2009 (4) TMI 554 - AT - Income Tax

Unexplained investments - money brought by an NRI into the country through banking channel - assessee Smt. Susila Ramasamy had made substantial NRNR (Non-Resident Non-Repatriable), FCNR (Foreign Currency Non-Resident), and NRO SB deposits with Indian Bank, and State Bank of India - AO initiated proceedings u/s 147 for AY 1995-96 - issued notice u/s 148 - AO, while treating the said deposits as deemed income of the assessee u/s 69 - CIT(A) uphold AO s action. HELD THAT - It is necessary to note that once an amount is received as income, any remittance or transmission of that amount to another place does not result in receipt once again at the other place, within the meaning of section 5 of the Act. Therefore, if certain income, profit or gain was received by the assessee outside India, it does not become chargeable to income-tax in India by reason of that money having been brought into India. This is because what is chargeable is the first receipt of the money and not a subsequent dealing by the assessee with the said money. In that event, the money is brought by the assessee as his own money which he had already received and had control over it and it does not take the character of income, profit and gain after being brought in India. In the cases of remittances through banking channel, the nature and source of the funds get explained and the onus on the assessee u/s 69 gets discharged and, consequently, such remittances cannot be taxed u/s 5(2)( b ). Therefore, the argument of the ld Standing Counsel that, in the present case, the impugned money was taxable u/s 5(2)( b ), r/w section 69, on the facts, has no merit and cannot be accepted. It is seen that, AO while relying upon the CBDT Circular, has committed an error of reproducing in his order from paragraph 4 of the Circular, which does not apply to the remittances through banking channels. He should have applied the paragraph (2) and the first part of paragraph (3) of the Circular. In the circumstances, therefore, his order has no merit and cannot be sustained. We have observed that because of the mode of banking channel, admittedly, used for the remittance in this case, the onus on the assessee u/s 69 stood discharged, and, therefore, it was not taxable in India u/s 5(2)( b ). The CBDT Circular squarely supports the case of the assessee. The fact that the transactions and events narrated in the Annexure look curious and suspicious, makes no difference to the conclusions that we have drawn in this case, as per law. Therefore, CIT(A), confirming AO s action, cannot be sustained. The impugned addition made by AO is, accordingly, deleted.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Taxability of remittances brought into India by a non-resident.
3. Applicability of Section 69 and Section 5(2)(b) of the Income-tax Act, 1961.
4. Interpretation of CBDT Circular No. 5, dated 20-2-1969.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal
The appeal was filed with an eighteen-day delay. The assessee supported the application for condonation of delay with an affidavit. After hearing both parties, the delay was condoned.

2. Taxability of Remittances Brought into India by a Non-Resident
The assessee, a Non-Resident Indian residing in Malaysia, made substantial NRNR (Non-Resident Non-Repatriable), FCNR (Foreign Currency Non-Resident), and NRO SB deposits in Indian banks. The Assessing Officer initiated proceedings under section 147 and issued a notice under section 148. The deposits, aggregating to Rs. 4,68,85,844, were assessed as income under section 69. The Commissioner (Appeals) upheld this decision, which was challenged in the present appeal.

3. Applicability of Section 69 and Section 5(2)(b) of the Income-tax Act, 1961
The learned AR argued that the remittances came from abroad through banking channels and should not be subjected to income-tax per CBDT Circular No. 5. The learned Standing Counsel contended that the deposits were taxable under section 5(2)(b), read with section 69, as deemed income.

The Tribunal observed that under section 5(2), a non-resident is taxed only on income received or deemed to be received in India, or accruing or arising in India. The Tribunal noted that money brought into India through banking channels does not become taxable merely because it is brought into India. The onus under section 69 is discharged if the remittance is through banking channels.

4. Interpretation of CBDT Circular No. 5, dated 20-2-1969
The Circular clarifies that money brought into India by non-residents through banking channels is not liable to Indian income-tax. The Tribunal emphasized that remittances through banking channels discharge the onus under section 69, and thus, section 5(2)(b) does not apply.

Conclusion and Judgment:
The Tribunal concluded that the remittances brought into India through banking channels by the non-resident assessee were not taxable under section 5(2)(b) read with section 69. The CBDT Circular No. 5 supports this view. The Tribunal found the orders of the Assessing Officer and the Commissioner (Appeals) unsustainable and deleted the impugned addition. The appeal filed by the assessee was allowed.