TMI Blog2009 (4) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. This is because what is chargeable is the first receipt of the money and not a subsequent dealing by the assessee with the said money. In that event, the money is brought by the assessee as his own money which he had already received and had control over it and it does not take the character of income, profit and gain after being brought in India. In the cases of remittances through banking channel, the nature and source of the funds get explained and the onus on the assessee u/s 69 gets discharged and, consequently, such remittances cannot be taxed u/s 5(2)( b ). Therefore, the argument of the ld Standing Counsel that, in the present case, the impugned money was taxable u/s 5(2)( b ), r/w section 69, on the facts, has no merit and cannot be accepted. It is seen that, AO while relying upon the CBDT Circular, has committed an error of reproducing in his order from paragraph 4 of the Circular, which does not apply to the remittances through banking channels. He should have applied the paragraph (2) and the first part of paragraph (3) of the Circular. In the circumstances, therefore, his order has no merit and cannot be sustained. We have observed that because of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there was no allegation or finding by any Authority that the appellant had violated any of the provisions of Foreign Exchange Regulation Act. (9) He overlooked to consider various pieces of evidence produced before him by the appellant. (10) Without prejudice to the above, the appellant submits that, even assuming that she had omitted to disclose to Malaysian Tax Authorities, it cannot be considered as income taxable in India. (11) The appellant, therefore, prays that the addition of Rs. 4,68,85,840 may be deleted." 4. The facts of the case, in brief, are that the assessee is a Non-Resident Indian, holding an Indian passport, and was residing in Malaysia. During the assessment proceeding in the case of the company, M/s. Bharani Beach Resorts Pvt. Ltd., it was noticed that the assessee Smt. Susila Ramasamy had made substantial NRNR (Non-Resident Non-Repatriable), FCNR (Foreign Currency Non-Resident), and NRO SB deposits with Indian Bank, Abiramapuram and State Bank of India, Cheyyur aggregating to Rs. 4,68,85,844. Therefore, the Assessing Officer initiated proceedings under section 147 for assessment year 1995-96, and issued notice under section 148 on 15-3-2002. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing channel, that the Indian authorities are empowered under the Indian law to question as to how the assessee earned the money outside Malaysia, that the department s stand got indirect support from the decisions in the following cases : ( i ) Asstt. CIT v. Rajeev Tandon [2007] 108 ITD 560 (Delhi) ( ii ) Sandeep Kumar (HUF) v. CIT [2007] 293 ITR 294 (Delhi) ( iii ) Ashok Mahindru Sons v. CIT [2008] 173 Taxman 178 (Delhi) ( iv ) ITO v. Tirathram Gupta [2006] 6 SOT 703 (Chd.) that heavy reliance was placed upon the facts stated in the Annexure to the assessment order." 7. We have considered the rival submissions in the light of material on record and the precedents cited. The undisputed facts of this case are that the assessee is a non-resident and that she brought funds from abroad through banking channels. The Assessing Officer, while treating the said deposits as deemed income of the assessee under section 69 of the Act observed in paragraphs 16 and 17 of his order as under : "16. Even if the assessee is a NRI if there are deposits made in India and are not satisfactorily explained the value of investments will be deemed to be the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax." 9. During the hearing of this appeal, one question which was repeatedly put by the Bench to the learned Standing Counsel was under which provision of the Income-tax Act, 1961, money brought by an NRI into the country through banking channel, is taxable in India. His very clear reply was that the impugned amount was taxable in India under section 5(2)( b ), read with section 69, of the Act. 10. Before proceeding to examine the arguments of the learned AR and the learned Standing Counsel relating to the above issue, it appears worthwhile to have a bird s eye view of the general scheme of the Income-tax Act, 1961 in this regard. 11. The section 4 of the Income-tax Act, 1961 is the charging section and it reads as under : "4. Charge of income-tax. - (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (Including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year [* * *] of every person : Provided that where by virt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )is received or is deemed to be received in India in such year by or on behalf of such person ; or ( b )accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1. Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2. For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." 