Madras High Court
Commissioner Of Income Tax I vs N.Sundarraman on 7 February, 2012
Bench: D.Murugesan, P.P.S.Janarthana Raja
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 07.02.2012 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA TAX CASE (A) NOS.1053 TO 1056 OF 2004 Commissioner of Income Tax I Tiruchirapalli .. Appellant in all cases Vs. N.Sundarraman .. Respondent in all cases Tax Case Appeals against the order dated 29.12.2003 passed by the Income Tax Appellate Tribunal, Chennai "A" Bench in I.T.A.Nos.1379/Mds/2003 to 1382/Mds/2003 respectively. For Appellant : Mr.T.Ravi Kumar For Respondent : Mr.Senthil Kumar COMMON JUDGMENT
(Judgment of the Court was delivered by Justice D.MURUGESAN) The above Tax Case appeals have been preferred by the Revenue under Section 260-A of the Income Tax Act against the order dated 29.12.2003 passed by the Income Tax Appellate Tribunal, Chennai "A" Bench, in I.T.A.Nos.1379/Mds/2003 to 1382/Mds/2003 respectively, raising the following substantial questions of law:-
"1.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the assessments for the assessment years 1994-95 to 1996-97 have not been validly re-opened?
2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that notices under section 143(2) were not issued within twelve months from the end of the month in which the return was filed in response to the notice under section 148, which finding is contrary to facts on record, and, therefore, the orders of reassessment were invalid without noticing that the notice under section 143(2) have been actually issued within the time prescribed under the proviso to the said section contrary to the facts on record?
3. Without prejudice to question No.2 above, whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the time limit prescribed under the proviso to section 143(2) is applicable to cases where notice under section 148 have been issued for reopening the assessments?
4. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the assessee was entitled to the concessional rate of tax under section 115H when the assessee has not satisfied the procedural and substantive requirements under Chapter XIIA of the Income Tax Act?
5. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the status of the assessee was that of "Resident but not Ordinarily Resident" and in directing to grant exemptions under section 115E and / or provisions of section 10(15)(iv)(fa) to the assessee in respect of his income from deposits in his name and also deposits of the assessee's wife which has been clubbed to the assessee's total income under section 64(1)(iv)?"
2. The above appeals are by the Revenue in respect of the assessment years 1994-95 to 1997-98. The assessee was employed with UNICEF and he had been residing outside India since 14.02.1977. He returned to India on 06.02.1992 on his superannuation, barring certain intervening visits. Thereafter, again he had gone out of India, on UNICEF duty, on 05.04.1992 and returned on 07.05.1992. From that date onwards, he has been residing in India permanently.
3. During his employment in UNICEF outside India, he had earned considerable sums of money by way of salary and had remitted the same in India in foreign exchange. The investments had been made mainly in bank deposits. The core question that arose before the Assessing Officer was, whether the assessee could be considered as a Resident or Non-Resident Indian and consequently, he would have the tax benefit under section 115E or under section 115H of the Income Tax Act. The assessee filed return of income claiming tax benefit under Section 115 E /115 H of the Income Tax Act, 1961. The same was processed under Section 143(1)(a) of the Act. Later, the Assessing Officer reopened the assessment on the ground that there is escapement of income tax. Therefore, on reopening the assessment under Section 147 of the Act, the assessing officer denied the exemption. Aggrieved by that order, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) held that reopening is valid and accordingly, denied the benefit of tax payment at 20%. Aggrieved by that order, the assessee filed appeal before the Income Tax Appellate Tribunal. The Tribunal held that the Assessing Officer was not justified in reopening the assessment and considered the case on merits and allowed the case of the assessee. Aggrieved by that order, the Revenue has filed the present Tax Case Appeals raising the above questions of law.
4. The learned counsel appearing for the Revenue contended that the Tribunal was wrong in holding that there is no valid reason for reopening of the assessment and the same was bad in law. He further contended that the Tribunal ought to have seen that the assessee is a "Resident" and the same was shown in the return. Therefore, he is not entitled to the concession rate of tax under Section 115 E/115 H of the Income Tax Act, 1961. Therefore, he contended that the order of the Tribunal is not in accordance with law and the same has to be set aside.
5. Per contra, the learned counsel appearing for the assessee submitted that the Tribunal considered the facts and circumstances of the case and rightly held that reopening is bad in law and the Tribunal has correctly applied the provisions of 115 E of the Act and allowed the case of the assessee. He therefore, contended that the order of the Tribunal has to be confirmed.
6. Heard the learned counsel on either side and perused the materials available on record. In respect of question of law Nos.1 to 3 are concerned, both counsel fairly state that the issue is covered by the Apex Court judgment in favour of the Revenue in the case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. ( (2007) 291 ITR 500). Following the above judgment, we answer the above questions of law Nos.1 to 3 in favour of the Revenue and against the assessee.
