Commissioner of Income Tax – ITiruchirapalli v. N.Sundarraman

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 07.02.2012CORAMTHE HONOURABLE MR.JUSTICE D.MURUGESANAND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATAX CASE (A) NOS.1053 TO 1056 OF 2004Commissioner of Income Tax – ITiruchirapalli .. Appellant in all casesVs.N.Sundarraman .. Respondent in all casesTax Case Appeals against the order dated 29.12.2003 passed bythe Income Tax Appellate Tribunal, Chennai "A" Bench inI.T.A.Nos.1379/1381, 1380, 1382/Mds/2003 respectively for theAssessment year 1994-95, 96-97, 95-96, 97-98 respectively. Arisingout of the Commissioner of Income Tax(Appeals) Tiruchirapalli inITA.Nos.29,30,31,32/2000-2001/TRY order dt.31.3.2003 against theorder of the Assistant Commissioner of Income Tax Company Circle I,Trichy in G.I.No.703-S order dt.10.3.2000. For Appellant : Mr.T.R.Senthil Kumar For Respondent : Mr.P.Senthil Kumar for Mr.Philip George.COMMON JUDGMENT(Judgment of the Court was delivered byJustice D.MURUGESAN)The above Tax Case appeals have been preferred by the Revenueunder Section 260-A of the Income Tax Act against the order dated29.12.2003 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 thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the assessmentsfor the assessment years 1994-95 to 1996-97 havenot been validly re-opened?2. Whether on the facts and in thecircumstances of the case, the Income Tax Appellate https://hcservices.ecourts.gov.in/hcservices/ Tribunal was right in holding that notices undersection 143(2) were not issued within twelve monthsfrom the end of the month in which the return wasfiled in response to the notice under section 148,which finding is contrary to facts on record, and,therefore, the orders of reassessment were invalidwithout noticing that the notice under section 143(2) have been actually issued within the timeprescribed under the proviso to the said sectioncontrary to the facts on record?3. Without prejudice to question No.2 above,whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal wasright in holding that the time limit prescribedunder the proviso to section 143(2) is applicableto cases where notice under section 148 have beenissued for reopening the assessments?4. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the assessee wasentitled to the concessional rate of tax undersection 115H when the assessee has not satisfiedthe procedural and substantive requirements underChapter XIIA of the Income Tax Act?5. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the status ofthe assessee was that of "Resident but notOrdinarily Resident" and in directing to grantexemptions under section 115E and / or provisionsof section 10(15)(iv)(fa) to the assessee inrespect of his income from deposits in his name andalso deposits of the assessee's wife which has beenclubbed to the assessee's total income undersection 64(1)(iv)?" 2. The above appeals are by the Revenue in respect of theassessment years 1994-95 to 1997-98. The assessee was employed withUNICEF and he had been residing outside India since 14.02.1977. Hereturned to India on 06.02.1992 on his superannuation, barringcertain intervening visits. Thereafter, again he had gone out ofIndia, 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 earnedconsiderable sums of money by way of salary and had remitted the samein India in foreign exchange. The investments had been made mainlyin bank deposits. The core question that arose before the AssessingOfficer was, whether the assessee could be considered as a Resident https://hcservices.ecourts.gov.in/hcservices/ or Non-Resident Indian and consequently, he would have the taxbenefit under section 115E or under section 115H of the Income TaxAct. The assessee filed return of income claiming tax benefit underSection 115 E /115 H of the Income Tax Act, 1961. The same wasprocessed under Section 143(1)(a) of the Act. Later, the AssessingOfficer reopened the assessment on the ground that there isescapement of income tax. Therefore, on reopening the assessmentunder Section 147 of the Act, the assessing officer denied theexemption. Aggrieved by that order, the assessee filed appeal beforethe Commissioner of Income Tax (Appeals). The Commissioner of IncomeTax (Appeals) held that reopening is valid and accordingly, deniedthe benefit of tax payment at 20%. Aggrieved by that order, theassessee filed appeal before the Income Tax Appellate Tribunal. TheTribunal held that the Assessing Officer was not justified inreopening the assessment and considered the case on merits andallowed the case of the assessee. Aggrieved by that order, theRevenue has filed the present Tax Case Appeals raising the abovequestions of law. 4. The learned counsel appearing for the Revenue contended thatthe Tribunal was wrong in holding that there is no valid reason forreopening of the assessment and the same was bad in law. He furthercontended that the Tribunal ought to have seen that the assessee is a"Resident" and the same was shown in the return. Therefore, he isnot entitled to the concession rate of tax under Section 115 E/115 Hof the Income Tax Act, 1961. Therefore, he contended that the orderof the Tribunal is not in accordance with law and the same has to beset aside. 