2019 (11) TMI 1031 - AT - Income Tax

Revision u/s 263 - Taxability of foreign assignment allowance received - HELD THAT - Finding recorded by the AO, cannot be termed as a case of no-enquiry at all in respect of foreign assignment allowance of the assessee. Therefore, CIT s view that the action of the AO in allowing the amount of ₹ 42,97,092/- as exempt from taxation is in violation of the provision of sec. 5(2) without any enquiry, is factually incorrect. This issue was considered by the AO and after enquiry he has taken a view to allow the claim of the assessee that this foreign assignment allowance is not taxable in India. We therefore hold that the AO s view cannot be held to be erroneous for want of enquiry. When confronted with the reasons set out in the SCN, the assessee had led before the ld. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts and wrong interpretation of applicable legal provisions. It was also established before the ld. CIT that before completion of assessment, the AO had indeed made enquiries into the foreign assignment allowance and after being satisfied about its non-taxability, the order u/s 143(3) was passed. On receipt of these objections, though the CIT did not agree with the submissions, we find that ultimately the reasons on which the CIT proceeded to pass the order did not contain any substantive legal or factual material by which he was able to prove that the said explanations suffered from any infirmity. Instead we note that the CIT ultimately merely set aside the assessment order directing AO to pass the order afresh in accordance with law which in our opinion was nothing but giving the AO second innings without establishing that the AO's order was erroneous as well as prejudicial to the interests of the Revenue Not only did the AO enquire into the issue of taxability of foreign assignment allowance received by the assessee but had consciously applied his mind to the facts made available before him and adopted the permissible view in law. We are of the considered view that the assessment order is not the result of non-enquiry or non-application of mind or assumption of wrong facts. While passing the assessment order the AO had followed the permissible view in law which cannot be said to be 'unsustainable in law'. Jurisdictional facts for usurping the jurisdiction u/s 263, being absent, we hold that the action of CIT was without jurisdiction and all subsequent actions are 'null' in the eyes of law. We therefore quash the order impugned before us. Since all the appeals itself has been decided, therefore, the stay applications become infructuous and stands dismissed.

Issues Involved:
1. Validity of the CIT's invocation of revisional jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Taxability of foreign assignment allowance received by non-resident employees of IBM India Pvt. Ltd.
3. Adequacy of the Assessing Officer's (AO) inquiry into the taxability of the foreign assignment allowance.
4. Application of Section 5(2) and Section 9(1)(ii) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the CIT's Invocation of Revisional Jurisdiction under Section 263:
The primary issue was whether the CIT was correct in invoking revisional jurisdiction under Section 263 of the Income-tax Act, 1961. The CIT argued that the AO's order was erroneous and prejudicial to the interests of the revenue because the AO did not properly examine the taxability of the foreign assignment allowance. The CIT's action was based on the belief that the AO failed to conduct adequate inquiries into the nature and taxability of the foreign assignment allowance. However, the Tribunal noted that the AO had indeed made inquiries, obtained necessary documents, and applied his mind before passing the assessment order. The Tribunal emphasized that an order could be revised under Section 263 only if it was both erroneous and prejudicial to the interests of the revenue, as established in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC). The Tribunal concluded that the AO's order was not erroneous as it was based on a permissible view of the law and adequate inquiry.

2. Taxability of Foreign Assignment Allowance Received by Non-Resident Employees:
The Tribunal examined whether the foreign assignment allowance received by non-resident employees of IBM India Pvt. Ltd. was taxable in India. The employees were sent to Switzerland on a foreign assignment, and their residential status for the relevant year was "non-resident." The foreign assignment allowance was paid for services rendered outside India and was received outside India. The Tribunal referred to Section 5(2) and Section 9(1)(ii) of the Income-tax Act, which stipulate that income is taxable in India if it is received or deemed to be received in India or if it accrues or arises in India. Since the services were rendered outside India and the allowance was received outside India, the Tribunal held that the foreign assignment allowance did not fall within the ambit of taxable income under Section 5(2) of the Act.

3. Adequacy of the AO's Inquiry into the Taxability of the Foreign Assignment Allowance:
The Tribunal found that the AO had conducted a thorough inquiry into the taxability of the foreign assignment allowance. The AO had issued a notice under Section 142(1), called for explanations and documents from the assessee, and examined the relevant details, including the modality of payment through the Travel Currency Card (TCC) issued by Axis Bank. The AO had also considered the employer's certificate and the Swiss tax documents provided by the assessee. Based on these inquiries, the AO concluded that the foreign assignment allowance was not taxable in India. The Tribunal held that the AO's inquiry was adequate and that the CIT's finding of a lack of inquiry was factually incorrect.

4. Application of Section 5(2) and Section 9(1)(ii) of the Income-tax Act, 1961:
The Tribunal analyzed the application of Section 5(2) and Section 9(1)(ii) in determining the taxability of the foreign assignment allowance. Section 5(2) states that the total income of a non-resident includes income received or deemed to be received in India or income accruing or arising in India. Section 9(1)(ii) specifies that income under the head "Salaries" is deemed to accrue in India if it is earned in India. The Tribunal noted that the foreign assignment allowance was paid for services rendered outside India and was received outside India. Therefore, it did not fall within the scope of income deemed to accrue in India under Section 9(1)(ii). The Tribunal also referred to judicial precedents, including the case of Shri Sudipta Maity, which supported the view that foreign assignment allowances received for services rendered outside India by non-resident employees were not taxable in India.

Conclusion:
The Tribunal held that the CIT's invocation of revisional jurisdiction under Section 263 was not justified as the AO had conducted a proper inquiry and the AO's order was based on a permissible view of the law. The foreign assignment allowance received by non-resident employees for services rendered outside India was not taxable in India under Section 5(2) and Section 9(1)(ii) of the Income-tax Act, 1961. The Tribunal quashed the CIT's order and allowed the appeals of the assessees. The stay applications filed by the assessees were dismissed as infructuous.

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