2018 (8) TMI 751 - AT - Income Tax

Receipt of income u/s 5(2) - Foreign allowances on account of the international assignment received in Nigeria - assessee was an employee in IBM India Private Limited and during the financial year 2012-13 was sent on short term assignment to Nigeria. He had stationed in Nigeria for 311 days during the year under consideration. Accordingly his residential status for the year under consideration would be Non-Resident. Held that - CIT(A) had rightly deleted the addition made on account of disallowance of claim of exemption in respect of foreign assignment allowance received by the assessee outside India. - Decided against the revenue.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition made by the Assessing Officer (AO) under Section 5(2) of the Income Tax Act, 1961.

Detailed Analysis:

Issue: Justification of Deletion of Addition by CIT(A)
The appeal by the Revenue challenges the order of the CIT(A), who deleted the addition of ?1,24,65,174 made by the AO by applying Section 5(2) of the Income Tax Act, 1961.

Facts of the Case:
- The assessee, an employee of IBM India Private Limited, was on a short-term assignment to Nigeria during the financial year 2012-13 and stayed there for 311 days.
- The assessee's residential status for the year was Non-Resident.
- The assessee received a gross salary of ?32,82,438 in India and foreign allowances of ?1,24,65,174 in Nigeria.
- IBM deducted TDS on the entire emoluments, including foreign allowances.
- The assessee filed a return declaring taxable income of ?32,86,990, claiming a refund of ?38,19,000, and did not offer the foreign allowance to tax in India, asserting it was received for services rendered outside India.

Tribunal's Findings:
- The Tribunal noted that the issue was similar to the case of DCIT vs. Sudipta Maity, where the assessee received foreign allowances outside India for services rendered abroad, and such income was not taxed in India under Section 5(2).
- The Tribunal reviewed the facts, including the mechanism of payment through a Travel Currency Card (TCC) funded via a Nostro Account maintained outside India.
- The AO's contention that the foreign assignment allowance was received in India was rejected. The Tribunal found that the first point of receipt was outside India, making the income non-taxable under Section 5(2).
- The Tribunal also considered the assessee's non-resident status and the fact that both accrual and receipt of income occurred outside India.
- The Tribunal referenced judicial precedents, including the case of ADIT (International Taxation) vs. Sri Kartik Vyas, which supported the non-taxability of foreign allowances received by non-residents for services rendered outside India.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision to delete the addition of ?1,24,65,174, affirming that the foreign assignment allowance received by the assessee outside India was not taxable under Section 5(2) of the Income Tax Act, 1961.
- The appeal by the Revenue was dismissed, and the order of the CIT(A) was confirmed.

Final Judgment:
- The appeal of the Revenue was dismissed, and the CIT(A)'s order deleting the addition made by the AO was upheld. The foreign assignment allowance received by the assessee outside India was not taxable under Section 5(2) of the Income Tax Act, 1961.