1. This appeal by the Revenue for asst. yr. 2001-02 arises out of order of CIT(A)-XXX, New Delhi.
2. The only issue for consideration relates to treating the period of 41 days spent by the assessee in Pakistan, Sri Lanka and U.K. were for performance of duties outside India. The effective grounds of appeal are reproduced as under: (1) On the facts and in the circumstances of the case, learned CIT(A) is not justified in holding that a period of 41 days spent by the assessee in Pakistan, Sri Lanka and U.K. (2) On the facts and in the circumstances of the case, learned CIT(A) has erred in holding that as per contract the visits to Sri Lanka and Pakistan were on account of work done in those countries where as per record, the assessee had completely failed to submit copies of such contract/ appointment letter before the AO. (3) On the facts and in the circumstances of the case, learned CIT(A) has erred in holding the separate tax treatment should be given to on periods and off periods salaries. The assessee's case covers under Explanation to Section 9(1)(ii) introduced by the Finance Act 1983 and Uttaranchal High Court decision in the case of CIT v. Halliburton Offshore Services Inc. (2004) 192 CTR (Uttaranchal) 507 : (2004) 140 Taxman 405 (Uttaranchal).
3. The facts of the case stated in brief are that the assessee an employee of The Economist was receiving salary in London which remained untaxed in U.K. The assessee was South East Asia region Bureau Chief having his permanent base in India. He was controlling the operations from India. He was staying in India along with his family. During the previous year relevant to asst. yr. 2001-02, the salary relatable to period of 59 days was claimed as exempt on the ground that the status of the assessee was resident but not ordinarily resident (NOR). The assessee was working as a correspondent in South Asia region stationed at Delhi. His job was to collect the news from South East Asian region and send the same to The Economist. The assessee visited Pakistan and Sri Lanka for the purpose of collecting news. He spent 7 days in Pakistan and 14 days in Sri Lanka. He also spent 38 days in UK. Thus total stay outside India was 59 days. The assessee contended that since the remuneration received outside India did not relate to services rendered in India, the same was not taxable in India. The AO in order to examine the claim required the assessee to file the copy of appointment/deputation letter which was not filed. Since the assessee was responsible for collecting news and views from other South East Asian countries and the salary was received because of his assignment in India, the visit to Pakistan, Sri Lanka and UK were treated incidental to assignment in India. The AO thus came to the conclusion that the services were rendered by him in India and accordingly the salary received for 59 days was taxable in India.
4. The matter was carried in appeal before the learned CIT(A). Before him it was submitted that assessee was responsible for collecting news from other South East Asian countries and visits to head office in UK.These news items were actually concluded and compiled outside India.
The learned Authorised Representative of the assessee relied on the following documents: (ii) report on General Musharrafs first eight months' power from Islamabad, (iii) report on the upcoming Sri Lanka elections and assess the position of the Tamil Tigers, (iv) to discuss with the London editors the activities in South East Asian region. Copies of articles written by the assessee and published in The Economist.
It was also submitted that the assessee had neither received income in India nor it accrued to him in India for the work done outside India.
Learned CIT(A) after going through the information filed came to the conclusion that the remuneration earned during the visits to Pakistan and Sri Lanka was clearly on account of work done by the assessee in those countries in terms of the umbrella contract with his employer in UK. Therefore, the remuneration in respect of stay period in two countries was not taxable in India if the assessee's residential status was that of resident and not ordinarily resident. Learned CIT(A) on the basis of his stay in asst. yrs. 1999-2000 to 2001-02, came to the conclusion that the status of the assessee was "not ordinarily resident" (NOR) in asst. yr. 2001-02. As regards assessee's stay of 38 days at a stretch in UK, learned CIT(A) is of the view that entire period of stay could not be taken for briefing the London editors about the developments of South East Asia, in the absence of evidence to substantiate this contention. He, therefore, came to the conclusion that a period of 18 days could be considered for briefing and accordingly the remuneration for this period was not taxable in India.
5. Before us learned Departmental Representative submitted that assessee an employee of The Economist was posted in India and was staying with his family in New Delhi. The head office of The Economist is in UK. The assessee had no office in Pakistan and Sri Lanka. He went on tour for collecting the news from these two countries. Accordingly, the salary earned by the assessee is taxable in India under Section 9(1)(ii) of the Act. He placed reliance on the decision of Tribunal Delhi 'F' Bench, New Delhi in the case of Hiromi Hirose dt. 31st Aug., 2006 in ITA No. 4506/Del/2003 for asst. yr. 2003-04. As regards the stay in UK no proof for services rendered in headquarters was filed by the assessee and, therefore, the salary earned for stay for 38 days in UK was also taxable in India. He also submitted that assessee did not file copy of appointment letter/deputation letter before AO from which his terms of appointment could be determined. He also placed reliance on the following decisions:CIT v. Suresh Kumar L/H of Sin Ram He also submitted that the decisions relied upon by the learned CIT(A) in the case of Dy. CIT v. Stephen Brandon (2004) 82 TTJ (Del) 699 and in the case of Tribunal Delhi 'C Bench, New Delhi in the case of Aage Frohde in ITA No. 1187/Del/2002 for asst. yr. 1998-99 are not applicable to the facts of the assessee's case.
