1. These two appeals of the revenue in the case of the aforesaid assessees were argued in a consolidated manner by the learned DR and the learned Counsel for the assessees. Therefore, we find it convenient to pass a consolidated order.
2. In this appeal, the revenue has taken only one ground to the effect that on the facts of the case and in law, the learned CIT(A) erred in holding that salary and bonus received by the assessee outside India is not taxable in India Under Section 5(1)(c) of the IT Act, specially when as per terms of employment, his office was based in New Delhi and he was responsible to Delhi office even though, he rendered services outside India.
3.1 On perusal of the order of the DCIT, Circle-46(1), New Delhi (herein after called the AO), passed on 6-01-2003, it is seen that the assessee's status during the relevant previous year was not ordinarily resident (NOR). The assessee received salary amounting to Rs. 45,29,212/- and bonus amounting to Rs. 9,83,246/- totaling to Rs. 55,12,458/- in the relevant previous year. He also was given rent free accommodation and the perquisite value was determined at Rs. 9,23,558/-. The assessee spent 124 days outside India. Therefore, in the return of income, salary for 124 days , computed on proportionate basis, was excluded from the total income. In the course of assessment proceedings, it was pointed out that the assessee was employed as a news correspondent of NHK, Japan Broadcasting Corporation (NHK). As per terms of employment, between the assessee and the NHK, he was appointed bureau chief of Delhi office with effect from 18-07-1998. His main job was to gather news and reports and convey them to NHK. The employment terms also provided that NHK may assign him other duties from time to time. Therefore, it was argued that the income of the assessee for the period of his stay outside India was not taxable in India. However, the AO did not accept this position. Her view was that his employment terms obligated him to look after the activities assigned to him from his base at Delhi. Therefore, he was responsible to Delhi office even though, he may have rendered services outside India. In another words, his activities were controlled by Delhi office. Accordingly, it was held that the salary received by him outside India was also taxable in India.
3.2 Aggrieved by this order, the assessee filed appeal before the learned CIT(A). It was represented before him that the assessee received salary from NHK for his assignment to South Asia region. The provision of Section 5(1)(c) of the Act were not applicable because his status was NOR and the salary was not received from a business or a profession controlled or set up in India. The provision of Section 9(1)(ii) were also not applicable because overseas employment for gathering news outside India was independent of the gathering of news in India. There was no territorial nexus with India when the services were rendered outside India. The learned CIT(A) considered the aforesaid arguments. He pointed out that assignment terms clearly mention that the employee may be required by NHK to go on other assignments from time to time to any part of the world depending upon the exigencies. The certificate from the NHK showed that the assessee visited Nepal, Vietnam, Thailand, Pakistan, Afghanistan, UAE etc., for 124 days for news gathering activities. He also referred to the finding of the AO that the assessee rendered services outside India. It was pointed out by him that although the employment contract showed that he was deputed to South Asia region, Station New Delhi, but he continued to work under the direct control and supervision of NHK, Japan. In view thereof, he held that the assessee did not receive salary in India when he worked outside India for 124 days. Accordingly, he directed the AO to exclude salary, bonus etc, for this period from the total income of the assessee. Aggrieved by this order, the revenue is in appeal before us.
4.1 While opening the case, the learned DR pointed out that the question to be decided is whether the provisions contained in Section 9(1)(ii) or Section 5(1)(b) of the Act are applicable in the instant case or not. This is a mixed question of law and facts. Therefore, it will have to be carefully examined whether the decisions rendered in the decided cases have facts more or less identical to the facts of this case.
4.2 He referred to pages 12 & 13 of paper book-1 filed by the assessee, containing Assignment Terms, which describe the job functions of the assessee. These functions are reproduced below for the sake of ready reference; 1. In connection with the news gathering of operations of NHK-Japan Braodcasting Corporation's News Bureau Office at New Delhi, the employee's duties may include, without limitation, the investigating, writing, preparing and reporting of news of the Southern Asia, including India and the neighboring countries, for delivery on air, the direction and supervision of such newsgathering, ensuring the effective and efficient operation of the Bureau; and such other services as NHK -Japan Boradcasting Corporation may expect from time to time in the ordinary course of duties.
