's such contention. In the first instance we find that the facts of the case are materially different from the f....
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....deration would be Non-Resident. During the year under consideration, the assessee had received the following emoluments from IBM :- a) Gross Salary received in India - Rs. 6,77,128/- and b) Foreign allowances on account of the international assignment received in Switzerland - Rs. 51,84,489/- IBM had effected TDS of Rs. 16,04,063/- on the entire emoluments paid to the assessee including the foreign allowances paid to the assessee u/s 192(1) of the Act. The assessee filed his return of income for the Asst Year 2013-14 declaring taxable income of Rs. 5,73,320/- (being the salary received in India alone) after claiming deduction of Rs. 1,01,405/- under Chapter VIA of the Act and claimed a refund of Rs. 15,58,060/- in his return of income. 4.1. During the financial year 2012-13, the assessee had received Rs. 51,84,489/- outside India for services rendered outside India . The assessee pleaded that the entire foreign allowance of Rs. 51,84,489/- was not offered to tax in India as the same was received by the assessee outside India for the services rendered outside India which does not form part of the total income u/s 5(2) of the Act. The assessee howe....
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.... - enclosed in Page 146 of paper book. e) Sample instructions given by IBM India Private Limited authorizing the Axis Bank, Bangalore to load currencies to the TCC of assessee - enclosed in pages 147 to 148 of paper book. 7.1. From the facts narrated above and on hearing the learned counsels of assessee as well as for the revenue, we find that:- a) The assessee is a non-resident individual and had rendered services outside India for which he has received foreign assignment allowance. b) IBM maintains money in foreign currency in its EEFC account maintained with Deutsche Bank, Bangalore. c) IBM instructs Axis Bank to issue Travel Currency Card to its employees who are sent on foreign assignment, which is loosely called Axis TCC. d) Axis Bank has maintained a Nostro Account with its Correspondent Banker (ZuercherKantonal Bank, Zurich). e) IBM transfers funds from its EEFC Account from Deutsche Bank to the Nostro Account of Axis Bank (i.eZuercherKantonal Bank) for the purpose of loading / reloading the Axis TCC issued to the assessee who is sent on foreign assignment. f) The employee who is sent on foreign assignm....
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.... income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 7.4. We find that the reliance placed by the ld AR on the Co-ordinate Bench decision of Jaipur Tribunal in the case of ADIT (International Taxation) vs Sri Kartik Vyas in ITA No. 375/JP/2012 dated 31.12.2014 is directly on this point which was rendered in the context of an IBM employee under similar circumstances. It was held as under:- "5. At the outset, the learned AR for the assessee reiterated the submissions made before the ld. CIT(A) and submitted that the appellant is an employee of IBM India Pvt. Ltd., was sent on an International assignment to Netherlands during the previous year 2007-08. The appellant received foreign allowances of Rs. 17,27,360/- outside India for the services rendered in Netherlands. As the appellant, qualified as a non-resident during the relevant assessment year and foreign allowances received by the appellant is not liable to tax U/s 5(2) of the Act. The appellant had disclosed total income of Rs. 3,27,910/- excluding the....
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....find that the Hon'ble Karnataka High Court in the case of DIT (International Taxation) vs PrahladVijendra Rao reported in 198 Taxman 551 (Kar) and Hon'ble Bombay High Court in the case of CIT vs Avtar Singh Wadhwan reported in 247 ITR 260 (Bom) had held that in the case of a non-resident, when services are rendered outside India , the accrual of income thereon happens outside India and hence the same cannot be brought to tax in India as per section 5(2) of the Act. As stated above, we find that the assessee was able to get control over the funds in his TCC for the first time only in Switzerland and not in India and first point of receipt also happens only in Switzerland. Hence it could be safely concluded that both accrual and receipt of funds happens outside India thereby making the said receipt to stay outside the ambit of taxability u/s 5(2) of the Act. 7.7. We also find that identical claim of exemption of the assessee was allowed by the ld AO for the Asst Year 2014-15 u/s 143(3) of the Act dated 10.12.2016 after detailed examination of the same and by giving proper findings in the assessment order vide para 5.02 and 5.03. 7.8. In view of the aforesaid finding....
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....ner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation 1.]-For the removal of doubts, it is hereby declared that, for the purposes of this subsection,- (a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A; (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or dire....
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.... to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 26. A reading of Section 263 of the Act and the Explanations as well as the amendments brought in by the Finance Act, 2015, w.e.f. 01.06.2015, by inserting Explanation 2, we note that Explanation -2, is a deeming provision and the well settled position of law is that while construing a deeming provision, it has to be strictly interpreted and that the legal fictions should not be stretched beyond the purpose for which they were enacted and should not extend that legitimate field (Raymond Vs. State of Chattisgarh AIR 20-07 SC 2854) and it should be kept in mind that deeming provision should be in respect of facts, from which legal consequences will follow. However, a legal consequence cannot be deemed[DCM Vs. State of Rajasthan (1996) 2 SCC 449. AIR 1996 SC 2930 (3 judges of Hon'ble Supreme Court) and same view reiterated in State of Karnataka Vs. State of Tamil Nadu (2017) 3 SCC 362. So when we look at Explanation-2, we note that deeming fiction of law that the order of the Assessing Officer is dee....
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....ance to well established principles of law. The aforesaid clause only provides for situation where inquiries or verifications should be made by reasonable and prudent officer in the context of the case. Such clause cannot be read to authorize or give unfettered powers to the Commissioner to revise each and every assessment order. The applicability of the clause is thus essentially contextual. It has to be the opinion of a prudent person instructed in law. The Hon'ble Supreme Court in Maneka Gandhi Vs. Union of India reported in 1978 AIR (SC) 597 has laid down the law that a public authority should discharge his duties in a fair, just and reasonable, manner and the principle of due process of law was recognized by the Hon'ble Supreme Court. Therefore the opinion of the Ld. CIT has to be in consonance with that of the well settled judicial principles and cannot be arbitrarily made discarding the judicial precedent on the subject. The opinion of the Ld. Pr. CIT has to be reasonable and that of a prudent person instructed in law. Moreover, it has to be kept in mind that an Explanation to substantive section should be read as to harmonize with and clear up any ambiguity in the main sect....
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....ces were actually rendered. Having considered these evidences, explanations and applicable legal provisions, the AO recorded the specific finding that "the assessee was in India only for 16 days and the rest of the period he was in assignment to Switzerland and had received foreign assignment allowance". In such a scenario, the finding recorded by the AO, cannot be termed as a case of no-enquiry at all in respect of foreign assignment allowance of the assessee. Therefore, the ld. CIT's view that the action of the AO in allowing the amount of Rs. 42,97,092/- as exempt from taxation is in violation of the provision of sec. 5(2) of the Act without any enquiry, is factually incorrect. We note that this issue was considered by the AO and after enquiry he has taken a view to allow the claim of the assessee that this foreign assignment allowance is not taxable in India. We therefore hold that the AO's view cannot be held to be erroneous for want of enquiry. 30. We further find that when confronted with the reasons set out in the SCN, the assessee had led before the ld. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts and....