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2009 (4) TMI 551 - AT - Income TaxResidence in India - Residential status - Status of the assessee as Resident of India - calculation of days of stay in India - inclusion of date of arrival in counting the days of stay in India - employer issued a deputation letter to the assessee and the assessee was directed to work with designated projects - assessee was in India for a period amounting to 365 days and more during the four years preceding the previous year 2004-05 - AO mentioned that the status of the assessee is to be decided in terms of the domestic law. Since in view of section 6(1)( c ) the status is resident therefore in terms of DTAA the status of the assessee is to be taken as resident for the AY 2005-06. AO referred to article 4(2) of the DTAA and mentioned that since the permanent home of the assessee is in India therefore he is to be deemed to be resident of India. AO referred to article 16 of the DTAA between India and USA which deals with taxation of salary income - AO adopted the status of the assessee as resident and included the salary income earned from rendering services in USA as taxable in India - CIT(A) was of the view that since the assessee has left India in an earlier previous year and not the previous year relevant for AY 2005-06 therefore Explanation (a) will not be applicable. CIT(A) further held that Explanation (b) is not available to the assessee to claim relief. HELD THAT - Section 6 was subsequently amended by Direct Tax Laws (Second Amendment Act 1989). On comparison of the above-referred Explanation as was introduced by the Finance Act 1982 and clause ( a ) of Explanation to section 6(1) it is clear that clause (a) of the new Explanation is in substance the same as clause (a) of earlier Explanation. Hence it is clear that clause ( a ) of Explanation to section 6( 1 ) will be applicable for the previous year in which the assessee leaves India for the purpose of his employment. Hence we hold that Explanation (a) is not applicable in the instant case. Contention of the ld AR before us is that in case a person has made a visit to India in any previous year then the words 60 days as appearing in section 6(1)( c ) should be read at 182 days irrespective of the fact that the assessee subsequently came to India permanently during the same previous year. Considering the legislative history of amendments and the purpose for which the amendments have been introduced one has to consider the entry of the person in India during the previous year. If all the entries are in India for the purpose of a visit then the period of 60 days as mentioned in section 6(1)( c) will be substituted to 182 days. However if in the previous year the assessee has come to India permanently after leaving his employment outside India then the Explanation (b) will not be applicable. Computing the period of 60 days as mentioned in section 6(1)(c ) the period of visit to India is to be excluded - AO in his order has mentioned that the assessee has received salary for assignment in USA from April 2004 to January 2005. paper book is copy of certificate from Warton Residential. The certificate is dated 18-1-2008. It is mentioned in that certificate that the assessee was a resident at River North Park Apartments from 20-3-2004 until 9-4-2005. During this period he resided at 320 W Illinois St. 801 Chicago. Thus it is a fact that the assessee was on deputation from April 2004 to January 2005. Hence the stay in India from 18-8-2004 to 6-9-2004 was in respect of a visit to India. Hence this period is to be excluded while considering the applicability of section 6(1)( c). Hence we accept the alternate contention of the ld AR that for the purpose of computing the period of 60 days as mentioned in section 6(1)(c ) the period of visit to India is to be excluded. Fraction of a day - Alternate contention of the ld AR is that the assessee arrived in India on 31-1-2005 at 4 A.M. According him the fraction of a day is not to be counted while determining the period. Therefore contended that if 31-1-2005 is excluded then the appellant s stay in India from 1-4-2005 to 31-3-2005 is only 59 days and therefore the appellant becomes non-resident. The word day has been defined as under in the Law Lexicon by Venkatramaiah s 1983 Edition - Day generally speaking is the period from midnight to midnight; the law admits not of fractions in time but in case of necessity. Thus there are two views in respect of ignoring the fraction of a day. However we can look at the issue from a different angle. When one has to compute the period for which an assessee is in India one has to start the counting from a particular day and to end the same with specific day. The period is to be counted from the date of arrival of the assessee in India to the date he leaves India. Thus the words from and to are to be inevitably used for ascertaining the period though these words are not mentioned in the statute. As per the General Clauses Act the first day in a series of a day is to be excluded if the word from is used . Since for computation of the period one has to necessarily import the word from and therefore accordingly the first day is to be excluded. In the instant case if the first day i.e. 31-1-2005 is excluded then the period of stay will be 59 days. Since the period of stay will be less than 60 days therefore section 6(1)( c) will not be applicable and the status of the assessee will be non-resident. We therefore accept the alternate contention of the appellant and hold that the status of the assessee will be non-resident. Grounds of appeal Nos. 3 to 5 are against the finding of the ld CIT(A) that the assessee cannot be considered as a resident of US under Article 4(2) of Indo-US DTAA. As per Article 4(2)(a) the assessee is to be considered as resident of India. The assessee was having a habitual abode in India. The abode in States was for the purpose of services and house was taken on rent for one year. Before going to States the assessee was living in India. While applying for passport the assessee has to give a permanent address in the application form. Thus the assessee was having the habitual abode In the copy of the passport the assessee has given his address as 4/573 