TMI Blog2013 (1) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of resident Indian do not support assessee's contention that the tax deducted in Korea by SK Telecom cannot be subject to tax in India. As seen from the computation statement, assessee has not even claimed the tax credit for the amount deducted in Korea as the same has to be given credit in the hands of the principal company in Japan. Therefore, as far as accrual of the income of assessee is concerned, the entire amount of Rs. 2,43,56,074 has accrued to the principal company through its branch in India which was the taxable entity by virtue of PE in India. There is no claim for credit of the tax paid in Korea. As assessee has accounted for the entire income in the books of account as accrued. No explanation was given why the amount was not included when assessee was claiming credit of tax so deducted while filing the return of income. Even though assessee has left a note that so much of the amount being the tax deducted in Korea does not accrue to its in India, the same cannot be accepted as assessee accounted entire amount as income in its books of account prepared for the purpose of being assessed in India having its PE. Since the amount excluded is not an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnishing inaccurate particulars of income for levying penalty. The Explanation (1) to section 271(1)(c) has two limb wherein the first limb is applicable when such person fails to offer an explanation or offers an explanation which is found by the AO to be false. The second limb is where such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. In so far as the first limb is concerned, the AO has not considered the explanation filed by assessee to be false. AO has applied second limb which comes into play if such person gives an explanation which is not considered to be bonafide and all the facts relating to the same has not been disclosed by him. In the present case, the facts in respect of above claim has been fully disclosed in the return of income and the explanation of the assessee has not been considered as not bonafide. The second part of the Explanation can only be invoked if the full facts for computation of income has not been disclosed and the given explanation is not substantiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest paid to HO under section 40(a)(i) and also treating the same amount as income of the principal holding assessee as an Agent were considered by the Special Bench of the ITAT in assessee's own case and accordingly, in the quantum appeal the two additions were deleted. Therefore, the learned CIT (DR) fairly admitted that the penalty on the above two issues does not survive for consideration. 4. The only remaining issue is with reference to the addition made in the assessment of Rs. 59,85,368. The facts of the issue are as under. Assessee branch in India has received an amount of Rs. 2,43,56,075 as income from M/s S.K. Telecom, Korea as the guarantor in respect of loan granted by the Bank to DSS Mobile Communication Ltd. This above amount was subjected to tax under the Korean law and accordingly an amount of Rs. 59,85,368 was deducted from the amount and balance amount was remitted to India. Assessee in the Profit Loss A/c prepared for the purpose of Indian operations has credited the entire amount of Rs. 2,43,56,075. In the return filed however, this amount was excluded from the profits arrived at by the Indian Branches and offered only an amount of Rs. 1,83,70,706 i.e. amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elecom was the guarantor for this transaction. The funds which are advanced by assessee to DSS Mobile Communication Ltd are part of the funds raised through various 'sources' by the bank in India. Therefore, any income, received by the assessee bank from any person in respect of such advancement of loan, is takes the colour of income accruing or arising from business connection in India and gets squarely covered by section 9(1)(i) of the Act. Further, it is not an expenditure at all, whatever tax has been deducted in Korea, the assessee would be entitled for credit of the same in its home country. It only means an indirect receipt of income. In view of this, the 'entire amount of Rs. 2,43,56,674 is added to the total income of the assessee instead of Rs. 1,83,70,706 as done by the assessee in its computation of total income". 6. ITAT in its order in ITA No.3855/Mum/2005 for assessment year 2001-02 dated 18.05.2012 has confirmed the addition by stating as under: "45. We have carefully considered the submissions of representatives of parties, orders of authorities below and decisions cited before us. We agree with the learned Authorized Representative that Hon'ble Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered the amount even though the same was accounted in assessee's own books of account and therefore, there is no bonafide reason for making the claim and the CIT (A) erred in deleting the penalty on the above amount. 