2. However, the employee may be required by NHK - Japan Broadcasting Corporation to go on other assignments from time to time to any part of the world depending on exigencies and that further the employee may be reassigned to other News Bureaus of NHK - Japan Broadcasting Corporation at NHK - Japan Broadcasting Corporation's sole discretion.
3. Further the employee will be governed by the limitations prescribed in the authority delegated to him, and should exercise his powers to the best of his judgment keeping in mind the role of NHK -Japan Broadcasting Corporation as a National Public Broadcasting nonprofit organization of Japan.
4. The employee is also responsible for ensuring compliance with legal requirements on behalf of NHK - Japan Broadcasting Corporation New Delhi News Bureau Office, and shall act the legal representative in all matters on behalf of NHK - Japan Broadcasting Corporation through a firm of solicitors appointed for the purpose.
4.2 It was pointed out that the assessee was appointed Bureau Chief of New Delhi office. Paragraph-1 of the job functions shows that his duties included, without limitation, the investigating, writing, preparing and reporting of news of the Southern Asia including India and the neighboring countries and such other services as NHK may expect from time to time in the ordinary course of duties. Paragraph-2 of the job functions mentions that the assessee may be required by NHK to go on other assignment from time to time to any part of the world depending on exigencies (emphasis supplied by the learned DR) and that further he may be assigned to other news bureaus. On the basis of this paragraph, the learned DR pointed out that the main job of the assessee was to gather news for NHK, from its office at New Delhi regarding South Asia. Thus, his job functions were not limited to gathering of news in India but to the whole of South Asia, which included India and its neighboring countries. Paragraph-2 contained the option available to NHK to assign him from time to time to any other part of the world depending on exigencies. His case was that paragraph-2 came into operation when some exigencies arose because of which he may be assigned from New Delhi to any other part of the world. In his view, such assignment will also lead to revision of salary and bonus depending upon cost of living in the other regions.
4.3 The learned DR further drew our attention towards the heading "taxes" in the assignment terms in which it is mentioned that the employee's emoluments shall be subject to deduction of taxes as per laws applicable in the host country (India) and such taxes shall be borne by NHK. On the basis of these terms of assignment, the contention of the learned DR was that the primary place of duty of the assessee was New Delhi and he was governed by fiscal laws of India. Therefore, in absence of any assignment to any other part of the world arising on any exigencies, the assessee continued to be employed in the Delhi office and his visits to other countries were incidental to his employment in New Delhi.
4.4 The learned DR referred to page-6 of the paper book which furnishes the details of the visits of the assessee outside India. For ready reference, the details are reproduced below: Summary of Number of days spent outside India for official purposeTravel dates Number of days PlaceForm To outside India2-05-2001 7-05-2001 4 Nepal2-06-2001 17-06-2001 14 Nepal12-09-2001 12-11-2001 60 Pakistan, US, UK23-11-2002 30-12-2001 36 Pakistani & Afghan2-01-2002 7-01-2002 4 Nepal28-02-2002 7-03-2002 6 BangkokTotal stay outside India 124 4.5. His case was that the visits to Nepal between 2-05-2001 to 7-05-2001 and 2-06-2001 to 17-06-2001 were in connection with the murder of the Nepalese King, which was undertaken with a view to examine the impact of these momentous events on relation between Nepal and India. The assessee also visited Pakistan, US, UK and Afghanistan between 2-09-2001 to 12-11-2001 and 23-11-2001 to 30-12-2001. The case of the learned DR was that these visits were undertaken to study the impact of 9-11-2001 events on the muslim world and a sizable population of muslims reside in India. Therefore, after he visited Nepal for four days and Bangkok for six days in January & February, 2002, which was part and parcel of his activity of gathering news in South Asia.
Therefore, his contention was that all the visits abroad were undertaken in connection with news gathering in India. Coming to the issue whether the assessee was working for the business controlled or profession set up in India, the learned DR pointed out that there is no evidence on record that his activities were controlled from outside India. The only evidence on record is that he was outside India for 124 days. In any case, the NHK was registered with Press Bureau of India and the activities in South Asia were controlled from Delhi office.
