2012 (7) TMI 404 - AT - Income Tax

Income received or deemed to be received or accrued or arose or deemed to be accrued or arose in India - Income by way of brokerage and commission - assessee maintains a NRE account with South Indian Bank of Anna Nagar at Chennai - Held that - The assessee is a permanent resident of Singapore with his salary income taxed as per Singapore s tax laws and also earning income by way of brokerage and commission remitting the proceeds through cheques and demand drafts to assessee s Indian bank account through Telegraphic transfer - It is after having received the brokerage and commission in the accounts of the foreign correspondent banks that those funds are transferred to assessee s Indian bank account in foreign currency. Thus landing of the brokerage and commission transmitted to India through TTs are first landed in the accounts of the foreign correspondent banks outside India, it is to be seen that the assessee received his brokerage and commission outside India. It is only after receiving those brokerage and commission outside India that the corresponding funds were transferred to the assessee s Indian bank account by TTs - as DTAA overrides Indian Income-tax laws therefore, in view of Article 7 the profits of an enterprise of a contracting State shall be taxed only in that State except where the enterprise has a permanent establishment in other contracting States - decided in favour of assessee. Addition being 25% of the jewellery as unexplained in the hands of the assessee - gifts of jewellery made by the assessee to relatives - Held that - Even if the assessee has spent some funds in gifting gold jewellery to his family members, those funds emanated from non taxable funds available in his bank account. It does not belong to any income liable for taxation in India. Therefore, even if the proposition of the CIT(A) is accepted, there is no justification for making any addition in the hands of the assessee - in favour of assessee.

Summary

Issues Involved:
1. Taxability of remittances credited in the assessee's Indian bank account.
2. Residential status of the assessee for the assessment year 2009-10.
3. Treatment of unexplained jewellery found during the search.

Detailed Analysis:

1. Taxability of Remittances:

The primary issue revolves around whether the remittances credited to the assessee's Non-Resident External (NRE) account in Chennai should be taxed in India. The assessee, a non-resident employed in Singapore, argued that his salary and brokerage income, earned and taxed abroad, should not be taxable in India. The Assessing Officer initially proposed to tax these remittances under Section 5 of the Income-tax Act, 1961, treating them as income received or deemed to be received in India. However, the Commissioner of Income-tax (Appeals) differentiated between remittances made via demand drafts/cheques and telegraphic transfers (TTs). The Assessing Officer accepted that remittances via demand drafts and cheques were received outside India and thus not taxable. Conversely, he held that TTs were received in India and thus taxable. The Commissioner of Income-tax (Appeals) disagreed, treating TTs similarly to demand drafts and cheques, asserting that the funds were first received by foreign correspondent banks and then transferred to the Indian account, making them non-taxable in India. The Tribunal upheld this view, emphasizing that the initial receipt of funds by foreign banks meant the income was earned outside India, aligning with the Supreme Court's decision in CIT v. Ogale Glass Works Ltd. (25 ITR 529).

2. Residential Status for Assessment Year 2009-10:

For the assessment year 2009-10, the Assessing Officer classified the assessee as a resident, making his entire income taxable in India. The Commissioner of Income-tax (Appeals) re-evaluated the assessee's residential status, considering his non-resident status for over 15 years, and determined he should be classified as "not ordinarily resident" under Section 6(6) of the Income-tax Act. Consequently, the Commissioner held that the assessee's foreign income, including remittances to his Indian account, was not taxable in India. The Tribunal agreed, noting that the assessee had no business income in India and that his remittances represented income earned and received outside India.

3. Unexplained Jewellery:

The cross objection for the assessment year 2009-10 concerned the addition of Rs. 18,66,032/- as unexplained jewellery. The Commissioner of Income-tax (Appeals) had accepted that the jewellery found belonged to different individuals, deleting 75% of the addition. However, he sustained 25% of the addition, presuming the assessee might have gifted jewellery to relatives. The Tribunal found this presumption unjustified, noting that the assessee's funds in India, used for any potential gifts, originated from non-taxable sources. Consequently, the Tribunal deleted the entire addition, ruling that no taxable income in India could be attributed to the assessee.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the Commissioner of Income-tax (Appeals)'s order that the remittances were not taxable in India and confirming the assessee's status as "not ordinarily resident" for the assessment year 2009-10. Additionally, the Tribunal allowed the assessee's cross objection, deleting the addition related to unexplained jewellery.