7. As far as question of law Nos.4 and 5 are concerned, it is the claim of the assessee that returns were filed based on section 115E of the Act. On the other hand, the Assessing Officer had found that returns were filed under section 115H of the Act and as per the said section, at the time of filing the return, it is incumbent on the part of the assessee to make a declaration in writing to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of clause (f) of section 115C of the Act. Inasmuch as the declaration was made much later and not along with the returns, the assessee was not entitled to the benefit of tax exemption as per Chapter XII-A and therefore, on the strength of the declaration that he is a Resident, he is liable to pay tax as applicable in case of regular assessment. There is no dispute that the assessee was working in UNICEF and he had been earning salary and had been remitting the same in India in foreign exchange, which amount had been invested mainly in bank deposits. From the records, it is seen that the respondent/assessee had been a 'Non-Resident" for 12 years prior to his return to India. He has been in India only for 323 days during the previous seven years preceding the assessment year 1993-94. Therefore, the Tribunal was of the view that the respondent/assessee falls within the scope of Section 6(6)(a) of the Income Tax Act, 1961. So, the Tribunal held that the status of the assessee is "Not Ordinarily Resident". It is pertinent to note that the assessee in his original return declared his status as "Resident". Therefore, the Assessing Officer denied the benefit. The real status of the assessee cannot be denied merely the assessee made a wrong declaration when he satisfied all the conditions. Therefore, the Tribunal, applying the scope of the provisions of Section 6(6)(a) of the Act, given a categorical finding that the status of the assessee is "Not Ordinarily Resident" during the relevant assessment year and also upto the assessment year 2001-02. Because of the status of the assessee is 'Not ordinarily resident' during the year, the assessee is entitled to the benefit of Section 115 E of the Income Tax Act, 1961. In the present cases, the entire deposit held by the assessee was brought into India in the form of Foreign Exchange through legal channels as approved by the Reserve Bank of India. The status of the assessee was "Non Resident" upto the assessment year 1992-93. There is no dispute and the assessing officer himself held that the only income of the assess after 12.11.1992 has to be taxed. The relevant provision for our consideration is Section 115 E of the Income Tax Act which grants to the assessee the choice to be taxed at a concessional rate of 20% as against the normal rate. Chapter XII A of the Income Tax Act, 1961 deals with special provisions relating to certain incomes of Non-Residents. The said chapter was inserted by the Finance Act, 1983 with effect from 1 June 1983. The purpose of introduction of this Chapter was with a view to encouraging the flow of foreign exchange remittances into India and investment in India by "non-resident Indians". It deals with special provisions of the taxation of the following categories of income derived by non-resident Indians.
(a) investment income and
(b) long-term capital gains.
Section 115 E of the Act deals with tax on investment income and long-term capital gains. The Section reads as follows:-
"115 E . Tax on investment income and long term capital gains Where the total income of an assessee, being a non-resident Indian, includes -
(a) any income from investment or income from long-term capital gains of an asset other than a specified asset ;
(b) income by way of long-term capital gains, the tax payable by him shall be the aggregate of -
(i) the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent ;
(ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent ; and
(iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clause (a) and (b). "
8. From the reading of the above, it is clear that the assessee has to be a "Non-Resident". The word "Non-Resident" is defined in Section 115 C (e) of the Act. It means an individual, being a citizen of India or a person of Indian origin who is not a "resident". Therefore, the Tribunal applied the above definition and has come to the conclusion that the assessee status is only "Not Ordinarily Resident". Therefore, the Tribunal held that the assessee is not a resident and entitled to the benefit of Section 115 E of the Act. In this case, there is no dispute regarding the interest earned on the various deposits in the Bank, which is specified under Section 115 E of the Act and the assessee is subject to 20% of taxation. So, the argument of the Revenue that requirement of filing of the declaration does not arise since that is not the condition for getting the benefit. Therefore, the Tribunal correctly held that the assessee had no obligation to file any declaration under Section 115 H or 115 E of the Act. Therefore, the Tribunal had correctly held that the assessee was not obligated to file any such declaration until the assessment year 2002-03. In respect of the nature of investment, the Tribunal also held in detail in paragraph 28 and has come to a conclusion that the subsequent redesignation of the NRE accounts into NRNR accounts have been made only from out of the convertible Foreign Exchange lying to the credit of the assessee in his various accounts which had been opened with the inflow of the original Foreign exchange transferred to India as approved by the Reserve Bank of India. Under these circumstances, the assessee must be a Non-Resident Indian. This question was considered by the Assessing Officer, who had gone by the declaration of the assessee made in terms of section 115H of the Act and consequently, impliedly, negatived the claim of tax benefit under section 115E of the Act. This question was considered by the Tribunal, which held that merely because a declaration was made by the assessee due to ignorance of law, it would not nullify the entitlement of a Non-Resident Indian. Factually, the Tribunal found that the assessee, at the time of filing the returns, was a "Non-Resident Indian and hence, the assessee would be entitled to file returns under section 115E of the Act. That apart, in the wake of the provisions of section 115E that he is a Non-Resident Indian and the income derived is from the investment in a bank, the claim of the assessee could be considered only under section 115E of the Act. Though the assessee had filed returns claiming benefit under section 115E read with section 115H of the Act, keeping in mind the factual scenario, the Tribunal had correctly held that the assessee is a Non-Resident Indian and merely because there is a wrong description in the returns that he is a Resident, it would not alter the status of the assessee that he is a Non-Resident Indian for the assessment years in question. On the basis of the above factual finding, the Tribunal allowed the appeals.
9. Therefore, the Tribunal correctly applied the provisions and came to the conclusion that the assessee is entitled to benefit of Section 115 E of the Act. Learned counsel for the Revenue is also unable to bring to notice of this Court any new material of evidence or any provisions of law to take a contrary view of the Tribunal. The finding is based on valid material and evidence. Therefore, the order passed by the Tribunal is in accordance with law. Accordingly, the questions of law Nos.4 and 5 are answered against the Revenue and in favour of assessee.
11. In the result, the tax case appeals are partly allowed. No costs.
(D.M.J.,) (P.P.S.J.,J.) 07.02.2012 Index:Yes/No Internet:Yes/No vsl/nvsri To 1.The Commissioner of Income Tax-I Tiruchirapalli. 2.The Commissioner of Income Tax (Appeals) Tiruchirapalli 3.The Income Tax Appellate Tribunal Chennai Bench A. D.MURUGESAN, J. & P.P.S.JANARTHANA RAJA, J. vsl/nvsri T.C.(A) NO.1053 TO 1056 OF 2004 07.02.2012