ITO, CHENNAI v. M/s. CITI Bank NA, CHENNAI

ITA 1608/CHNY/2010 | 2009-2010
Pronouncement Date: 13-12-2011 | Result: Allowed

Appeal Details

RSA Number 160821714 RSA 2010
Assessee PAN AAACC0462F
Bench Chennai
Appeal Number ITA 1608/CHNY/2010
Duration Of Justice 1 year(s) 2 month(s) 21 day(s)
Appellant ITO, CHENNAI
Respondent M/s. CITI Bank NA, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-12-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 13-12-2011
Date Of Final Hearing 13-12-2011
Next Hearing Date 13-12-2011
Assessment Year 2009-2010
Appeal Filed On 22-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENNAI BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER I.T.A. NO. 1600/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI CHAMPA GIDWANI) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NO. 1601/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI VISHAMBER BADLANI) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NO. 1602/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI VIJAYAN SUBRAMANI) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NOS. 1600 TO 1609/MDS/10 2 I.T.A. NO. 1603/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI HARESH MUKHI REWACHAND) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NO. 1604/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI PRAMOD AGARWAL) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NO. 1605/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI PRADEEP KUMAR TEWANI) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NOS. 1600 TO 1609/MDS/10 3 I.T.A. NO. 1606/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI VASUDEV JADWANI) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NO. 1607/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI ARJAN GURNAMAL) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NO. 1608/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI SUKHAM JEET KAUR) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) I.T.A. NOS. 1600 TO 1609/MDS/10 4 I.T.A. NO. 1609/MDS/2010 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER INTERNATIONAL TAXATION I(2) CHENNAI 600 034. (APPELLANT) V. M/S CITI BANK N A (ON BEHALF OF SHRI ANURAG SRIVASTAVA) NO.2 CLUB HOUSE ROAD CHENNAI 600 002. PAN : AAACC0462F (RESPONDENT) APPELLANT BY : SHRI R.B. NAIK CIT-DR RESPONDENT BY : NONE DATE OF HEARING : 13.12.11 DATE OF PRONOUNCEMENT : 13.12.11 O R D E R PER BENCH : THESE ARE APPEALS FILED BY THE REVENUE AGAINST OR DERS DATED 14.6.2010 OF COMMISSIONER OF INCOME TAX (APPEALS)-I V CHENNAI FOR THE IMPUGNED ASSESSMENT YEAR. REVENUE IS AGGRIEVED THAT THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO TREA T THE INCOME EARNED ON SALE OF TREASURY BILLS AS CAPITAL GAINS A ND NOT AS INTEREST INCOME. GRIEVANCE OF THE REVENUE IS SUCCINCTLY SUM MARIZED IN ITS GROUND NO.2 WHICH IS REPRODUCED HEREUNDER:- I.T.A. NOS. 1600 TO 1609/MDS/10 5 (2) THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSES SING OFFICER TO TREAT THE INCOME EARNED ON SALE OF TREAS URY BILLS AS CAPITAL GAINS AND NOT AS INTEREST INCOME. (2.1) THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT