Delhi High Court
Commissioner Of Income Tax vs Shri Anant Jain on 24 April, 2012
Author: Sanjiv Khanna
$~ 27
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 24th April, 2012.
+ ITA 165/2009
COMMISSIONER OF INCOME TAX ..... Appellant
Through Mr. Deepak Chopra, sr. standing
counsel with Mr. Harpreet Singh Ajmani,
Adv.
versus
SHRI ANANT JAIN ..... Respondent
Through
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
SANJIV KHANNA,J: (ORAL)
1. By order dated 22.9.2009, the following two substantial
questions of law in this appeal which pertains to assessment year
2001-02 in the case of Anant Jain were admitted for hearing: -
"a) Whether ITAT was correct in law in deleting the
addition of Rs.37,44,026/- made by the Assessing
Officer treating the same as profit in lieu of salary under
Section 17(3)(i) of the Act?
b) Whether proviso to Section 5(1) would apply to the
amount of Rs.37,44,026/- received by the assessee so as
to exclude the same from the total income of the
assessee?"
ITA No165/2009 Page 1 of 6
2. We have heard the counsel for the appellant. There is no
appearance on behalf of the respondent-assessee.
3. The Assessing Officer noticed that in Form No.24 relating to
tax deduction at source issued/filed by M/s. Enron Expat Services
Inc. `81,14,499/- were shown as allowances paid claimed to be
exempt. The Assessing Officer observed that the respondent-
assessee had received salary from An Internet Architech (I) Pvt. Ltd.
in his capacity as a managing director. Some amount was also
received from 100% subsidiary of Enron Expat Services Inc. though
this aspect is not very clear.
4. The Assessing Officer asked the respondent-assessee to give
the break-up and justify exemption of `81,14,499/-. The assessee
explained that he had received leave encashment according to the
number of years of service, which was subsequently described as
severance and vacation encashment paid by the erstwhile employer
of the respondent-assessee in USA for services rendered outside
India. It was further stated that the total payment received was
`24,69,944/- and tax was deducted at source in USA and if the figure
of tax deducted at source was taken into consideration, the total
amount paid was `37,44,026/-.
ITA No165/2009 Page 2 of 6
5. The Assessing Officer was not satisfied with the reply
furnished by the assessee and he did not agree that the aforesaid
payment was for severance and vacation encashment or paid to the
assessee for services rendered outside India. He held that
`37,44,026/- was received by the assessee as his profit in lieu of
salary which was payable by the employer under the employer-
employee relationship and therefore, taxable under Section 17(3)(ii)
of the Income Tax Act, 1961 („Act‟, for short).
6. The assessee succeeded before the CIT(Appeals). The
assessee explained that he was an employee of Enron Corporation,
USA from 1991 till November, 1999 and during this period he was a
non-resident Indian. It was stated that `37,44,026/- represented
retirement benefits received from the previous employer on the
termination of employment in November, 1999. This amount had
accrued outside India for employment rendered outside India and
was received outside India and taxed in USA. It was stated that this
amount was not taxable in India under provisions of Section 5(1)(c)
read with Section 9(1)(ii) of the Act. It was further stated that the
status of the assessee in the assessment year in question was "not
ordinary resident", there was no nexus between the
severance/vacation/retirement and the payment made by the
erstwhile employer; and the services which had been rendered in
ITA No165/2009 Page 3 of 6
India after November, 1999. Before the CIT(Appeals), the assessee
had filed a letter dated 27.02.2003 issued by former foreign employer
in support of his contention. Copy of the said letter has not been
placed on record. We also do not have copy of the Form-24 or any
of the replies of the assessee on record. The CIT(Appeals) after
examining the said letter, opined:
"6.5 I have carefully gone through the reasons as stated
in the impugned assessment order as also the contentions
of the appellant. On the basis of the evidence adduced
there is no doubt that the receipt of the impugned amount
was on account of the past services rendered by the
appellant to his previous foreign employer (Enron USA)
outside India at a time when he was a Non-resident.
Evidently this can not be deemed to have accrued or
arisen in India and does not come under the purview of
section 9(1)(ii). And also since at the time of receipt of
payment the status of the appellant was that of "not
ordinary resident", the retirement benefits thereof were
not taxable in view of the specific provisions of proviso
to section 5(1)(c)."
7. On further appeal by the Revenue before the Tribunal, in the
impugned order the following findings have been recorded: -
"15. We have heard both the parties. The ld. CIT
(Appeals) on the basis of certificate filed has recorded a
finding that the receipt of the impugned amount was on
account of part services rendered by the assessee to his
previous foreign employer outside India. Under section
ITA No165/2009 Page 4 of 6
5 of the I.T. Act, the total income of any previous year of
a person who is a resident includes all incomes from
whatever source derived, 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. Proviso to
sub-section (1) provides that in case of a person Not
Ordinarily Resident in India within the meaning of sub-
section (6) of section 6, the income which accrues or
arises to him outside India shall not be so included unless
it is derived from a business controlled in or a profession
set up in India. There is no dispute that the impugned
amount was received by the assessee from his foreign
employer as retirement benefit for the services rendered
outside India. There is also no dispute that the foreign
employer i.e. M/s. Enron, USA, did not carry on business
in India. The assessing officer has merely added the
amount on the ground that the salary certificate issued by
the employer does not specifically mentioned that the
amount was received on account of retirement benefits
for the services rendered outside India. Therefore, as per
proviso to section 5(1) the amount received will not fall
under the total income of the assessee. Further under
section 9(1)(ii) of the Act the income which falls under
the had „salaries‟ if it is earned in India shall be deemed
to accrue or arise in India. Since the impugned amount
has not been earned in India it will not be deemed to
accrue or arise in India within the meaning of section
9(1)(ii) of the Act. Accordingly, we do not find any
infirmity in the order of CIT(A) deleting the addition."
ITA No165/2009 Page 5 of 6
8. It is clear from the factual findings recorded by both
CIT(Appeals) and the Tribunal that the payment in question was
received towards retirement benefit/severance/vacation engagement
from the erstwhile employer on termination of employment in
November, 1999. The erstwhile employer was based in USA and
services were rendered to the erstwhile employer in USA. In view of
the aforesaid factual position, elucidated and accepted by both the
CIT(Appeals) and the Tribunal, we do not think the said amount can
be taxed in India, as the status of the respondent-assessee during the
year in question was that of "not ordinary resident". The said
income did not accrue or arise in India. The tribunal has rightly held
that in terms of Section 6 and Section 9(1) (ii) of the Act, the
amount/income had not accrued/deemed to be accrued /paid in India
The questions of law are accordingly answered in the affirmative,
that is, against the Revenue and in favour of the assessee. The
appeal is dismissed with no order as to costs.
SANJIV KHANNA, J.
R.V.EASWAR, J.
APRIL 24, 2012
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