2021 (2) TMI 1351 - AT - Income Tax

Income Taxable in India - Income deemed to accrue or arise in India - foreign allowances received for services performed in the Netherlands - assessee had admittedly worked as an employee of M/s IBM India Pvt. Ltd.as deputed in lieu of service performed outside India which in turn led to the amount in issue received as foreign allowance(s) - HELD THAT - Revenue s case in line with lower authorities action is that sec. 5(2) comes into play the moment impugned sum has been credited or received in India and any deviation thereof shall render the statutory provisions itself as redundant. We find no merit in Revenue s foregoing stand. Various judicial precedents in CIT vs. Avtar Singh Wadhwan 2000 (11) TMI 116 - BOMBAY HIGH COURT ; DIT vs. Prahlad V Rao 2010 (11) TMI 803 - KARNATAKA HIGH COURT and Utanka Roy 2016 (12) TMI 876 - CALCUTTA HIGH COURT hold that such an income derived by a non- resident for performing service activities outside India the accrual of income thereon happens outside India could not be brought to tax in India as per s.5(2) of the Act. We thus delete the impugned addition for this precise reason alone. Appeal of assessee allowed.

Summary

Issues: Assessment of foreign allowances received for services performed abroad under section 5(2) of the Income Tax Act, 1961.

Analysis:

Issue 1: Assessment of foreign allowances under section 5(2) of the Income Tax Act, 1961

The assessee challenged the assessment as a non-resident for taxing foreign allowances received for services performed in the Netherlands under section 5(2) of the Act. The assessee, an employee of M/s IBM India Pvt. Ltd., was deputed for service outside India, resulting in receiving foreign allowances. The Revenue contended that the sum becomes taxable in India upon being credited or received in India, arguing the application of section 5(2). However, the Tribunal disagreed with the Revenue's stance, citing various judicial precedents such as CIT vs. Avtar Singh Wadhwan, DIT vs. Prahlad V Rao, and Utanka Roy vs. DIT. These precedents established that income derived by a non-resident for services outside India, with income accrual outside India, cannot be taxed in India under section 5(2). Consequently, the Tribunal deleted the addition based on this reasoning alone, allowing the assessee's appeal.

This judgment by the Appellate Tribunal ITAT Hyderabad addressed the issue of assessing foreign allowances received for services performed abroad under section 5(2) of the Income Tax Act, 1961. The Tribunal analyzed the facts, the Revenue's argument, and relevant judicial precedents to conclude that the income derived by a non-resident for services performed outside India, with income accrual outside India, cannot be brought to tax in India under section 5(2). The Tribunal's decision to delete the impugned addition was based on the established legal principles from previous court decisions, providing relief to the assessee in this case.