2023 (5) TMI 209 - AT - Income Tax

Rectification of mistake u/s 154 - Income chargeable to tax in India - period of stay in India - entire income of the appellant accrued, earned and received outside India (i.e., Kenya) - whether appellant being a non-resident as per section 5 of the Act, is not liable to pay tax on income earned outside India? - Whether CIT (A) and Ld. AO has erred in not appreciating the undisputed fact that the Appellant was not required to pay taxes in India, and the income disclosed by the Appellant was clearly a mistake visible on the record, making it eligible for rectification? - Failure to file revised return - AO dismissed the rectification application filed by the assessee on ground that the assessee has not disputed that the adjustment made u/s 143(1) HELD THAT - The Bench noted it would be two technical for non-resident Indian to go into the intricacy of Indian income tax once the assessee has fairly moved an application u/s 154 of the Act. The ld. AO should have guided the non-resident and have passed the order on merits. CIT(A) has dismissed the appeal of the assessee only on the reason that the scope of section 154 of the Act is very limited and have not entertained the appeal of the assessee on merits considering the oral all fact and peculiarity of the case. Considering the specific facts on record that the assessee is non resident the amount which the ld. AO has taxed is earned and sourced outside India does not confer the income tax on the said income which does not accrue or arise in India and levy of income tax on such income is does not arise. It is the duty of the ld. AO to guide the assessee who are complying voluntarily based on the email addressed to him and it should not be intention the ld. AO to tax the income which is not chargeable to tax in India. Since, we have considered the arguments of the ld. DR that the issue on merits that whether the income shown on head salary is in fact received outside India is not decided under the order in dispute before us i.e. u/s 154 of the Act. We direct the ld. AO to call for the details of the salary from the assessee and determined the fact as to whether considering the facts and circumstances of the case and salary income is chargeable to tax into or not. At the same time assessee is directed to place all the relevant material to decide about the taxability or otherwise of the income that he has earned. In terms of these observations, the appeal of the assessee is allowed for statistical purpose.

Issues Involved:
1. Legitimacy of the tax demand raised under section 154 r.w.s 143(1) of the Income-tax Act.
2. Taxability of income earned outside India by a non-resident.
3. Applicability of section 154 for rectification of mistakes apparent from the record.
4. Impact of receiving intimation under section 143(1) after the deadline for filing a revised return.
5. Disallowance of Foreign Tax Credit (FTC) for a non-resident while taxing foreign income in India.

Summary:

Issue 1: Legitimacy of the tax demand raised under section 154 r.w.s 143(1) of the Income-tax Act
The Tribunal observed that the appellant, a non-resident Indian, erroneously declared his foreign salary income in his ITR, which was processed under section 143(1). The appellant filed a rectification application under section 154, which was rejected by the AO on the grounds that the application did not fall under the purview of section 154. The Tribunal noted that the AO should have guided the non-resident and passed the order on merits, considering the inadvertent mistake made by the appellant.

Issue 2: Taxability of income earned outside India by a non-resident
The Tribunal highlighted that the appellant, being a non-resident, earned and received his salary income outside India. As per section 5 of the Act, the income of a non-resident includes only the income received or deemed to be received in India or accruing or arising in India. The Tribunal referred to various judicial precedents affirming that income earned and received outside India by a non-resident is not taxable in India.

Issue 3: Applicability of section 154 for rectification of mistakes apparent from the record
The Tribunal emphasized that the mistake made by the appellant in declaring his foreign salary income was apparent from the record and eligible for rectification under section 154. The Tribunal cited several cases where courts have held that the authorities should assist the taxpayer in correcting such mistakes and ensuring that only legitimate taxes are collected.

Issue 4: Impact of receiving intimation under section 143(1) after the deadline for filing a revised return
The Tribunal acknowledged that the appellant received the intimation under section 143(1) after the deadline for filing a revised return, making it impossible for him to file a revised return. The Tribunal referred to judicial precedents stating that the authorities should correct over-assessments regardless of whether a revised return was filed or not.

Issue 5: Disallowance of Foreign Tax Credit (FTC) for a non-resident while taxing foreign income in India
The Tribunal noted the inconsistency in the revenue's approach of disallowing FTC on the grounds of the appellant being a non-resident while simultaneously taxing his foreign income in India. The Tribunal referred to judicial precedents affirming that services rendered outside India by a non-resident are not taxable in India and that the authorities should assist the taxpayer in claiming legitimate reliefs.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to call for details of the salary from the appellant and determine the taxability of the income earned outside India. The AO was instructed to guide the non-resident appellant and ensure that only income chargeable to tax in India is taxed. The Tribunal's decision in IT(IT)A No. 02-JP-2022 for the Assessment Year 2018-19 was applied mutatis mutandis to the case in IT(IT) A No. 03-JP-2023 for the Assessment Year 2019-20.

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