6. On the other hand, learned Authorised Representative of the assessee submitted that there is no dispute that the status of the assessee during the asst. yr. 2001-02 relevant to financial year 2000-01 was "not ordinarily resident". Therefore, income earned or accrued to him outside India was not taxable in India. The assessee was responsible for collecting news and views from other South East Asian countries and to visit headquarters for briefing about the developments in the region. His duties included writing and reporting articles about the political and social situations in South East Asia. These news items were actually collected, compiled and reported from outside India. The visit to Pakistan from 9th June to 16th June, 2000 was in respect of report on General Musharraf's first 8 months in power and the article was reported from Islamabad and appeared in The Economist on 24th June, 2000 and was placed before AO. Likewise, visit to Sri Lanka from 21st September to 5th Oct., 2000 was in respect of report on upcoming Sri Lanka elections and to assess the position of Tamil Tigers. This article was also reported from Colombo and Trincomalee and appeared in The Economist on 7th Oct., 2000. The assessee's visit to headquarter from 22nd June to 30th July, 2000 was in connection with the discussion with the London editors about the activities in South East Asian region. Therefore, the services were actually rendered in these countries. These facts have not been rebutted or challenged by AO.7. He further submitted that the taxability of income in India is to be determined on the basis of residential status of the assessee together with the nature of income itself. Section 9(1)(ii) of the Act provides a deemed definition for incomes chargeable to tax, which has been interpreted through various Departmental circulars and judicial rulings. He placed reliance on the decision of Tribunal 'F' Bench in the case of Dy. CIT v. Stephen Brandon (supra) wherein salary earned by assessee outside India was held to be non-taxable in India since his residential status was NOR. He also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Morgenstern Werner , wherein it was held that income of a person not ordinarily resident in India within the meaning of Section 6(6) of the Act, when accruing outside India, shall not be taxed and would not come within the scope of income within the charging Section 4 of the Act.
Relying on decision of Hon'ble Supreme Court in the case of E.D.Sassoon & Co. Ltd. v. CIT , learned Authorised Representative of the assessee also submitted that words "earned in India" appearing in Section 9(1)(ii) must mean arising or accruing in India. Further CBDT Circular No. 586 dt. 28th Nov., 1990 (1990) 90 CTR (St) 27 has clarified that the seamen will be charged to tax in India only in respect of earnings received in India or the earnings for the period when they are working within the Indian waters on coastal ships etc. According to learned Authorised Representative of the assessee the assessee's case is akin to that of a seaman. The assessee as correspondent extensively has to travel to neighboring countries in order to collect news and views and transmit them to their offices abroad. Therefore the salary earned in India is the income accrued in India and the same can only be taxed in India. Accordingly the remuneration for period spent outside India cannot be taxed in India.
8. Learned Authorised Representative of the assessee tried to distinguish the case of assessee from NHK relied upon by the Revenue as per the chart placed on record. To cite a few, in case of Hiromi Hirose, the assignment as Chief of Bureau NHK New Delhi India was inextricably linked to India office whereas assessee was responsible for entire South East Asia. The employment of the assessee was not solely connected to India whereas in case of Hiromi Hirose salary was not identifiable for different regions whereas in case of the case of assessee salary is identifiable with reference to India, Pakistan and UK. He further submitted that merely because assessee's headquarters is in India will not have any bearing on the assessabilty of income paid outside India. Therefore, learned CIT(A) was justified in deleting the addition.
9. In reply to the submissions made by learned Authorised Representative, the learned Departmental Representative referring to p.
15 of paper book has submitted that from letter dt. 18th May, 2001 issued by Payroll Manager of The Economist it was clear that salary, medical allowance, bonus and children allowance were paid in respect of his assignment in India. The assessee's family was staying in India and news collected by him from Pakistan and Sri Lanka had direct bearing on political and economic conditions of India. His visits to Pakistan, Sri Lanka and London were in connection with the services rendered in India. Referring to letter dt. 28th Jan., 2004 addressed to the AO placed at p. 25 of paper book, the learned Departmental Representative submitted that from the language of the said letter it is clear that the assessee was made responsible to collect news and views from entire South East Asia region which chiefly included India, Pakistan, Sri Lanka, Nepal, Bhutan and Maldives. Therefore the visits made by assessee out of India were in connection with his employment in India.