8. On the contrary, the learned Counsel submitted that assessee was of the view that since the amount was deducted and paid to Korean Government what is accrued to assessee in India is only the net amount received and relied on the order of the Hon'ble Bombay High Court in the case of CIT v. Ambala Kilachand [1994] 210 ITR 844 dated 12.4.1994. He also relied on the decision of Hon'ble Madhya Pradesh High Court decision on the case of CIT v. Yawar Rashid [1996] 218 ITR 699 wherein it was held that only net amount was taxable. It was his submission that in the other two decisions which are relied upon by the learned DR, this decision was not cited and assessee has a bonafide belief that the amount is not taxable and accordingly it has excluded the same from the computation. The learned Counsel relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products (P.) Ltd [2010] 322 ITR 158 and also the decision of the Mumbai 'A' Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 5 provides for inclusion of income which is deemed to be received or deemed to have accrued to the assessee in India. But in respect of income arising outside India, what is includible in the total income under section 5(1)(c) is only the income which actually accrues or arises to the assessee outside India during the relevant year. Further, by virtue of the provisions of section 194, read with section 198, in respect of any dividend income received in India, not merely the dividend amount actually received by the assessee but also the income-tax deducted thereon under section 194 is considered as income deemed to be received by the assessee, thus, falling under section 5(1)(a). Accordingly, the gross amount of dividend would be includible in the total income of the assessee. These sections, however, do not have any application to a company in the United Kingdom which declares a distribution of dividend or pays tax thereon in the United Kingdom. The basic scheme under the laws of the United Kingdom, as held by the Calcutta High Court, appears to be that it is the company which is liable to pay corporation tax on the distributions declared by it. It can recoup this tax from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court also considered is with reference to the benefit of tax credit provided under schedule F of UK for grossing up of the dividend income by the tax so deducted. Hon'ble Bombay High Court also noticed that these provisions do not have any application to persons who are not resident in the UK. Therefore, as seen from the above judgment the provisions of UK and the provisions of the Indian Income Tax Act applicable to the residents in India were interpreted to come to a conclusion that only the net dividend is assessable on the facts of the case. 12. The learned Counsel also relied on the Hon'ble Madhya Pradesh High Court in the case of Yawar Rashid (supra). In the above said case it was held as under: "According to section 5 the total income of the assessee of the previous year who is a resident in India, includes all income from whatever source, i.e. which is received or deemed to be received in India in such year by or on behalf of such person; or accrues or arises or is deemed to accrue or arise to him in India during such year or accrues or arises to him outside India during such year. There are three categories which have been contemplated - one is that a person who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), it makes clear that what is actual income accrues or arises to him outside India shall be counted, i.e., the gross income in clause (c) is not to be counted, but actual income which is received at the hands of the assessee, is to be counted. Similarly, section 198 says how tax deducted should be included in the gross total income under the provisions of the Income-tax Act. There is no such inclusion under section 198 of the income-tax deducted at source abroad. That gives an indication that the Legislature deliberately did not want to include that deduction as a part of the assessee's income for the purpose of computing his gross income or it is a case of a bona fide omissions. But nonetheless, the fact remains that there is no provision which mandates that if any income has been deducted at source abroad then that income should also be computed for the purpose arriving at the gross income of the assessee for tax liability. Section 5(1)(a) and (b) read with section 198 make it a one code and that leaves out section 5(1)(c), that means that such income which has been deducted at source abroad that will not be counted for the purpose of computing the total income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set by assessee does not hold in the light of the clear judgments of the jurisdictional High Court given in the context of Indian residents again. Therefore, assessee's non-offering of income in our view attracts penalty under section 271(1)(c). In our view learned CIT(A) did not separately examine the issue of "bona fide belief" on this addition but considered the same along with other additions which stand deleted. 15. Assessee relied on the judgment of the Hon'ble Supreme Court in the case of Reliance Petro products (P.) Ltd. (supra) for the proposition that the claim made does not lead to penalty under section 271(1)(c). However, this is not a claim made as under the Income Tax Act at all. There is no claim for credit of the tax paid in Korea. As already discussed above, assessee has accounted for the entire income in the books of account as accrued. No explanation was given why the amount was not included when assessee was claiming credit of tax so deducted while filing the return of income. Even though assessee has left a note that so much of the amount being the tax deducted in Korea does not accrue to its in India, the same cannot be accepted as assessee accounted entire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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