Netaji Road Arvindnagar Cuddappah (A.P.). This passport was valid from 28-2-1996 to 27-2-2006. This also shows that the assessee was having habitual abode in India. Hence by applying Article 4(2) of the DTAA it is held that the assessee is a resident of India. Thus the alternate contention raised by the appellant is disposed off though we had already held that the assessee is to be treated as non-resident because section 6(1)( c) is not applicable. Taxability of Salary - salary earned in USA by a resident of India is taxable in India under Article 16 of DTAA as the assessee can claim credit for taxes paid in USA under Article 25(2)(c) - AO relied on Article 16(1) of the DTAA between India and USA and stated that salary received in USA is taxable in India though it might have been taxed in other States. CIT(A) has confirmed the action of AO. In the instant case we had already held that the assessee is not a resident of India and therefore accordingly the salary income is not taxable. However in case it is finally held that the assessee is a resident of India then salary received in US will be taxable and the appellant will be entitled to credit of tax paid in US as per Article 25 of the DTAA. Computation of Interest u/s 234B - credit for relief u/s 90(2) - section 234B(1) has been inserted by the Finance Bill 2006 and according to which the relief of tax allowed u/s 90 is to be reduced for the purposes of computing interest u/s 234B. The Hon ble jurisdictional High Court in the case of Union Home Products Ltd. v. Union of India 1995 (2) TMI 52 - KARNATAKA HIGH COURT held that interest u/s 234B is compensatory. Jurisdiction of AO passed the assessment order - In the return of income the assessee claimed the status of resident. However when a letter was sent by the assessee that status was of non-resident instead of resident and the status was wrongly mentioned. Once the status is being claimed by the assessee as non-resident then we understand that the jurisdiction was with AO (International Taxation). The AO (International Taxation) while completing the assessment can make the assessment on a correct status. The AO is authorized to take the correct status while making the assessment. It is not the case of the assessee that he claimed the status of resident after filing letter with the AO. Hence we hold that AO was having jurisdiction. In the result the appeal is partly allowed.
Issues Involved:
1. Determination of the residential status of the appellant. 2. Applicability of Article 4(2) of the Indo-US DTAA. 3. Taxability of salary earned in the USA under Article 16 of the DTAA. 4. Computation of interest under section 234B of the Income-tax Act. 5. Jurisdiction of the Assessing Officer. 6. Validity of issuing notice within the time limit. Issue-wise Detailed Analysis: 1. Determination of the Residential Status of the Appellant: The appellant, an employee of IBM Global Services India (P.) Ltd., was deputed to work in Chicago, USA. The Assessing Officer determined the appellant's status as 'resident' based on section 6(1)(c) of the Income-tax Act, which states that an individual is a resident if they have been in India for 365 days or more in the preceding four years and for 60 days or more in the current year. The appellant argued that Explanation (b) to section 6(1) should apply, extending the 60-day period to 182 days for citizens of India who come on a visit. The Tribunal held that the appellant's stay in India from 18-8-2004 to 6-9-2004 was a visit and should be excluded from the 60-day count, making the appellant a non-resident. 2. Applicability of Article 4(2) of the Indo-US DTAA: The Assessing Officer and CIT(A) determined that the appellant had a permanent home in India and closer personal and economic relations with India, thus deeming the appellant a resident of India under Article 4(2) of the DTAA. The Tribunal noted that the appellant's family lived in India, and he was employed by an Indian company, reinforcing his closer ties to India. However, since the Tribunal held the appellant as a non-resident under section 6(1)(c), this issue became secondary. 3. Taxability of Salary Earned in the USA under Article 16 of the DTAA: The Assessing Officer included the salary earned in the USA as taxable in India, citing Article 16 of the DTAA, which allows taxation in the resident country. The Tribunal referenced Article 16/18, which states that salary is taxable in the country where the employment is exercised unless specific conditions are met. Since the Tribunal held the appellant as a non-resident, the salary earned in the USA was not taxable in India. However, if the appellant were considered a resident, the salary would be taxable in India with relief under Article 25 of the DTAA. 4. Computation of Interest under Section 234B: The appellant argued that interest under section 234B should be computed after giving credit for relief under section 90(2). The Tribunal agreed, citing that interest is compensatory and should be charged after giving credit for tax relief under section 90. This aligns with the principle that the assessee should not pay interest on amounts for which they are entitled to credit. 5. Jurisdiction of the Assessing Officer: The appellant claimed that the Assessing Officer (International Taxation) should not have jurisdiction once the status was determined as resident. The Tribunal held that since the appellant initially claimed non-resident status, the International Taxation Officer had jurisdiction. The Assessing Officer is authorized to determine the correct status during assessment. 6. Validity of Issuing Notice within Time Limit: These grounds were not pressed by the appellant and were dismissed by the Tribunal. Conclusion: The appeal was partly allowed, with the Tribunal holding that the appellant was a non-resident for the relevant assessment year, thus excluding the salary earned in the USA from Indian taxation and directing that interest under section 234B be computed after giving credit for tax relief under section 90. The Tribunal upheld the jurisdiction of the Assessing Officer (International Taxation) and dismissed the grounds related to the validity of issuing notice within the time limit.
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