11.4 The principle underlying section 5 is to make the chargeability of income depend upon the locality of accrual or receipt. Sub-section (1) of section 5 applies to a person who is a resident and sub-section (2) applies to a person who is a non-resident . The assessees are divided into three categories : ( i )resident and ordinarily resident, ( ii )resident but not ordinarily resident, ( iii )non-resident. 11.5 Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. In other words, in the absence of proper supporting evidence, the taxpayers story that the money has been brought into India from outside may be disbelieved by the Income-tax Officer who may then proceed to hold that the money had in fact been earned in India. (3) If the money has been brought into India through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the Income-tax Officers as to the origin of the money or assets brought in. It is only in cases where the money is claimed to have been brought from outside otherwise than through banking channels and there is no evidence regarding the transfer of money, that the department has to make enquiries about the source thereof. Even in these cases, having regard to the difficulties experienced by persons migrating from Pakistan, Burma and East African countries, instructions have been issued to the Income-tax Officers that such claims should be freely admitted up to the limit of Rs. 50,000 in each case provided the following conditions are satisfied: ( a )The assessee migrated to India on or after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India, their bank accounts in those countries as also copies of the assessment orders passed in their cases by the income-tax authorities of those countries. The migrants would also then be required to prove that the amounts brought into India can directly be linked with the funds which they had possessed in those countries." 13. We now proceed to examine the above issue in the light of the following: ( i )the provisions of the section 5(2)( b ), ( ii )the provisions of section 69, ( iii )the CBDT Circular No. 5 in F.No. 73A/2(69)-IT (A-II), dated 20-2-1969. 14. It is seen from sub-section (2) of section 5 of the Act that a person who is a non-resident , has to pay tax only on that income which is either received by him in India, or is deemed to be received by him in India, or accrues to him in India, or arises to him in India, or is deemed to accrue to him in India, or is deemed to arise to him in India, during the year. The words in India appearing in sub-section (2) of section 5 are crucial. The principle underlying section 5 makes the chargeability of income depend upon the locality of accrual or receipt. 14.1 Now, let us examine a question "whether a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 ITR 328 (Mad.). 14.5 Let us now examine the applicability of section 69 of the Act, which was relied upon by the learned Standing Counsel. It reads as under : "69. Where in the financial year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." 14.6 Therefore, in the cases of remittances through banking channel, the nature and source of the funds get explained and the onus on the assessee under section 69 gets discharged and, consequently, such remittances cannot be taxed under section 5(2)( b ) of the Act. Therefore, the argument of the learned Standing Counsel that, in the present case, the impugned money was taxable under section 5(2)( b ), read with section 69, of the Act, on the facts stated above, has no merit and cannot be accepted. 14.7 But, the position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer while relying upon the CBDT Circular ( supra ), has committed an error of reproducing in his order from paragraph 4 of the Circular, which does not apply to the remittances through banking channels. He should have applied the paragraph (2) and the first part of paragraph (3) of the Circular. In the circumstances, therefore, his order has no merit and cannot be sustained. 16. The learned Standing Counsel invited our attention to the Annexure of the assessment order, and he placed heavy reliance upon the facts stated therein. Therefore, we proceed to have a quick look at what is stated in the Annexure. 16.1 It is seen that the Annexure to the assessment order represents extracts taken from the assessment order in the case of Bharani Beach Resort (P.) Ltd. for assessment year 1995-96. The facts and circumstances narrated therein are summarized below: "the balance sheet of M/s. Bharani Beach Resort (P.) Ltd. showed credit of Rs. 3 crores as secured loan taken from the Indian Bank, Abhiramapuram, that the bank had advanced the above amount on the security of NRNR deposits lying in the name of Mrs. Susila Ramasamy, that the deposits were made between July 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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