5. Per contra, the learned counsel appearing for the assesseesubmitted that the Tribunal considered the facts and circumstances ofthe case and rightly held that reopening is bad in law and theTribunal has correctly applied the provisions of 115 E of the Act andallowed the case of the assessee. He therefore, contended that theorder of the Tribunal has to be confirmed. 6. Heard the learned counsel on either side and perused thematerials available on record. In respect of question of law Nos.1 to3 are concerned, both counsel fairly state that the issue is coveredby the Apex Court judgment in favour of the Revenue in the case ofAssistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock BrokersP. Ltd. ( (2007) 291 ITR 500). Following the above judgment, weanswer the above questions of law Nos.1 to 3 in favour of the Revenueand against the assessee. 7. As far as question of law Nos.4 and 5 are concerned, it isthe claim of the assessee that returns were filed based on section115E of the Act. On the other hand, the Assessing Officer had foundthat returns were filed under section 115H of the Act and as per https://hcservices.ecourts.gov.in/hcservices/ the said section, at the time of filing the return, it is incumbenton the part of the assessee to make a declaration in writing to theeffect that the provisions of Chapter XII-A shall continue to applyto him in relation to the investment income derived from any foreignexchange 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) ofclause (f) of section 115C of the Act. Inasmuch as the declarationwas made much later and not along with the returns, the assesseewas not entitled to the benefit of tax exemption as per Chapter XII-Aand therefore, on the strength of the declaration that he is aResident, he is liable to pay tax as applicable in case of regularassessment. There is no dispute that the assessee was working inUNICEF and he had been earning salary and had been remitting thesame in India in foreign exchange, which amount had been investedmainly in bank deposits. From the records, it is seen that therespondent/assessee had been a 'Non-Resident" for 12 years prior tohis return to India. He has been in India only for 323 days duringthe previous seven years preceding the assessment year 1993-94.Therefore, the Tribunal was of the view that the respondent/assesseefalls 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 "NotOrdinarily Resident". It is pertinent to note that the assessee inhis original return declared his status as "Resident". Therefore,the Assessing Officer denied the benefit. The real status of theassessee cannot be denied merely the assessee made a wrongdeclaration when he satisfied all the conditions. Therefore, theTribunal, applying the scope of the provisions of Section 6(6)(a) ofthe Act, given a categorical finding that the status of the assesseeis "Not Ordinarily Resident" during the relevant assessment year andalso upto the assessment year 2001-02. Because of the status of theassessee is 'Not ordinarily resident' during the year, the assesseeis entitled to the benefit of Section 115 E of the Income Tax Act,1961. In the present cases, the entire deposit held by the assesseewas brought into India in the form of Foreign Exchange through legalchannels as approved by the Reserve Bank of India. The status of theassessee was "Non Resident" upto the assessment year 1992-93. Thereis no dispute and the assessing officer himself held that the onlyincome of the assess after 12.11.1992 has to be taxed. The relevantprovision for our consideration is Section 115 E of the Income TaxAct which grants to the assessee the choice to be taxed at aconcessional rate of 20% as against the normal rate. Chapter XII A ofthe Income Tax Act, 1961 deals with special provisions relating tocertain incomes of Non-Residents. The said chapter was inserted bythe Finance Act, 1983 with effect from 1 June 1983. The purpose ofintroduction of this Chapter was with a view to encouraging the flowof foreign exchange remittances into India and investment in India by"non-resident Indians". It deals with special provisions of thetaxation of the following categories of income derived by non-resident Indians. https://hcservices.ecourts.gov.in/hcservices/ (a) investment income and(b) long-term capital gains.Section 115 E of the Act deals with tax on investment income andlong-term capital