2024 (10) TMI 257 - AT - Income Tax

Income deemed to accrue or arise in India - residential status of the assessee under the India-USA DTAA - Assessee has stayed in India for more than 183 days in this AY - whether assessee should be treated as resident of India for tax purposes and his US income should also not be taxed in India u/s 5 of Indian Income Tax Act, 1961. HELD THAT - Generally, investments in securities, mutual funds, banks move not necessarily with residence of the assessee but on the basis of rate of return in particular state. For determination of economic relationship, place of business, place of Administration of property and place of earning wages (remuneration) (profit) is of importance. Ambiguous factors, needs to be avoided. In this background and on the basis of the facts stated above, we proceed to decide the issue involved. As important that assessee is staying in India for the current year for more than 183 days and therefore according to the domestic law, he is considered to be the resident of India. He stays in India with his wife, son and daughter. His other daughter is staying in USA for the purpose of study. The stay of his extended family including parents in USA is not so much relevant to decide whether his personal relationship is close to USA or not. This is also so because, though his parents are USA National, but his brother and his sisters are also staying there. He has a home in India. He also has a home in USA which is earning rental income, purchased by mortgage loan. Regarding his economic interest, he has come back to India for carrying on business in a private limited company which is set up by him and his wife in 2009. The company is involved in distribution of films. Assessee has attended along with his wife five Board meetings of the above company. Therefore, it is important to note that assessee has an active involvement in a running of this company in India. In India he has operative bank accounts with Union Bank of India and ICICI bank. He has also investment in mutual funds. However, operating a bank account and having an investment in mutual funds may not have any vitality of economic relationship because these are passive investments and may flow to any country irrespective of the residence if the other laws permit, based on rate of return. From USA, assessee is deriving rental income where his house property is rented out, he has investments in bank accounts as well as alternative investments. He has also other investments where dividend income accrues along with the increase in market price of the investment. Thus, he does not have any active involvement in USA for earning wages, remuneration, profit. Therefore, on comprehensive appraisal of the personal relationship and economic relationship of the assessee, tilt more in favour of being close to India then US. Accordingly, we hold that the assessee is a resident of India in terms of Article 4(2)(a) of the Indo- US DTAA as a resident of USA. In view of this, the Ground Nos. 3 and 4 of the appeal are dismissed. Consequently, all his income derived in USA, is chargeable to tax in India by virtue of the provisions of section 5 of the income tax act. On the basis of the income tax return of assessee filed by him in USA, does not show that he is paid any tax there, therefore, in absence of any payment of tax in the country of source, no credit is available against tax payable by the assessee in India. As submitted by the learned authorized representative that the only issue is with respect to the decision of closure center of vital interest of the assessee and taxability of the income will follow that decision, we confirm the order of the learned lower authorities in taxing the dividend income, capital gains, sourced by the assessee in USA. Decided against assessee.

Issues Involved:

1. Whether the order passed by the CIT (Appeal), National Faceless Appeal Center, is devoid of natural justice due to lack of proper opportunity for the assessee to be heard.
2. Whether the CIT (Appeal) erred in confirming the order of the ACIT without considering the detailed submissions and supporting documents submitted by the assessee.
3. Determination of the residential status of the assessee under the India-USA Double Tax Avoidance Agreement (DTAA) and its impact on tax liability.
4. Application of the "center of vital interest" test to ascertain the residential status of the assessee.
5. Taxability of the assessee's global income in India under Section 5 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Natural Justice and Opportunity to be Heard

The assessee contended that the CIT (Appeal) erred in confirming the ACIT's order without providing a proper opportunity to be heard, thus rendering the order devoid of natural justice. The tribunal reviewed this claim but found that the assessee had the opportunity to present submissions and documents during the proceedings. However, the CIT (Appeal) held that the assessee did not upload any written submissions, which led to the conclusion that the assessee had not been denied a fair hearing. Therefore, the tribunal did not find merit in this ground of appeal.

Issue 2: Consideration of Submissions and Supporting Documents

The assessee argued that the CIT (Appeal) failed to consider the detailed submissions and supporting documents submitted on 05.04.2023. The tribunal noted that while the assessee claimed to have submitted documents, the CIT (Appeal) found that these were not uploaded or considered during the proceedings. Consequently, the tribunal upheld the CIT (Appeal)'s decision, emphasizing that the burden was on the assessee to ensure the submission of all relevant documents.

Issue 3: Residential Status under India-USA DTAA

The core issue revolved around determining the assessee's residential status under the India-USA DTAA. The assessee claimed dual residency in India and the USA, asserting that his "center of vital interest" was in the USA. The tribunal examined the provisions of Article 4(2)(a) of the DTAA, which determines residency based on the location of the permanent home and personal and economic relations. The assessee argued that his economic and personal ties were stronger in the USA, citing his family's US nationality and investments.

Issue 4: Application of the "Center of Vital Interest" Test

The tribunal conducted a detailed analysis of the "center of vital interest" test. It considered the assessee's personal and economic relationships, including family ties, investments, and business activities. The tribunal found that the assessee had significant personal and economic ties to India, including residing in India for more than 183 days, active involvement in a company in India, and family residing in India. While the assessee had investments and a home in the USA, these were deemed passive and not indicative of a closer economic interest. Consequently, the tribunal concluded that the assessee's center of vital interest was closer to India, making him a resident of India for tax purposes.

Issue 5: Taxability of Global Income in India

Given the determination of the assessee's residency status as being in India, the tribunal held that the assessee's global income, including income derived in the USA, was chargeable to tax in India under Section 5 of the Income Tax Act, 1961. The tribunal noted that the assessee did not pay any taxes in the USA, and therefore, no tax credit was available in India. The tribunal confirmed the lower authorities' decision to tax the dividend income, capital gains, and other income sourced by the assessee in the USA.

Conclusion:

The tribunal dismissed the appeal, upholding the CIT (Appeal)'s order. It concluded that the assessee was a resident of India for tax purposes under the DTAA, and his global income was taxable in India. The tribunal found no merit in the grounds of appeal concerning natural justice and the consideration of submissions. The order was pronounced in the open court on 3/10/2024.

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