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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 04.09.2024, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”) by Ld. CIT(A)-NFAC, Delhi. This case has a peculiar set off facts which deserves to be briefly set out before adjudicating on the grounds raised by the assessee.
The admitted facts are that the assessee is a US citizen who was on an international assignment to India between May, 2011 till February, 2020. Admittedly, the assessee qualifies as Resident and Ordinary Resident (ROR) of India as per section 6 of the Act. Also, the appellant qualifies as a Resident of US for the calendar year 2019-20. Considering this dual status, as per the provisions of Article 4(2) of the India-US Double Taxation Avoidance Agreement (DTAA) for determining his treaty residency for the relevant assessment year, the assessee filed his return of income (ROI) declaring a total income of Rs.21,46,19,810/-. Additionally, the US income of Rs.4,62,85,467/- was claimed as exempt on the ground of Article 4(2) of India-US DTAA. The Ld. AO treated the assessee as ROR of India instead of a treaty non-resident of India. Thereafter, the US income of Rs.4,62,85,467/- was brought to tax in India. The Ld. AO had identified several factors for determining the assessee’s connection with India under the provisions of Article 4 of the India-US DTAA as follows: -
The assessee’s birth place was India and he was working here for the past several years;
The assessee was a Director in three Indian Companies;
The assessee’s major source of income is from within India.
Considering these factors the Ld. AO brought the US income to tax in India. The aggrieved assessee approached the Ld. CIT(A), where also he could not succeed.
Further aggrieved, the assessee has approached the ITAT with several grounds challenging the actions of authorities below and also putting forth the contention that the assessee’s economic and personal ties are more firmly rooted in the US rather than in India.
Before us, the Ld. AR vehemently argued that the assessee qualified as a ROR u/s 6 of the Act by virtue of his stay in India and also qualified as a resident of US for the tax years 2019 & 2020. It was the argument that as per section 90(2) of the Act the beneficial DTAA provisions will apply in an assessee’s case if they are more beneficial to him. The Ld. AR read out the provisions of section 90 and also CBDT’s Circular No.333 dated 02.04.1982. Thereafter, the Ld. AR read out Article 4(2) of the India-US DTAA. For the sake of context, the relevant provision deserves to be extracted as under: -
"Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows:
(a)he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (center of vital interests);
(b)if the State in which he has his center of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
(c)if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;
(d)if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement."
The Ld. AR emphasized that the assessee is a citizen of USA and his spouse and children were staying in the US. It was also emphasized that the assessee is working with M/s GEC in the US since 1982 and has been assigned to India only between 2011 to 2020. The Ld. AR also mentioned that the assessee as a US citizen had voting rights in the US and was fulfilling all attendant obligations thereon. It was also mentioned that after completion of assignment in India the assessee repatriated to the US and was living there ever since. The Ld. AR relied on several orders of coordinate benches of ITAT to canvass the point that the assessee deserved to succeed on the ground that his personal and economic ties were closure to the US than to India. The Ld. AR relied on the following cases:
Shri Kumar Sanjeev Rajan [ITA No.1655/Bang./2017]
Sameer Malhotra [ITA No.4040/Del/2019]
Proctor & Gamble Home Products Limited [TS-18-HC-2015 (Bom.)]
Reliance was also been placed on certain International case laws.
The Ld. DR, on the other hand, argued that the assessee never furnished adequate details before the Ld. AO and this was evident from para 3.4 of his order where on page 8 the following is mentioned:
“Without prejudice to the above, it can be seen that number of opportunities were given to the assessee for furnishing the detail of interest income, dividend Income and income from house property claimed exempt by him in the return of Income. However no specific details were furnished by the assessee. It is Important to mention that vide notice dated 13/08/2022 that u/s 142(1) of IT Act, the assessee was pointed out deficiency in his earlier submissions in this regard and also specifically asked to furnish the documentary evidence to establish that income claimed exempt were offered for tax in USA. However, in his latest reply also the assessee has again repeated their earlier submission without providing any specific details called for.
