Utanka Roy vs. DIT (Calcutta High Court)

The petitioner was working as a marine engineer and had rendered services as such to a foreign shipping company during the assessment year 2011-2012. The petitioner had filed income tax return for such assessment year under the residential status as non-residential Indian. He disclosed a receipt of a remuneration of Rs. 5,63,850/- in US Dollars. The petitioner was issued an assessment order cum intimation under Section 143(1). The petitioner did not file any appeal. The petitioner had applied under Section 264 of the Income Tax Act, 1961 claiming that the income had accrued outside India and was not taxable in India. The CIT rejected the assessee’s claim. On a Writ Petition by the assessee HELD allowing the claim:

(i) Scope of total income is laid down in Section 5 of the Income Tax Act, 1961. Sub-Section (1) deals with income to a person who is resident in India while Sub-Section (2) deals with income of a person who is a non-resident. The petitioner is a non-resident Indian. He is guided by Section 5(2) of the Act of 1961. Section 5(2) of the Act of 1961 is as follows:-

“(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a nonresident includes all income from whatever source derived which-

Explanation 2.- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.”

Explanation 1 to Sub-Section 2 states that, income accruing or arising outside India shall not be deemed to be received in India within the meaning of such section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2 clarifies that income will not be treated to be received in India solely on the basis that such income was received or deemed to be received in India.

(ii) Therefore, it has to be found out where the income to the person concerned had accrued. For the purpose of finding out the place of accrual of the income, the place where the services have been rendered becomes material. In fact, the place where the income gave rise is required to be considered to arrive at a finding whether the income was in India or outside India.

(iii) In Prahlad Vijendra Rao 2011 (198) Taxman 551 an income derived by a person working outside India for 225 days has been held not to have accrued in India.

(iv) In Avtar Singh Wadhwan 2001 (247) ITR 260 it has been held that, the relevant test to be applied to decide whether the income accrued to a non-resident in India or outside is concerned, is to find the place where the services were rendered, in order to consider where the income accrued. The source of the income was not relevant for the purposes of ascertaining whether the income had accrued in India or outside India. The question whether the petitioner has rendered services in India or not is a question of fact.

(v) It is not disputed that the petitioner as a marine engineer had rendered services outside India for the period of 286 days. He has received his remuneration for such work from a foreign company. Consequently, the income received by the petitioner for services rendered outside India has to be considered as income received out of India and treated as such.

(vi) The powers conferred on the Commissioner under Section 264 are very wide. The Commissioner has the discretion to grant or refuse reliefs. There is nothing in Section 264 which places any restriction on the Commissioner’s revisional power to grant relief to the assessee in a case where the assessee detects mistake on account of which he was over assessed after the assessment was completed.

(vii) Circular Bearing No. 14 (XL-35) dated April 11, 1955 prescribes as follows:-

“(3) Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly, in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should –

(b) freely advise them when approached by them as to their rights and abilities and as to the procedure to be adopted for claiming refunds and reliefs.”

(viii) In Mahalaxmi Sugar Mills Ltd 1986 (160) ITR 920 the Hon’ble Supreme Court has held that, there is a duty cast upon the Income Tax Officer to apply the relevant provisions of the Income Tax Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability. In the event, the assessee fails to claim benefits or a set of, it cannot relieve the income tax officer of his duty to apply the benefits of an appropriate case.

(ix) The power under Section 264 is wide enough to grant appropriate relief to an assessee. In the impugned order, the Commissioner notes that, the income received by the petitioner is in respect of services rendered for 286 days outside India. The Commissioner exercising powers under Section 264 of the Act of 1961 could have proceeded to grant appropriate relief to the petitioner by setting aside the intimation under Section 143(1) of the Act of 1961 and holding that, such income of the petitioner is not taxable in respect of the relevant assessment year. The Commissioner, however, did not do so. It has remanded the matter to the assessing officer to do the needful.