Income Tax Appellate Tribunal - Hyderabad
Venu Gopal Chintada , Hyderabad vs Dy. Commissioner Of Income Tax , ... on 5 December, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER
AND
SHRI V.DURGA RAO, JUDICIAL MEMBER
ITA No. A.Y. Appellant Respondent
Vijayaraghavan
Pushpagiri, Deputy
86/Hyd/2019 HYDERABAD Commissioner of
[PAN: AESPV3196E] Income Tax,
2015-16
Circle-12(1),
Venu Gopal
HYDERABAD
87/Hyd/2019 Chintada,
HYDERABAD
[PAN: ADWPC4948A]
For Assessee : Shri Akshay Surana &
Shri Siddharth Surana, ARs
For Revenue : Shri Kiran Katta, DR
Date of Hearing : 05-12-2019
Date of Pronouncement : 05-12-2019
ORDER
PER D.KARUNAKARA RAO, A.M. :
These two appeals by the assessee are directed against the orders of the Commissioner of Income Tax (Appeals)-1, Hyderabad, for the AY.2015-16. Since the issues involved in these appeals are common and identical, these appeals were heard together and are being disposed-of by way of this common order.
2. At the outset, Ld.Counsel for the assessee submitted that there were couple of issues for adjudication in the Grounds raised in both the appeals.
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ITA Nos. 86 & 87/Hyd/2019
3. Issue No.1 relates to allowability of social security tax as deduction not taxable in India from Gross Salary. Relying on various decisions, Ld.Counsel submitted that this issue can be remanded to the file of AO for fresh adjudication, for considering the said decisions and for want of fresh decision in the matter.
3.1. Issue No.2 relates to entitlement to tax credits for state taxes paid outside India. Relying on various decisions, including the decision of the Co-ordinate Bench of the Tribunal in the case of Pritesh Rajesh Kotak, Hyderabad Vs. ITO, Ward-12(2), [Hyderabad Tribunal], Ld.Counsel submitted that this issue should also be remanded to the file of AO in honouring the said decision of the Co-ordinate Bench. In this regard, Ld.Counsel for the assessee filed Written Submissions, which are extracted as under:
"1. Allowabillty of Social Security tax as deduction not taxable in India from Gross Salary The Appellant has paid social security tax in US from the salary income earned in US. Wages paid in US to non-resident aliens are subject to Social security/Medicare taxes for services performed within United States, regardless of citizenship or residence. These taxes contribute to their coverage under U.S. social security system. Employer must deduct these taxes even if the employee do not expect to qualify for social security or Medicare benefits.
Law is well settled that the doctrine of diversion of income by reason of overriding title applies only in cases where the income never reaches the Appellant as his income. There is a difference between an amount which a person is obliged to apply out of his income and an amount which, by the nature of the obligation, cannot be said to be a part of his income. Where by the obligation income is diverted before it reaches the Appellant, it is deductible.
Further, the appellant gets no vested right at the time of payments towards Social Security and Medicare taxes. They are all contingent payments to which the employee has no right till the contingency occurs :- 3 -:
ITA Nos. 86 & 87/Hyd/2019 Further reliance is placed on the following judgments -
a. L.W.Russel's case [Supreme court] The Hon'ble Supreme courtspelt out a wider and fundamental principle, i.e. when the amount does not result in a direct present benefit to the employee who does not enjoy it, but assures him a future benefit, in the event of contingency, the payment made by the employer, does not vest in the employee.
b. Yoshio Kubo v. Commissioner of Income-tax [2013] 36 taxmann.com 1 (Delhi) The High Court of Delhi held that "The assessee does not- in any appeal, get a vested right at the time of contribution to the fund by the employer. The amount standing to the credit of the pension fund account, social security or medical or health insurance would continue to remain invested till the assessee becomes entitled to receive it. In the case of medical benefit, the revenue could not support its contentions by citing any provision in any policy or scheme which is the subject matter of these appeals, which entitle The vesting right to receive the amount under the scheme or plan did not occur. This court is also of the opinion that the judgment of the Supreme Court in L.W. Russel applies. There, it was held that one cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. The employee must have a vested right in the amount. In this context, it would be useful to recollect the decision of this court in CIT v. Mehar Singh Sampuran Singh Chawla (1973) 90 ITR 219 (Del) where it was held that the contribution made by the employee towards a fund established for the welfare of the employees would not be deemed to be a perquisite in the hands of the employees concerned as they do not acquire a vested right in the sum contributed by the employer."