•It is seen that the assessee has paid advance tax on 07/02/2020 of Rs.1,20,00,000/- as per estimation of tax liability on the income as per the practice adopted by the assessee for offering global income for taxation purpose in India since last several years. As per the assessee's own submission only at the time of filing of return income he realized that his global income is not taxable in India. The return of income for the A Y 20-21 was filed by the assessee on 09.01.2021. Thus, it is highly unlikely that the assessee has offered the above Income in US. The assessee has not submitted specific documents to establish that in spite of repeated opportunities. Since the assessee is "Resident and ordinary Resident the above income has to be taxed in India.”
It was the submission that the tax details filed of US income, as submitted before the US Revenue Authorities, included the income of the spouse along with that of the assessee. The assessee had never supplied any plausible breakup of his own income and that of his wife in the US. It was also argued that the assessee had been staying in India for almost nine years and his income from employment in India was almost five times the income earned in the US which was what it was after being clubbed together with the income of his wife. The Ld. DR also pointed out that the assessee’s place of birth was in India and thus, there cannot be any doubt that he would have familial ties here. The Ld. DR assailed the contention of the assessee that his economic and personal ties were greater in the US than in India, on the ground that at least the economic ties were far substantial in India as compared to the US. The Ld. DR concluded his arguments by saying that in the absence of specific details which could clinch the tax status of the assessee, the Ld. AO drew his conclusions from the documents available with him, and rightly so.
We have carefully considered the arguments from both sides and have also perused the documents before us. Right at the outset, it deserves to be mentioned that this case pertains to a situation where a “tie-break” has to be determined on the facts of the case to decide whether the global income of the assessee is to be taxed in India or in the US. In this regard, we need to consider the argument of the assessee on the basis of his written submissions, albeit without any proof of the same in the shape of passport copies of family members, etc, that the assessee’s immediate family is exclusively residing in the US, without any substantial period of stay in India, and therefore, there could be a case to consider at least close personal ties, if not the economic ties, of the assessee being with the US and not India. Alternatively, it is factually correct on the part of the AO to mention that the economic interests of the assessee are far more substantially rooted in India as compared to the US. We are also conscious of the fact that the Ld. AO made repeated attempts to determine the nature and extent of economic and familial ties in India and the US. Admittedly, the Ld. AO could not succeed in getting the facts in this regard. During the course of arguments the Ld. AR presented a comparison of income declared in the US as compared to the income declared in India. On a query from the Bench regarding the exact quantum of the income disclosed in the US as pertaining to the spouse, the Ld. AR made a statement at the Bar that except for some small amounts, the major portion of the income of Rs.4,62,85,467/-belonged to the assessee himself. The Ld. AR expressed his inability at this moment in time to give the exact breakup in this regard. At this juncture, we are handicapped by the lack of critical facts in deciding whether the benefit of “Tie-Break” should go in favour of the assessee when he claims close personal and economic ties with the US or, contrarily, agree with the findings of Ld. AO that such ties are rooted in India. At this stage, we need to discuss the case of Ashok Kumar Pandey of the ITAT, Mumbai reported in 167 taxmann.com 286 (Mum.)- ITA 3986/Mum/2023, order dated 03.10.2024. The Tribunal has laid down the following tests for determining the centre of vital interest:
•For determining personal relationship, only those facts with some impact need to be considered for analysis, such as connect with the nucleus family being more important than extended family;
•For determination of economic relationship, more weightage should be given to all active involvement in the commercial activities than passive investments such as mutual funds and bank accounts. Place of business, place of administration of property and place of earning wages is of importance.
•Investment in securities, mutual funds, banks move not necessarily with residence of the assessee but on the basis of rate of return in a particular state.
•Ambiguous factors need to be avoided.
It is seen that these deciding factors have not been adequately brought on record for determining the centre of vital interest. Also, it is difficult to appreciate on the strength of an oral statement regarding the proportion of spouse’s income in the assessee’s US tax return in the absence of a specific quantification. It is also not understood as to the treatment given by AOs in past assessment years since the assessee is in India continuously from 2009 onwards. Considering all these factors, we deem it fit to set aside the impugned order and remand this matter back to the file of Ld. AO. The assessee would be expected to supply the facts so that the “tie-break” situation is determined one way or another. The Ld. AO would do well to follow the indicators laid down in the case of Ashok Kumar Pandey (supra). Needless to say, the Ld. AO would give ample opportunity of being heard.
In the result, appeal is allowed for statistical purposes.