4.6 Coming to the legal issues, the learned DR relied on the decision of the Hon'ble Supreme Court in the case of Moosa S Madha and Azam S Madha v. CIT West Bengal . In that case, the assessee was in India for 365 days during four years preceding 1947, and the assessee was in India during 1947 for a period of two months. The Hon'ble court pointed out that the onus was on the assessee to prove that his visit in 1947 was occasional or casual. That onus was not discharged by the mere fact that the assessee had no business in India during the period of stay of two months. The case of the learned DR on the basis of this decision was that the assessee was NOR during the year, all his activities were in relation to news gathering about South Asia from Delhi office. Therefore, the onus was on him to prove that visits outside India were independent of his duties in India. This onus has not been discharged.
4.7 The learned DR referred to the provision contained in Section 9(1)(ii), under which salary, if earned in India, is taxable in India.
Explanation below this Section Clarifies that salary for rest period or leave period which is preceded & succeeded by services rendered in India is also taxable in India. In this connection, the learned DR relied on the decision of the Hon'ble Uttaranchal High Court in the case of Reading and Bates Drilling Co. v. CIT . The Explanation to Section 9(1)(ii) of the Act was a matter of interpretation by the Hon'ble High Court in that case. The facts were that after 35 days of hard work on the oil rigs, which was a hazardous job, a technician had to go back to a country of his residence. The off period followed the on period and both formed part of an integral scheme. The case of the assessee was that salary for the off period was paid outside India and therefore, it was not taxable in India. The Tribunal held that the off period salary paid was also taxable in India. At page 256, the Hon'ble court pointed out that in certain cases, even if services were rendered outside India, the income can still accrue or arise in India. It would depend upon the facts of each case. Assuming that there was no rest period as alleged by the assessee and that the payment was for stand-by, the training abroad during this period was connected with the work on rigs in India. It made the assessee mentally and physically fit. Therefore, it was held that the salary for the off period was earned in India for the services rendered in India Under Section 9(1)(ii). The case of the learned DR was that the facts of that case and the facts of the instant case are in pari-materia because the assessee had to go abroad to countries neighboring India, Dubai, UK and USA for gauging the impact of certain events such as the assassination of the Nepalese King and the 9/11 catastrophe on Hindu and Muslim population of India. This was not re-location of the assessee to countries for any independent job. Thus, the whole of the income was taxable in India.
4.8 The learned DR relied on the decision of the Hon'ble Supreme Court in the case of Performing Right Society Ltd and Anr. v. CIT and Ors.
. The facts of that case are that under an agreement executed in England, the assessee co., incorporated in England, received royalties from Government of India for broadcasting western music from the stations of All India Radio. The Society received royalties and, after deducting expenses, distributed it to the members in proportion to their work publicly performed. It was claimed that the royalties received were not taxable in India. The Hon'ble court pointed out that the royalties were received from the Government of India, under the agreement for broadcasting western music from stations of All India Radio. Therefore, royalties payable to society constituted its income. The question is whether such income accrued or arosed in India.
The case of the assessee was that the source of income was the agreement executed in England. However, the Hon'ble court pointed out that that was not material for deciding the issue of accrual etc., or the reasons that for this purpose source is not material, because Section 5(2) uses the expression "from whatever source derived". The question whether the income accrued or arose in India is a question of fact, which has to be decided in the light of the common sense and plain thinking. The authorities below and the High Court considered it a hard matter of fact that the income derived from broadcast of copyright music from stations of All India Radio, arose in India.
