Shri Shirishkumar Kulkarni Vs. Commissioner of Income-tax-ii, Pune - Court Judgment

Excerpt:

Judgment:

A Sinha

Mr.Shirishkumar Kulkarni (for short ‘the applicant) who is a citizen of India, has been living and working in the United States of America (for short ‘the U.S.A.). In his application filed under section 245Q of the Income-tax Act (for short ‘the Act), he has sought advance ruling on the following questions :

"(i) Are distributions from the Individual Retirement Account (I.R.A.) to Applicant exempt from income taxes in India?

(ii) In the case of Applicants death, are the distributions from the I.R.A. to Applicants beneficiary exempt from income taxes in India?"

2. The applicant lives and works in the U.S.A. since December 1993, and is a resident of that country. During the period of his employment in the U.S.A., he contributed towards a 401K account which deals in employees retiral benefit. A part of his salary used to be deposited by his employer into this account on tax-deferred basis. As per the Internal Revenue Code ( U.S law ), tax is payable on these amounts at the time of their disbursement to the applicant. The applicant has from time to time invested moneys from out of this account in securities in the U.S. market. He proposes to transfer his entire balance lying in the 401K account into another similar scheme known as the Individual Retirement Account (I.R.A.) offered by the Brown company which is authorised in this regard by the United States Internal Revenue Services (I.R.S.). The U.S. law permits direct transfer of fund from a 401K account into the I.R.A., keeping its tax-deferred character intact. The applicant is planning to come back to India shortly and settle down here. After his return to India, the applicant would be withdrawing moneys from time to time from the I.R.A., as and when he would need the same. The Brown company would withhold income-tax on such withdrawals and remit the same to the I.R.S.. The applicant has nominated his wife, Mrs. Madhavi Kulkarni, who will be a resident in India, as the beneficiary of the money available in the IRA, in the event of his death.

3. The Commissioner of Income-tax-II, Pune (for short ‘the commissioner) in his comments dated 01.09.2006 has stated that the withdrawals from I.R.S. would constitute income. It will not be taxable in India for the period during which the applicant is only a resident but not ordinarily resident in India by virtue of section 5(1)(c). But the same would become taxable from the time the applicant becomes a resident in India. The commissioner has further stated that as per clause (1) of article 23 of the DTAA, the income would be taxable in India, but clause (3) of this article states that the income may also be taxed in the U.S.A..

Section 90(2) of the Act states that the provisions of the Act shall apply to the extent they are more beneficial to the assessee. The commissioner has stated that he is not aware as to what will be more beneficial to the assessee.

4. The applicant has in his rejoinder, stated that accruals in the I.R.A. would arise in the U.S.A.. The taxability in India of such accruals would depend on the residential status of the applicant at the relevant time. He would have these accruals subsequently transferred to his bank account in India. He has also stated that the fact that the U.S. law treats the entire disbursement from the I.R.A. taxable, would not change the above legal position in India. The applicant has finally claimed the benefit of the provisions of the D.T.A.A.

5. The case was listed for hearing on 21.08.2006. None appeared on that date either for the applicant or the commissioner. In the interest of justice and to give one more opportunity to both the parties, the case was adjourned to 27.09.2006. But again none appeared. No communications was either received from the parties. In the circumstances no useful purpose would be served by giving further opportunity to the parties. We, therefore, proceed to examine the case on the basis of the pleadings of the parties, which are quite clear.

6. The point that arises is regarding the very maintainability of the questions raised by the applicant for advance ruling. We propose to examine this with reference to the relevant provisions of section 245N which are extracted below :

" 245N. – In this Chapter, unless the context otherwise requires, -

(a) "advance ruling" means -

(i) a determination by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or

(ii) a determination by the Authority in relation to the tax liability of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident,

and such determination shall include the determination of any question of law or of fact specified in the application;

(iii) ** ** **

(b) "applicant" means any person who -

(i) is a non-resident referred to in sub-clause (i) of clause (a); or

(ii) is a resident referred to in sub-clause (ii) of clause (a); or

(iii) is a resident falling within any such class or category of persons as the Central Government may, by notification in the Official Gazette, specify in this behalf; and

(iv) ** ** **

(c) ** ** **

(d) ** ** **

(e) ** ** **

(f) ** ** ** "

It is seen from the above that a non- resident can seek an advance ruling of this Authority in relation to a transaction undertaken or proposed to be undertaken by him. It is implicit that in such an application the Authority will decide the tax liability of the non resident applicant. A resident can also file an application to ascertain the tax liability of a non- resident with whom he has undertaken or proposes to undertake any transaction. A resident falling in the category specified by the Central Government in the Official Gazette can also come before this Authority for advance ruling. The present case does not fall in any of the aforementioned categories. By withdrawing his own money from the IRA, the applicant is neither earning any income nor undertaking any transaction with any other person in India. The applicant does not either belong to a class of persons notified in the Official Gazette by the Central Government. Thus the questions raised by the applicant are beyond the scope of advance ruling.

7. In the light of the above discussion, we rule on the aforementioned questions that these do not fall within the purview of advance ruling.

Pronounced in the open Court of the Authority on this 15^{th day of December, 2006.}