CIRCULAR 2 OF 2002 DATED 15.2.2002 PARA 6 WAS ALSO RELIED UPON BY THE ASSESSING OFFICER WHILE DISPOSING THE PETITION U/S 195. (2.2) THE LEARNED CIT(A) FAILED TO NOTE THAT IN THE PRESE NT SPECIFIC GROUP OF CASES THE INVESTMENTS WERE TRANS FERRED JUST 2 DAYS PRIOR TO THE DATE OF MATURITY ONLY TO COL OUR THE INCOME INVOLVED AS INTEREST INCOME AND CONVER T SAME INTO SHORT TERM CAPITAL GAINS TO AVOID TAXATION IN INDIA. IT IS SUBMITTED THAT TAX PLANNING SHOULD NOT RESULT IN TAX AVOIDANCE OR TAX EVASION. (2.3) THE LEARNED CIT(A) FAILED TO NOTE THAT DETAIL SCRUT INY AND ANALYSIS OF THE RECEIPTS BY THE NON-RESIDENTS IN INDI A WAS NOT POSSIBLE AS THE NON-RESIDENTS WOULD NOT FILE A NY RETURN OF INCOME IN INDIA AND BE OUT OF TAX NET THOUGH C ERTAIN INCOME WAS EARNED IN INDIA. (2.4) IT IS SUBMITTED THAT SINCE THE TRANSFER OF TREASURY BILLS WAS EFFECTED JUST TWO DAYS BEFORE MATURITY THE BANK ACCOUNT OF THE RESPECTIVE NON-RESIDENT NEEDS TO BE CROSS CHECKED TO ASCERTAIN THE EXACT DATE OF DEPOSIT OF T HE PROCEEDS BEFORE DECIDING ON THE NATURE OF THE RECE IPT. HAVING REGARD TO RULE 46A THE LEARNED CIT(A) OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE ASSESSING OFFICER T O VERIFY AND SUBMIT A REPORT ON THE DETAILS AND DOCUMENTS RE LIED ON BY THE ASSESSEE IN SUPPORT OF HIS CLAIM. 2. FACTS APROPOS ARE THAT ASSESSEE HAD FILED APPLIC ATIONS UNDER SECTION 195 INCOME-TAX ACT 1961 (IN SHORT THE ACT ) FOR ISSUE OF CERTIFICATE FOR NOT DEDUCTING TAX AT SOURCE ON PAYM ENTS MADE TO ITS NON-RESIDENT ACCOUNT HOLDERS ARISING OUT OF SALE O F 364 DAYS GOVERNMENT OF INDIA TREASURY BILL MATURING ON 24 TH OCTOBER 2008. ASSESSEE-BANK HAD AS ITS CUSTOMERS RESIDENTS OF PHI LIPPINES WHO I.T.A. NOS. 1600 TO 1609/MDS/10 6 WERE ALSO HOLDING ACCOUNT IN THEIR BANK AND WHO HAD PURCHASED ON 26 TH NOVEMBER 2007 DEEP DISCOUNT BONDS NAMED 364 DAYS GOVERNMENT OF INDIA TREASURY BILL MATURING ON 24 TH OCTOBER 2008. THE DEEP DISCOUNT BONDS SO PURCHASED WERE SOLD BY T HE NON- RESIDENTS ON 22.10.2008 I.E. TWO DAYS PRIOR TO IT S DATE OF MATURITY. AS PER THE A.O. HAD THE DEEP DISCOUNT BONDS BEEN S OLD BY THE CONCERNED NON-RESIDENTS AFTER TWO MORE DAYS IT WOU LD HAVE MATURED AND RESULTING SURPLUS WOULD HAVE BEEN TAXED IN THE HANDS OF SUCH NON-RESIDENTS AS INTEREST INCOME. HOWEVER AS PER THE ASSESSEE SINCE THE DEEP DISCOUNT BONDS WERE SOLD PRIOR TO IT S DATE OF MATURITY THE SURPLUS ARISING WOULD BE ONLY SHORT TERM CAPITA L GAINS. IT WAS ARGUED BEFORE THE A.O. THAT SHORT TERM CAPITAL GAIN S WERE NOT TAXABLE IN INDIA AS PER ARTICLE 13 OF DTAA BETWEEN INDIA AN D PHILIPPINES SINCE AS PER THE SAID DTAA CAPITAL GAINS COULD BE TAXED ONLY IN PHILIPPINES THE ACCOUNT HOLDERS BEING RESIDENTS OF THAT COUNTRY. ASSESSEE ALSO RELIED ON CBDT CIRCULAR NO.2 OF 2002 DATED 20.3.2002 IN THIS REGARD. HOWEVER THE A.O. WAS N OT IMPRESSED. ACCORDING TO HIM THOUGH THE NON-RESIDENTS HAD SOLD THE INVESTMENTS TWO DAYS BEFORE ITS MATURITY SUCH SALE COULD ONLY BE CONSIDERED AS REDEMPTION OF THE DEEP DISCOUNT BONDS AND THEREFORE SURPLUS I.T.A. NOS. 1600 TO 1609/MDS/10 7 ARISING COULD BE CONSIDERED ONLY AS INTEREST. RELY ING ON ARTICLE 14 OF DTAA BETWEEN INDIA AND PHILIPPINES THE A.O. CONCLU DED THAT SUCH INTEREST COULD BE TAXED IN INDIA. HE THEREFORE R EFUSED TO GRANT CERTIFICATES FOR NON-DEDUCTION OF TAX AT SOURCE AS REQUIRED BY THE ASSESSEE IN RESPECT OF THE CONCERNED NON-RESIDENTS. 