10. We have heard both the parties and perused the material available on record. There is no dispute about the status of the assessee that for the year under consideration he was not ordinarily resident. The perusal of letter dt. 8th Jan., 2004 gives details of remuneration relatable to other regions. The appointment/deputation order is issued before joining the new assignment. Therefore this letter cannot be treated as an appointment or a deputation order directing assessee to render services in India. Therefore it is incorrect in the part of learned CIT(A) to treat the same as appointment letter. On a specific query from the Bench, learned Authorised Representative of the assessee admitted to have filed no such document. Thus it is clear that the assessee had not filed the copy of appointment letter neither before the authorities below nor before us.
11. It is well-settled that in order to as certain the intention of the contracting parties one has to study the terms and conditions of the contract and in appropriate cases one has to see the surrounding circumstances including the conduct of the parties. The assessee for the reasons best known to him has not filed copy of his appointment or deputation order in relation to his assignment of the duties as bureau chief for South East Asian countries with headquarter at New Delhi. He has also not filed any evidence to the effect that his duties outside India were under a separate arrangement. Therefore we have no option but to apply the law to the facts emerging out of the surrounding circumstances including the conduct of the parties.
12. From the perusal of material available on record we find that the assessee was appointed as South East Asia Bureau Chief for collection of news and views and information on business, economic, financial, political and cultural matters for the entire South East Asia which chiefly included India Pakistan, Sri Lanka, Nepal, Bhutan and Maldives.
The assessee was staying in India along with his family. The assessee had no establishment in Pakistan and Sri Lanka. No material has been brought on record by the assessee to indicate that the terms, of appointment varied when he visited those countries. During the visits to countries outside India he had not shifted his family to those countries. His children were studying in New Delhi. In the case of Moosa S. Madha & Azam S. Madha v. CIT (supra), the assessee was in India for 365 days during the four years preceding 1947 and the assessee was in India during 1947 for a period of two months, the onus was on the assessee to prove that his visit in 1947 was occasional or casual and 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 learned Departmental Representative 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 Asian countries from Delhi office. Therefore the onus was on him to prove that visits outside India were independent of his duties in India. The assessee has not discharged this onus.
13. Further in the case of Performing Right Society Ltd. and Anr.
(supra), Hon'ble Supreme Court has held that the question as to the source of income is not relevant for the purpose of ascertaining whether the income accrues or arises in India, because Section 5(2) provides that all income "from whatever source derived" is to be included in the total income of the non-resident of assessee if the income accrued or arises in India during the relevant year. Whether a certain income accrued or arose in India within the meaning of Section 5(2) is a question of fact which should be looked at and decided in the light of commonsense and plain thinking. Looking at 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 neighbouring countries, which include Pakistan, Sri Lanka, Nepal, Bhutan and Maldives. Therefore the short visits to Pakistan and Sri Lanka can only be treated in connection with the collection of news with his assignment in India. A visit to headquarters in London to brief the editors for the same reasons is also in connection with his employment in India. Therefore the visits by the assessee outside India have to be treated in nature of tours in connection with his assignment in India.
14. Our view is supported by the decision of Tribunal in the case of Hiromi Hirose (supra) wherein it has been held as under: The assessee, being a NOR, is subject to provision of Clauses (a) and (b) of Sub-section 1 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 commonsense 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 copyright 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 neighbouring 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 parts of South East Asia also likely to have impact on India. The September 11, event had a very direct impact on 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 Departmental Representative, we are of the view that travelling 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 continued 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 overall 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 Office, New Delhi. If we look at the whole situation from commonsense and plain thinking, it becomes clear that the salary for the whole year accrued to him because of his assignment as Chief of Bureau Office, New Delhi. It would be obvious to anyone 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 UK and US so as to amount to relocation. The assessee continued to accompany the rent-free accommodation through 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 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).
15. The assessee was in Pakistan from 9th June to 16th June, 2000. The article on General Musharraf's first 8 months in power appeared in The Economist on 24th June, 2000 from Islamabad. He visited Sri Lanka from 21st September to 5th Oct., 2000 and the report on Sri Lankan elections and the position of Tamil Tigers was reported from Colombo and Trincomalee in The Economist on 7th Oct., 2000. On these dates the assessee was in India. The publication of reports from Islamabad, Colombo and Trincomalee will not stop the accrual of salary under Section 9(1)(ii) in India when such salary had been paid in connection with the assignment in India.
16. Hon'ble Uttaranchal High Court in the case of CIT v. Halliburton Offshore Services Inc. (2004) 192 CTR (Uttaranchal) 507 : (2004) 140 Taxman 405 (Uttaranchal) held as under: Section 4 of the Act is a charging section. It imposes tax on the total income of the previous year of every person. Under Section 4(2), tax is deducted at source or paid in advance, where it is so deductible or payable. Section 5(2), on the other hand, restricts the scope of total income of a non-resident to the income, which is received or deemed, to be received in India or which accrues or which is deemed to have accrued to him during such year.