Putting its seal of approval, the Hon'ble court mentioned that in our opinion, this was a correct view to take and we find no reason to differ from it. The question was also raised whether income can be deemed to have accrued in India, however, the Court refused to go to the mater for the reasons that the income, in fact, accrued in India and no question arises whether it should be deemed to accrue or arise in India. The case of the learned DR was that the assessee was stationed at New Delhi for getting news from South Asia for NHK. The visits in the neighboring and far off countries were for the purpose of work assigned to the assessee in India and, therefore, the income accrued or arose in India as per decision of performing right society (supra). In the alternative, it was pointed out that the assessee had not shown any contingency which required relocation of the assessee from New Delhi to any other region. There was no evidence on record of the relocation. There was no change in the salary structure of the assessee. Therefore, the work performed in the neighboring countries and also far off countries was in connection with his employment in India, and therefore, the whole of the salary was taxable in India.
5.1 The learned Counsel of the assessee opened her arguments by briefly stating the facts of the case. It was pointed out that the status of the assessee in the relevant previous year was NOR. In this year, the assessee stayed for 124 days outside India. Therefore, salary and bonus for this period, calculated on pro-rata basis, was excluded from the total salary received by him. The assessee was deputed by NHK - Japan to NHK, Bureau office, New Delhi, as its Chief to gather news from South Asia. However, during the period of stay outside India, the services were not rendered in India. Therefore, the salary attributed to services rendered outside India was not considered for tax purposes in India. The learned Counsel further referred to the job functions, finding place in page nos. 12 &. 13 of the paper book-I, which we have already discussed. She also referred to the pages-68,69 & 70 of the paper book which inter-alia contain the detailed dates on which the assessee remained outside India. Page-68 contains a certificate from the employer, showing that he was paid salary amounting to Japanese Yens 1,44,68,115/- and bonus amounting to Japanese Yens 25,58,538/-.
Pgae-70 contains a certificate from the employer to the effect that due to unfortunate bomb attacks in the USA on the September 11, 2001, the assessee was required to travel to USA and other parts of the world for news gathering and reporting in connection with the attacks and developments thereafter during the period September 11,2001 to March 2002. In this connection, we wish to point out here, that the assessee visited Pakistan, US, UK from 12-09-2001 to 12-11-2001. However, due to inadequate evidence, the number of days for which he stayed in Pakistan is not ascertainable. The learned Counsel also referred to page-56 of the paper book-I, being a letter dated 10-12-2001, addressed to the AO.She also referred to page-60 of the paper book, being a letter dated 16-12-2002 addressed to the AO in which it was inter-alia pointed out that provisions contained in Section 5(1)(c) were not applicable to a NOR, the activities of the employer do not amount to any trade or business activity in India and, therefore, the entire salary received in respect of services rendered overseas is not liable to be taxed in India, since the assessee was required to render services outside India, as per terms of his assignment.
5.2 Coming to the legal issue, the learned Counsel relied on the decision of the Hon'ble ITAT, Delhi Benches in the case of DCIT v.Vivek Paul (2004) 2 SOT 799. In that case, the assessee, being foreign national and having the status of the NOR, contended that in terms of his employment he had to under take journeys outside India and that that part of the salary accrued outside India. Therefore, the same was not liable to be taxed in India. The Hon'ble Tribunal held that the facts of the case were qualitatively different from the facts of the case of the Sedco Forex International Drilling and Anr. v. CIT and Anr.
In that case, the question was regarding the taxability of salaries paid for the off period. However, in the instant case, the assessee has been working outside India and such salaries could not be equated with off period salary. Thus, it was held that salaries earned for services rendered outside India did not accrue to the assessee in India. She also pointed out that the decision of the Hon'ble Uttaranchal High Court in the aforesaid M/S Sedco Forex International, Drilling & Another was reversed by the Hon'ble Supreme Court of India , in which it was inter-alia pointed out that the new Explanation was not applicable being enacted prospectively and the case of the assessee was not caught within the mischief of the existing Explanation. It was also pointed out that the interpretation of the Hon'ble High Court placed on off period salary was incorrect as in that period the assessee could be deployed by the employer at any other place outside India.
5.3 The arguments of the learned Counsel stopped at this stage for lack of time on 10-08-2006 and the hearing was resumed on 18-08-2006. On that day, the learned Counsel filed synopsis, which included a certificate from the employer, territorial structure of the offices of the employer and clarification from the employer regarding the job functions of the assessee. It was requested that this evidence may be admitted, the reason being that the job function furnished in paper book-I, was not happily translated and, therefore, it tended to give a distorted picture of the assessee's job functions. She also promised to file a copy of the original Japanese version of the assignment terms.