gains. The Section reads as follows:-"115 E . Tax on investment income and longterm capital gains – Where the total income of anassessee, being a non-resident Indian, includes -(a) any income from investment or income fromlong-term capital gains of an asset other than aspecified 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 onthe income in respect of investment incomereferred to in clause (a), if any, included in thetotal income, at the rate of twenty per cent ;(ii) the amount of income-tax calculated onthe income by way of long-term capital gainsreferred to in clause (b), if any, included in thetotal income, at the rate of ten per cent ; and(iii) the amount of income-tax with which hewould have been chargeable had his total incomebeen reduced by the amount of income referred toin clause (a) and (b). "8. From the reading of the above, it is clear that the assesseehas to be a "Non-Resident". The word "Non-Resident" is defined inSection 115 C (e) of the Act. It means an individual, being acitizen of India or a person of Indian origin who is not a"resident". Therefore, the Tribunal applied the above definition andhas come to the conclusion that the assessee status is only "NotOrdinarily Resident". Therefore, the Tribunal held that the assesseeis not a resident and entitled to the benefit of Section 115 E of theAct. In this case, there is no dispute regarding the interest earnedon the various deposits in the Bank, which is specified under Section115 E of the Act and the assessee is subject to 20% of taxation. So,the argument of the Revenue that requirement of filing of thedeclaration does not arise since that is not the condition forgetting the benefit. Therefore, the Tribunal correctly held that theassessee had no obligation to file any declaration under Section 115H or 115 E of the Act. Therefore, the Tribunal had correctly heldthat the assessee was not obligated to file any such declarationuntil the assessment year 2002-03. In respect of the nature ofinvestment, the Tribunal also held in detail in paragraph 28 and hascome to a conclusion that the subsequent redesignation of the NREaccounts into NRNR accounts have been made only from out of theconvertible Foreign Exchange lying to the credit of the assessee inhis various accounts which had been opened with the inflow of theoriginal Foreign exchange transferred to India as approved by the https://hcservices.ecourts.gov.in/hcservices/ Reserve Bank of India. Under these circumstances, the assessee mustbe a Non-Resident Indian. This question was considered by theAssessing Officer, who had gone by the declaration of the assesseemade 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 merelybecause a declaration was made by the assessee due to ignorance oflaw, it would not nullify the entitlement of a Non-Resident Indian.Factually, the Tribunal found that the assessee, at the time offiling the returns, was a "Non-Resident Indian and hence, theassessee would be entitled to file returns under section 115E of theAct. That apart, in the wake of the provisions of section 115E thathe is a Non-Resident Indian and the income derived is from theinvestment in a bank, the claim of the assessee could be consideredonly under section 115E of the Act. Though the assessee had filedreturns claiming benefit under section 115E read with section 115Hof the Act, keeping in mind the factual scenario, the Tribunal hadcorrectly held that the assessee is a Non-Resident Indian and merelybecause there is a wrong description in the returns that he is aResident, it would not alter the status of the assessee that he is aNon-Resident Indian for the assessment years in question. On thebasis of the above factual finding, the Tribunal allowed the appeals.9. Therefore, the Tribunal correctly applied the provisions andcame to the conclusion that the assessee is entitled to benefit ofSection 115 E of the Act. Learned counsel for the Revenue is alsounable to bring to notice of this Court any new material of evidenceor any provisions of law to take a contrary view of the Tribunal.The finding is based on valid material and evidence. Therefore, theorder passed by the Tribunal is in accordance with law. Accordingly,the questions of law Nos.4 and 5 are answered against the Revenue andin favour of assessee. 10. In the result, the tax case appeals are partly allowed. Nocosts. Sd/Asst.Registrar/true copy/Sub Asst.Registrarvsl/nvsri https://hcservices.ecourts.gov.in/hcservices/ To1.The Commissioner of Income Tax-I Tiruchirapalli.2.The Commissioner of Income Tax (Appeals) Tiruchirapalli3.The Income Tax Appellate Tribunal Chennai Bench A.4 The Assistant Commissioner of Income Tax Company Circle I Trichy1 CC to Mr. T.Ravikumar, Advocate, SR. 8511 1 CC to Mr.Philip George, Advocate, SR.8107 T.C.(A) NO.1053 TO 1056 OF 2004 MRD(CO)SRA(20/03/2012)