Section 9(1)(ii), inter alia, lays down that income which falls under the head 'Salaries', if it is earned in India, shall be deemed to have accrued to the non-resident during such year. Therefore, Section 9 is a deeming section. It brings in certain types of incomes, which may not come under Section 5, into the definition of 'total income' under Section 2(45). Section 9(1)(ii) read with the Explanation provides for an artificial place of accrual for income taxable under the head 'Salaries'. It enacts that income chargeable under the head 'Salaries' is deemed to accrue in India if it is earned in India, i.e., if the services under the contract for employment are rendered in India. In such a case, the place of receipt or actual accrual of salary is immaterial.
In this case we are concerned with application of law to the facts of this case. Since the assessee was posted as South Asian Bureau Chief with headquarter at New Delhi, the place of reporting will not make any difference about the accrual of income so long the income is earned in India by way of salary. The issue is squarely covered in favour of Revenue by the decision of Hon'ble Uttaranchal High Court in the case of CIT v. Halliburton Offshore Services Inc. (supra) wherein it has been held that if the services under the contract for employment are rendered in India, the place of receipt or actual accrual of salary is immaterial. In other words Section 9(1)(ii) creates a legal fiction that income chargeable under the head "Salaries" is deemed to accrue in India if it is earned in India.
17. The Explanation to Clause (ii) of Section 9(1) substituted by the Finance Act, 1999, w.e.f. 1st April, 2000 reads thus: Explanation--For the removal of doubts, it is hereby declared that the income of the nature referred in this clause payable for- (b) the rest period or leave period which is preceded and succeeded by the services rendered in India and forms part of the service contract of employment, Thus the amended provisions of Explanation make it clear that the salary for the rest period or leave period which is preceded and succeeded by the services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India. CBDT No. 586 dt. 28th Nov., 1990, clarifying the position that a seaman will be charged to tax in India only in respect of earnings received in India or the earnings for the period when he worked within the Indian waters on coastal ships etc., will not be applicable to the cases where income is earned by way of rendering of services in India under an agreement. Also since this circular was issued prior to insertion of the substituted Explanation, the assessee does not get any support from it.
18. Learned Authorised Representative of the assessee also contended that in the light of the decision of Hon'ble Supreme Court in the case of CIT v. Morgenstern Werner (supra), income accruing outside India in case of a person not ordinarily resident in India, shall not be taxed and would not come within the scope of income within the charging Section 4 of the Act. In this case, the assessee was a technician working with Kraft Work Union (Siemens) in Germany and drawing his salary in Germany. He was deputed by his company as a technical liaison officer to provide technical guidance to BHEL for which he was paid Rs. 500 as daily allowance. The High Court found that assessee had not stayed in India during the preceding nine years and he was not ordinarily resident in India and, therefore, he would be governed by the proviso to Section 5(1)(c) of the IT Act 1961, and held that the salary received by assessee in Germany was not taxable in India. The High Court also held that the allowance received by him as a foreign technician as daily allowance was exempt from income-tax under Notification No. SO No. 143(E), dt. 21st Feb., 1989. The Department preferred the appeal to the Supreme Court. Hon'ble Supreme Court dismissed the appeal. The facts of the instant case are entirely different from the facts of the case of Morgenstern Werner (supra) as in the case before us the assessee as NOR earned income in India by virtue of services rendered in India. His case is covered by Section 9(1)(ii) of the Act and not by Section 5(1)(c) of the Act. Daily allowance was exempt from income-tax under Notification No. SO No.143(E), dt. 21st Feb., 1989. This is not the case of the assessee.
Hence reliance placed by assessee on this decision is of no help to him.CIT v. Suresh Kumar (supra) is not relevant to the issue in hand and hence requires no discussion. Likewise the other decision of the Tribunal learned relied by CIT(A) in the case of Dy. CIT v. Stephen Brandon (supra), a distinction was made between salaries earned in India and salaries earned outside India. Such distinction was made in terms of contract between parties. In the case of Aage Frohde (supra) the salaries paid for visits outside India were not related to Indian activity. The Norwegian company used the services of the assessee outside India for the purpose not related to Indian activities without paying him anything extra what was paid to him as CEO of Indian office. The proportionate salary for the period spent outside India was held to have not accrued in India. Thus these decisions relied by the assessee are not applicable to facts of the case before us in view of discussion made as above.
20. In view of above discussion and since the facts of the case are identical to the facts of case of Hiromi Hirose (supra), respectfully following the precedent we hold that learned CIT(A) was not justified in treating the salary relatable to Pakistan, Sri Lanka and UK was for performance of duties outside India. We accordingly set aside the order of learned CIT(A) and restore the order of AO.