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2017 (2) TMI 1329 - AT - Income Tax


Issues Involved:
1. Residential status of expatriate employees.
2. Applicability of Section 192 of the Income Tax Act, 1961.
3. Interpretation of Section 6(6) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Residential Status of Expatriate Employees:
The primary issue in this case was the determination of the residential status of two expatriate employees of the appellant, a non-resident foreign company incorporated in Japan. The employees, Mr. M Koga and Mr. Y Yanai, were assessed for their stay in India during the financial years 1999-2000 to 2002-03. The appellant claimed that both employees were "resident but not ordinarily resident" in India, as they did not satisfy both conditions of Section 6(6) of the Income Tax Act, 1961. This assertion was based on the employees' stay duration in India, which was detailed as follows:
- Mr. M Koga: Stayed in India for 1121 days over four financial years.
- Mr. Y Yanai: Stayed in India for varying periods across four financial years.

2. Applicability of Section 192 of the Income Tax Act, 1961:
The appellant was accused of contravening Section 192 of the Income Tax Act, which mandates the deduction of tax at source on salaries. The Assessing Officer held that the appellant failed to deduct the appropriate tax for the financial year 2002-03, leading to a tax default of ?21,84,160 and interest of ?7,46,687 under Section 201(1A). The appellant contended that, given the employees' residential status as "resident but not ordinarily resident," they were not required to withhold tax under Section 192.

3. Interpretation of Section 6(6) of the Income Tax Act, 1961:
The appellant argued that the CIT(A) misinterpreted Section 6(6) of the Income Tax Act and overlooked a Department circular dated 05/12/1962, which clarified that both conditions in Section 6(6) must be satisfied for an individual to be considered "ordinarily resident." The appellant cited the Supreme Court's decision in Pradeep J Mehta vs. Commissioner of Income Tax, which supported their interpretation. The Supreme Court's judgment emphasized that an individual must meet both conditions: (i) resident in India for nine out of ten preceding years, and (ii) in India for more than two years in the preceding seven years, to be classified as "ordinarily resident."

Judgment Summary:
The Tribunal found that the Supreme Court's decision in Pradeep J Mehta vs. Commissioner of Income Tax squarely covered the issue in favor of the appellant. The Tribunal noted that the lower authorities did not provide a detailed account of the number of days the employees stayed in India. Therefore, the Tribunal set aside the matter to the Assessing Officer to compute the number of days the employees were in India and determine their residential status based on the principles laid down by the Supreme Court regarding Section 6(6) of the Income Tax Act.

Conclusion:
The appeal filed by the assessee was allowed, with directions for the Assessing Officer to reassess the residential status of the two employees according to the Supreme Court's interpretation of Section 6(6) of the Income Tax Act. The order was pronounced in the open court on 27/02/2017.

 

 

 

 

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