This evidence was objected to by the learned DR and it was pointed out that such evidence was not there before the lower authorities or even before the Tribunal, till the arguments of the revenue were completed.
5.4 We have considered the rival submissions. Rule-29 of the Appellate Tribunal Rules, 1963, provides that the parties to the appeal shall be not entitled to produce additional evidence either oral or documentary before the Tribunal. However, if the Tribunal requires any document to be produced or witness to be examined or any affidavit to be filed to enable it to pass orders etc., it may, for the reasons to be recorded, allow such documents to be produced or witness to be examined or affidavit to be filed. Rule -29 places embargo on production of any fresh evidence before the Tribunal. However, it empowers the Tribunal to call for additional evidence in case such evidence is required by it for deciding the case or for substantive justice. We find that the assessee had produced requisite evidence before the lower authorities which has been placed before us. The learned Counsel wanted to place the Japanese version of the terms of assignment on record, but the language of the Tribunal is English. The English version has already been furnished to lower authorities and to us. Therefore, the plea of the learned Counsel that the terms of assignment are not happily translated cannot be taken to be correct. Further, it also cannot be said that the certificate of the employer enclosed with the synopsis is a correct translation of the terms of assignment. In view thereof, we refuse to admit the additional evidence at this stage.
5.5 The case of the learned Counsel was that overall control over the assessee was in Japan, where the NHK was located. As per the policies of the employer, the world was divided into different territories and New Delhi office was placed under NHK, Bangkok Bureau. Therefore, the control over the assessee was exercised from Japan through Bangkok office. We find no such argument existed before the lower authorities and no evidence to that effect was on record of the authorities below and the Tribunal. It was also the case of the learned Counsel that the Delhi office was merely a liaison office and not an office from where the business of NHK was conducted. As per terms of assignment, the assessee was sent abroad at the instruction of the head office in Japan and, therefore, the income of the assessee relatable to such services was not taxable in India.
6.1 We have considered the facts of the case and the rival submissions.
As there is a dispute about the facts, it will be necessary for us to settle the facts. The facts are that the assessee was an employee of NHK, Japan, which had set-up News Bureau office at New Delhi. The assessees' duties without limitation, included the investigation, writing, preparing and reporting of news of South Asia, including India and the neighboring countries for delivery on air; and such other services as the employer may expect from time to time. Since the assessee was the employee of NHK, Japan, incase of exigencies, his services could be assigned from time to time to any part of the world (page-66, paper book-I). Thus, the main function was to report news from South Asia. It was also provided that the emoluments will be subject to tax, as per laws applicable in the host country, India (page 67 of paper book-I). This clause further strengthens the view that the main functions of the assessee was to gather news from South Asia and transmit the same to NHK, Japan. As pointed out by the learned DR, this function will also include gathering of news in the neighboring countries as well as far off countries which will have direct impact on South Asia. Thus, gathering of news in Nepal at the time of assassination of Nepalese King and gathering of news in US, UK and Pakistan after September 11, 2001 catastrophe were incidental to the main function of gathering news in South Asia, as this events had substantive impact on Hindu and Muslim population respectively of India. The assessee was provided rent free accommodation of which he continued to have possession for the whole of the year.
6.2 The assessee, being a NOR, is subject to provision to Clauses (a) & (b) Of Sub-section 13 of Section 5. Therefore, the question is whether the whole of the income accrued or arose in India or not It may be pointed out here, that this section does not lay down any rule regarding the situs of accrual of the income. This issue was examined by the Hon'ble Supreme Court in the case of Performing Right Society Ltd and Anr. (supra) and it was pointed out that the situs had to be determined on the basis of common sense and plain thinking. In that case, the income of the assessee arising out of a contract executed outside India was held to accrue in India for the reason that its copy right music was broadcast from the stations of the All India Radio.