3. ASSESSEE MOVED APPEALS BEFORE LD. CIT(APPEALS) I N ALL THE CASES OF SUCH NON-RESIDENTS WHO WERE HOLDING ACCOU NT WITH THEM. ARGUMENT OF THE ASSESSEE WAS THAT PARAS 5 AND 6 OF CBDT CIRCULAR DATED 15.2.2002 WENT IN ITS FAVOUR AND SINCE THE DE EP DISCOUNT BONDS WERE SOLD BEFORE THE DATE OF MATURITY THE SU RPLUS COULD BE TAXED CONSIDERING IT AS CAPITAL GAINS. LD. CIT(APP EALS) WAS APPRECIATIVE OF THIS CONTENTION AND HELD THAT AS PE R THE DTAA BETWEEN INDIA PHILIPPINES SHORT TERM CAPITAL GAINS COULD NOT BE CHARGED TO TAX IN INDIA. HE THUS HELD THAT ASSESSE E WAS NOT BOUND TO DEDUCT ANY TAX ON THE REMITTANCES TO THE CONCERNED NON-RESIDENT ACCOUNT HOLDERS OF THE ASSESSEE-BANK. 4. NOW BEFORE US LEARNED D.R. SUBMITTED THAT LD. C IT(APPEALS) HAD NOT PROPERLY APPRECIATED THE FACTS. THE ASSESS ING OFFICER HAS RELIED ON THE SAME CIRCULAR WHERE AT PARA 6 IT WAS SPECIFICALLY I.T.A. NOS. 1600 TO 1609/MDS/10 8 MENTIONED THAT SURPLUS ON MATURITY OF DEEP DISCOUNT BONDS COULD ONLY BE CONSIDERED AS INTEREST. AS PER THE LEARNED D.R. THE SALE HAVING BEEN EFFECTED TWO DAYS BEFORE MATURITY THE BANK ACCOUNTS OF THE RESPECTIVE NON-RESIDENTS HAD TO BE CROSS CHECKE D TO ASCERTAIN THE EXACT DATE OF DEPOSIT OF THE SALE PROCEEDS. 5. NOBODY APPEARED ON BEHALF OF THE ASSESSEE DESPIT E SERVICE OF NOTICE. WHEN THE CASE WAS EARLIER POSTED TWICE IT WAS ADJOURNED ON THE REQUEST OF THE ASSESSEE VIDE ITS LETTERS FOR AD JOURNMENT. HOWEVER EVEN IN THIRD HEARING ASSESSEE HAS NOT CARED TO DE FEND ITS CASE. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTENT ION OF LEARNED D.R. WE ARE OF THE OPINION THAT THE MATTER REQUIRES A RE-VISIT BY THE A.O. THE QUESTION THAT ARISES IS WHETHER TH E SALE OF DEEP DISCOUNT BONDS TWO DAYS PRIOR TO ITS MATURITY COUL D BE CONSIDERED AS SALE OR ONLY AS REDEMPTION. LD. CIT(APPEALS) HAS A CCEPTED THE CONTENTION OF THE ASSESSEE THAT THESE WERE SALES AN D NOT REDEMPTION WITHOUT VERIFYING BANK ACCOUNTS OF THE RESPECTIVE N ON-RESIDENTS. IF THE PROCEEDS WERE DEPOSITED IN THE BANK ACCOUNTS AF TER THE DATE OF MATURITY THERE WOULD BE A CASE FOR THE REVENUE THA T IT HAD TO BE CONSIDERED ONLY AS REDEMPTION COLOURED OR DISGUISED AS A SALE. WE I.T.A. NOS. 1600 TO 1609/MDS/10 9 THEREFORE SET ASIDE THE ORDER OF LD. CIT(APPEALS) IN THE CASE OF ALL THE NON-RESIDENTS AND REMIT THE ISSUE BACK TO THE FILE OF A.O. FOR FRESH CONSIDERATION DE NOVO FOR VERIFYING THE ACCOUNTS OF THE RESPECTIVE NON-RESIDENTS FROM THE ASSESSEE-BANK AS TO WHETHER WHAT WERE EFFECTED WAS ACTUAL SALE OR ONLY A REDEMPTION COLOU RED AS SALE. 7. IN THE RESULT APPEALS OF THE REVENUE ARE ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 13 TH DECEMBER 2011. SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 13 TH DECEMBER 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-IV CHENNAI (4) DIT (IT) CHENNAI (5) D.R. (6) GUARD FILE