CASE STUDY- DTAA EXEMPTION CANNOT BE DENIED ONLY DUE NON AVAILABILITY OF TAX RESIDENCE CERTIFICATE
RANJIT KUMAR VUPPU VS ITO ITAT HYDERABAD DATED: 22.04.2021 |
HELD THAT: DTAA Exemption cannot be denied merely for non-availability of Tax Residency Certificate ‘TRC’
BRIEF FACTS:
- The assessee, a Non-resident individual, filed his return of income for the A.Y 2014-15 on 31.07.2014 admitting total income of Rs.10,04,580.
- During the assessment proceedings u/s 143(2) of the act pursuant to selection of his return of income for scrutiny under CASS, the assessee was required to furnish certain information and the said information was furnished by the assessee.
- On verification of Form-16 issued by the assessee’s employer, i.e., IBM India (P) Ltd. for the A.Y 2014-15, the Assessing Officer found that during the relevant A.Y, the gross salary of the assessee was Rs. 31,11,185/-.
- The Assessing Officer observed that the employer had deducted the tax at source of Rs.7,76,564/-.
- Further, on verification of the total income filed by the assessee along with the return of income for the A.Y 2014-15, the Assessing Officer found that the assessee has claimed double taxation relief under section 90 of the Income Tax act and admitted NIL total income but claimed TDS of Rs. 7,66,567/- in his return.
- Therefore, the assessee was required to furnish the following details:
a) Tax Residency Certificate to claim the relief under section 90 for the salary received outside India with respect to the services rendered outside India,
b) Copy of the Assignment letter between the Employer and employee.
- In response, the assessee submitted a reply dated 9.9.2016 given as under: “As the assessee has spent less than 60 days in India during the FY 2013-14, he qualifies as a Non-resident under section 6(1) of the Act. Therefore, the foreign allowance of Rs.20,72,238/- was not offered to tax in India in the return of income as the same was received by him outside India for the services rendered outside India and shall not form part of total income under section 5(2) of the Income tax Act, 1961.”
- The Assessing Officer, however, held that the claim of the assessee could not be allowed for the following reasons:
• Despite giving many opportunities, the assessee could not produce the Tax Residency Certificate of Belgium for claiming the Double Taxation relief under section 90 as it is statute u/s 90(4) of the Income tax Act, 1961 w.e.f. from A.Y. 2013-14.
• The assessee has failed to furnish the supporting evidence for receiving the foreign allowances outside India to come under purview of section 5(2) of the Income tax Act, 1961.
Moreover, the assessee has neither produced any bank account outside India to prove any credits received outside India. Though the assessee stated that certain amounts which are received through travel card pertains to allowance received outside India, the same is not acceptable as the receipts received through travel card does not prove to be receipts received outside India as it is mobile card which can be used anywhere. Further, the employer has not confirmed the same either in letter submission or in Form 16 that these receipts paid through travel card.
• Further the assessee has also failed to prove that the receipts which are reflecting in Form 16 are the salary receipts earned outside India, as there is no evidence of the assessee being resident of Belgium.
• Employer in Form No. 16 has deducted tax at source of Rs.7,76,564/-on the gross salary, i.e., Rs.31,11,185/- received by assessee in India. However, as per section 5(2) of the I.T. Act, 1961, the total income of any previous year of a person who was a non-resident included all income from whatever sources derived, which was received or deemed to be received in India in such year by or on behalf of such person or accrue or arises to him in India during such year. Hence the total salary income and allowance received by employee is taxable.
• Further, the assessee has stated which is reproduced as under:
• “Hence at the time of payment of salary, as the residential status of the assessee was unknown to his employer, IBM has treated the entire salary paid to assessee as taxable in India and taxes were deducted at source on the entire salary”. As the Act has put primary responsibility and onus on the deductor employer to deduct taxes, IBM with abundant caution and following a conservative basis has deducted taxes on the entire salary paid to the assessee”.
DECISION: It has been held that the AO has disallowed the exemption claimed by the assessee under Article 15(1) of the India-Austria DTAA only for want of Tax Residence Certificate (TRC) from Austria. The submission of the assessee in this regard was that despite best possible efforts he was not able to procure TRC from country of residence and the situation may be treated as “impossibility of performance”. I find merits in the submission of the assessee. Normally it is a herculean task to obtain certificates from alien countries for compliance of domestic statutory obligations.
In such circumstances the taxpayer cannot be obligated to do impossible task and penalized for the same. If the assessee provides sufficient circumstantial evidence in such cases, the requirement of section 90(4) ought to be relaxed.
Further, it is obvious that where there is a conflict between the Treaty and the Act, the Treaty shall overrule the Act. In the case of the assessee, by virtue of the Treaty, the assessee is liable to tax in Austria for the services rendered in Austria and not in India. Therefore, though the act mandates Tax Residency Certificate of Austria, non-production of the same before the Ld. Revenue Authorities shall not enable the Ld. Revenue Authorities not to grant the benefit of the Treaty to the assessee. Therefore, the Ld. Revenue Authorities have erred in not granting the benefit of the Treaty to the assessee just for the reason that the assessee has not submitted the Tax Residency Certificate from Austria.
DISCLAIMER: the case law presented here is only for sharing information with readers. The views are personal shall not be considered as professionals advice. In case of necessity do consult with experts.
AUTHOUR: FCS Deepak P. Singh[ B.Sc. FCS, LLB, AIII, CIAFP]/cs.deepakpsingh@gmail.com