c. Gallotti Raoul v. Assistant Commissioner of Income-tax [1997] 61 ITD 453 (Mumbai) [19-01-1997] ITAT Mumbai Bench 'B' held that the concept of compulsory contribution to social security is not prevalent in India. The concept of social security payment, is that every national has to contribute to the social security regardless of his place of work. By this process the social security organization derives or levies a prior charge on the income of its partner. This treatment of contribution to the social security as a prior charge is so taken by considering that the organization parallely carries out various functions. The affiliation being compulsory, making the social security organisation an earning partner alongside of the assessee, i.e., the assessee earned not only for himself but also for the social security :- 4 -:
ITA Nos. 86 & 87/Hyd/2019 organisation, the extent of the amount relatable to social security organisation, the assessee had no right over it at all and thereby no domain on it. Hence, the social security charges were to be deducted from the salary income as a prior charge by overriding title and it was only the net salary after such deduction that should be treated as gross salary within the meaning of section 16.
d. Sunil Shin de v. Assistant Commissioner of Income-tax, Circle- 14(1), Bengaluru [2017] 85 taxmann.com 297 (Bangalore - Trib.) ITAT Bangalore Bench 'SMC-C' Tax withheld in USA (Federal and State Tax) should not be added back to quantify income taxable in India. That Medicare paid outside India is not a taxable purquisite in India. Placing reliance on above cited decisions, the appellant hereby submits that the social security tax and Medicare Tax shall be allowed as deduction and accordingly net income to be offered to tax.
2. Entitlement to tax credits for state taxes paid outside India Even as we have held that, in principle, State Income-taxes paid in USA are eligible for being taken into account for the purpose of computing admissible tax credit under section 91, we are alive to the fact that section 91 refers to a situation in which the Appellant has paid tax "in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation" and that there is indeed an agreement under section 90 with United States of America, as also with Canada. If we adopt a literal interpretation of this provision, and bearing in mind the undisputed position that tax credit provisions under section 91 are more beneficial to the Appellant vis-a-vis the tax credit provisions in related tax treaties inasmuch as while section 91 permits credit for all Income-taxes paid abroad - whether State or Federal, relevant tax treaties permit credits in respect of only Federal taxes, it will result in a situation that an Appellant will be worse off as a result of the provisions of tax treaties.
That certainly is not permissible under the scheme of the Income-tax Act. Circular 621, dated 19-121991 [(1992) 195 ITR (Statutes) 154] issued by the Central Board of Direct Taxes, which is binding on the Assessing Officer under section 119(2) of the Act, inter alia, observes that "Since the tax treaties are intended to grant relief and not put residents of a Contracting State at a disadvantage vis-a-vis other taxpayers, section 90 of the Income-tax Act has been amended to clarify any beneficial provision in the law will not be denied to a resident of a contracting country merely because corresponding provision in a tax treaty is less beneficial". In the case of the Appellant, however, tax credit provisions in Indo US tax treaty are admittedly less advantageous to the Appellant, but just because there is a tax treaty between India and USA, the benefits of the domestic law :- 5 -:
ITA Nos. 86 & 87/Hyd/2019 provisions are being declined to the Appellant. That is an interpretation which leads to absurdity and calls for an interpretation harmonious with the scheme of the Income-tax Act.
Reliance is placed on the following decisions:
a. Pritesh Rajesh Kotak, Hyderabad vs Income Tax Officer, Ward-12(2) [Hyderabad Tribunal] Placed reliance on decision of Tata Sons Ltd(supra) and held that the assessee is eligible to claim tax credit both federal as well as state taxes paid on the income earned during the year".
4. There exists useful decisions for the AO to apply to both the issues under consideration. Admissibility of justice is extremely important. After hearing both the parties and considering the above written submissions of the assessee, we are of the opinion that both the issues in both the appeals should be remanded to the file of AO for fresh adjudication. Accordingly, the Grounds raised by both the assessees are treated as allowed for statistical purposes.
5. In the result, both the appeals are treated as allowed for statistical purposes.
Order pronounced in the open court on 5th December, 2019 Sd/- Sd/-
(V. DURGA RAO) (D. KARUNAKARA RAO)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 5th December, 2019
TNMM
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ITA Nos. 86 & 87/Hyd/2019
Copy to :
1. Vijayaraghavan Pushpagiri, 6-3-1099/1100, Plot
No.15B, Somajiguda, Hyderabad.
2. Venu Gopal Chintada, Plot No.54, Sagar Society, Road No.2, Banjara Hills, Hyderabad.
3. Dy.Commissioner of Income Tax, Circle-12(1), Hyderabad.
4. CIT(Appeals)-1, Hyderabad.
5. Pr.CIT-1, Hyderabad.
6. D.R. ITAT, Hyderabad.
7. Guard File.