Looking at the terms of assignment, the functions performed by the assessee in India and outside India were for the purpose of gathering news in South Asia and the impact of the events happening abroad on socio-political scenario in South Asia. The assignment terms obviously contained provision for gathering news from neighboring countries which include Nepal, Pakistan and Afghanistan. The events in these countries have a direct bearing on India. However, events in USA and some other part of South East Asia also likely to have impact on India. The September 11, event had a very direct impact or India in terms of its relations with the USA in combating terrorism. Therefore, we are of the view that the travel abroad was inextricably linked in this case with the functions of the assessee as Chief of News Bureau Office, New Delhi. In the context of the arguments made by the learned DR, we are of the view that traveling abroad was not for any distinct assignment, separate and apart from his functions as Chief, News Bureau Office, New Delhi. The learned CIT(A) mentioned that the AO had accepted that the assessee rendered services outside India. It is further mentioned that he was deputed to South Asian region and stationed at New Delhi, but he continue to work under the direct control and supervision of NHK; Japan, because of which he was required to get periodical news outside India. We are of the view that the learned CIT(A), failed to appreciate the over all context of the visits outside India and, thus, came to erroneous conclusion that he was required to gather news outside India periodically de hors his functions as Chief, News Bureau Officer, New Delhi. If we look at the whole situation from common sense and plain thinking, it becomes clear that thesalary for the whole year accrued to him because of his assignment as Chief of News Bureau Office, New Delhi. It would be obvious to any one that NHK-Japan would have offices at least in Bangkok, US and UK and as such there would have been no need for him to travel to these places to gather news independently.
The purpose obviously was to gather stories which were relevant to and had impact on the South Asia region. There is nothing on record that his salary structure was changed when he visited US and UK so as to amount to relocation. The assessee continued to occupy the rent free (accommodation throughout the year. Therefore, we are of the considered view that the whole of the salary, income and bonus accrued to the assessee in India. In view thereof, it is not necessary for us to go into the issue on deemed accrual Under Section 9, as pointed out by the Hon'ble Supreme Court in the case of Performing Right Society Ltd and Anr. (supra) 6.2 In the result, the order of the learned CIT(A) is reversed and the order of the AO is restored. Thus, the appeal of the revenue is allowed.
7. In this appeal, the revenue has taken up two grounds to the effect that on the facts of the case and in law, the learned CIT(A), erred - i) in treating the status of the assessee as Non-Resident (NR) and ii) in holding that the salary and bonus received by him outside India is not taxable in India.
8. The learned DR fairly conceded that the correct residential status of the assessee is NR and therefore, ground no. 1 of the revenue's appeal does not survive. However, he pointed out that the provisions contained in Section 5(2)(b) in case of a NR is identical with the provision contained in Section 5(1)(b) in case of a resident or a NOR.It was further pointed out that the facts of this case are identical with the facts in the case of Shri Hiromi Hirose in ITA No.4506(Del.)/2003(supra). In this connection, he referred to pagel3 of the paper book-I furnishing job functions etc., In this case, it was pointed out that the terms and conditions of job functions and taxes are identical with that case. Reference was also made to page-76 of the paper book-I, which furnishes the details of stay abroad for 182 days.
The stay in Nepal was in connection with the assassination of King Birendera of Nepal, visit to Pakistan, UAE & Afghanistan were in connection with the post September 11, 2001 developments. There were other stays in Vietnam, Thailand and Bangkok for a total of 12 days, in connection with ASIAN ministerial meeting, reporting to Bureau Chief of South Asia and meeting with Bureau Chief. His case was that all this travels were in connection with the functions that were assigned to him in New Delhi and reporting his work to the NHK - As against the aforesaid the learned Counsel pointed out that control over the activities of the assessee was exercised from Japan.
9.1 We have considered the facts of the case and find them to be in pari-materia with the facts of the case of Shri Hiromi Hirose. The language of Section 5(2)(b) is also identical with the language of Section 5(1)(b) and therefore, the issue discussed in that case and the conclusion drawn 3 are equally applicable to this case. Relying on that order, ground no. 2 of the appeal of the revenue is allowed.