Taxpayer Can't Claim Credit Against Tax Payable In India If He Has Not Paid Any Tax In Country Where He Sourced Income: Mumbai ITAT
Pankaj Bajpai
9 Oct 2024 6:00 PM IST
While observing that the assessee is a resident of India in terms of Article 4(2)(a) of the Indo-US DTAA, the Mumbai ITAT held that all his income derived in the USA, is chargeable to tax in India by virtue of the provisions of section 5 of the Income tax Act.
Since the income tax return filed by the assessee in the USA, does not show that he is paid any tax in the USA, therefore, the ITAT clarified that in the absence of any payment of tax in the country of source, no credit is available against tax payable by the assessee in India.
According to Article 4(2)(a) of the Double Taxation Avoidance Agreement, an individual is a resident of the state in which he has a centre of vital interest being where his personal and economic relations are closer.
The Bench of Prashant Maharishi (Accountant Member) and Shrianikesh Banerjee (Judicial Member) observed that “assessee is staying in India for the current year for more than 183 days and therefore according to the domestic law, he is considered to be the resident of India”. (Para 23)
The stay of assessee's extended family including parents in USA is not so much relevant to decide whether his personal relationship is close to USA or not, added the Bench.
Facts of the case
The assessee, an individual, having income from Capital Gains, Dividend, Interest Income, and Income from House Property, claimed that he is resident in India as well as in USA. For determining the residential status in accordance with the Ino-USA DTAA, the assessee stated that he has a permanent home in India as well as in USA and, therefore, his residential status will depend upon his personal and economic relation and its closeness.
To verify the claim of assessee, the AO asked for the details of number of days of stay, copy of passport, details of family and their domicile. nativity of spouse, details of all the investments, incomes, and nature of work during the year as well as the tax returns filed in USA. Finding that assessee had stayed in India for more than 183 days, and that assessee is a Managing Director having more than 50% shareholding in an Indian company, the AO held that assessee's capital gain and business income is taxable in India.
Observation of the Tribunal
Since the assessee has stayed in India for more than 183 days in subject AY, the Bench considered the submission that assessee is resident but not ordinarily resident in India.
When the assessee has claimed that he is resident of USA and India both, and that he has permanent home available to him in India as well as in USA, such fact is accepted by Revenue, added the Bench.
Only when the assessee claims that his centre of vital interest is in USA, the Bench found that the Revenue disputed this position, as according to Revenue, the assessee has closer personal and economic interest in India than USA.
The Bench explained that as per Article 4(2)(a) of India USA DTAA, if an individual is a resident of both Contracting States, then he shall be deemed to be a resident of the State in which he has a permanent home available to him.
Going further, the Bench explained that if assessee 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 (centre of vital interests).
The Bench then considered that assessee and his entire nucleus family is US national; though assessee was staying in US earlier but has come back to India and staying here with his spouse & children.
The Bench referred to the Meryl lynch wealth report and the mutual fund investments, to state that determination of centre of vital interest is a vexed issue, and the facts need to be analysed looking at personal relationship as well as economic relationship and both must be considered together to determine the centre of vital interest of an individual close to a particular state.
Similarly, for determination of economic relationship, more credential be given to active involvement in the commercial activities then passive investments, added the Bench.
Since investments in securities & mutual funds does not necessarily move with residence of assessee, the Bench pointed that for determination of economic relationship, place of business, place of Administration of property and place of earning wages (remuneration/ profit) is of importance.
The Bench further found that the assessee has a home in India as well as a home in USA which is earning rental income, purchased by mortgage loan.
Regarding his economic interest, the Bench found that he has come back to India for carrying on business in a private limited company which is set up by him and his wife in 2009, which evidences assessee's active involvement in running of this company in India.
Therefore, based on the closure centre of vital interest of the assessee, the ITAT confirmed the order of the I-T authorities in taxing the dividend income & capital gains, sourced by the assessee in USA.
Thus, the ITAT dismissed the assessee's appeal.
Counsel for Appellant/ Assessee: Piyush Chhajed and Ayush Chhajed
Counsel for Respondent/ Revenue: Manoj Kumar Sinha
Case Title: Ashok Kumar Pandey versus ACIT
Case Number: ITA No. 3986/MUM/2023
