Case Law Details
Assessee is employed with Zaklady Farmaceutyczne Polpharma SA’s at its office at Bangalore from 14.6.2004. From 1.6.2005, the Assessee was appointed as Business Development Director at Bangalore in India. The Assessee received gross salary of US $ 24,093 (equivalent to Rs 10,86,950/-) in AY 2005-06 and US $ 18,836 (equivalent to Rs 8,15,795) in AY 2006-07. The Assessee has furnished certificate dated 25th August 2005 issued by Polpharma and which is placed at page 98 of the paper book which certifies that the Assessee has been appointed by the company as ‘Service Provider’ whose category in the set up of the organization falls under the Top official Employee. The Assessee has also placed at page 108 of the Paper book the co-operation agreement dated 14.12.2004 concluded between the Assessee and Zaklady Farmaceutyezne Polpharma SA. According to this agreement, the assessee has been referred to as ‘Service provider’ and he shall support establishing and preparing organization of the Company’s representative office at Bangalore by 31st May 2005. The Assessee has also placed on page 134 of the Paper Book, certificate dated 14.6.2006 issued by polpharma certifying the salary paid to the assessee. It also states that the assessee is providing service to the company as ‘service provider’ and the salary paid to the assessee. In view of these facts, the dispute that has to be decided is whether the Assessee can be considered as ‘Top Level Managerial Person’ so as to become entitled to the benefit of Article 17(2) of the DTAA between India and Poland. It is a fact that the assessee was employed as ‘Service Provider’ and during the period under dispute he was providing the service from Bangalore in India. As per the Co¬operation agreement dated 14.12.2004 entered into between the assessee and the Polish Company, the function of the assessee was ‘to support establishing and preparing organization of the company’s representative office in India by the date of 31st May 2005’. We are of the view that the function to support establishing and preparing organization can at best be termed as a management function but cannot be equated with ‘Top Level Managerial Position’. The term ‘Top Level Managerial Position’ has not been defined in DTAA. Business dictionary.com defines top management as ‘The highest ranking executives (with titles such as Chairman/Chairperson, Chief Executive Officer, Managing Director, President, executive Directors, executive Vice Presidents etc.) responsible for entire enterprise. Top management translates the policy (formulated by the Board of Directors) into goals, objectives and strategies and projects a shared vision of future. It makes decisions that affect everyone in the organization and is held entirely responsible for the success and failure of the enterprise.’
INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD
I.T.A. No. 2190/AHD/2009
I.T.A. No. 2191/AHD/2009
(Assessment Year: 2005-06 & 2006-07)
DCIT Vs. Shri Mohan Balakrishnan Pookulanagara
Date of Pronouncement : 4-5-2012
ORDER
PER: SHRI ANIL CHATURVEDI, A.M.
These two appeals filed by the Revenue are directed against the order of the learned CIT(A)-XXI, Ahmedabad dated 25.4.2009 for AY 2005-06 and AY 2006-07 respectively. Since the facts and issues involved are identical for both the assessment years and the appeals have been heard together, these are being disposed of by a single order for the sake of convenience. The 1st ground for both the assessment years relate to allowance of full exemption of salary under DTAA u/s 90 to the assessee for the salary received from foreign company.
2. The assessee is an individual and he filed his return of income on 30-3-2006 declaring total income of Rs.1 ,20,540/-. Return of income was processed u/s. 143(1 )(a). Assessee claimed salary of Rs.1 0,86,950/- received from Pharmaceutical work POI Pharma S.A. in Poland being exempt from Tax on the basis of DTAA entered into between the Government of Poland and Government of India. According to the Assessing Officer (A.O), the assessee’s case was not covered under DTAA and therefore, notice u/s./ 148 was issued. The assessment was completed u/s. 143(3) r.w.s. 147 on 30-12-2008. The claim of the salary of Rs.10,86,950/- received from Polish Company did not find favour with A.O. for the following reasons and therefore the same was added to his total income.
“4. The claim of the assessee that thpe income received from foreign company is exempt from tax did not acceptable due to the following reasons:-
(i) During the year under consideration, the assessee was employed as a ‘Service Provider’ providing services for Polpharma Indian Representative, Office at Bangalore. Thus, the place of employment is Bangalore and not outside India and therefore, any income that arise or accrued, due to employment, in India only.
(ii) As per Article 17(2) of the Agreement between India and Poland for Avoidance of Double Taxation, the person is required to be Top Level Managerial position. In the instant case, the assessee has been repeatedly requested to provide his terms of employment with the Poland Company, so that it can be decided whether the assessee falls within the category of Top Managerial Position. The assessee vide letter dated 29-12-2008 submitted the terms of employment. According to the agreement dated 14- 12-2004 entered into between PolPharma S.A. and the assessee, the assessee is engaged as ‘Service Provider’ and the duties assigned to the assessee are re-produced as under:-
“The ‘Service Provider’ shall support establishing and preparing organization of the company’s representative office in India (Bangalore) by the date of 31st May,2005”.
This shows that the assessee has to support the establishing and preparing the representative office of PolPharma S.A. Thus, it is clear that the assessee does not fall within the category of Top Managerial Position.
Moreover, the Certificate issued by the Poland Company refers the assessee as a ‘Service Provider’. This shows that assessee is not a part of Top Level Managerial position and therefore, the conditions specified in Article 17(2) of the Agreement are not fulfilled.
(iii) From the records, it is noted that the assessee has visited only two times, Short visit to Poland.
(iv) The assessee relied upon various decisions. However, on going through the facts of the case,. The said decisions are not applicable to the assessee’s case. The real income is required to be taxed has already been accepted by various Courts.
In view of the above, salary income received by the assessee from Pharmaceutical works Polpharma S.A. is added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) are being initiated for furnishing inaccurate particulars of income.
3. Aggrieved by the AO’s order, assessee went in appeal before the CIT (A). CIT (A) vide order dated 25-4-2009, accepted the assessee’s plea and granted relief to the assessee by holding as under:-
“ In order to decide the issue, I have carefully considered the various arguments of the Ld. AR including the DTAA between India & Poland, C.B.D.T. Circular, case laws cited etc. The appellant has claimed Double Taxation Relief after taking the opinion of Gujarat High Court Advocate Mr. Udayan P. Vyas and the opinion is clear and free from debate. The appellant-assessee has worked as Top Official Employee in the category of Top Managerial Position which has been proved by his conduct in the office of Poland Company at Bangalore in India. Since, he was the final authority at Bangalore based Indian Office and since during the year under consideration the appellant assessee was responsible for establishing the Indian Officer after taking the relevant RBI permission, getting the Indian Office registered with the Registrar of Companies, Income Tax Authorities and local Bangalore, Karnataka authorities as per prevailing Rules and Laws of India. Also the fact that the assessee was taking all the decisions of the company at Bangalore based Indian Office. The fact that the assessee opened Indian Office Bank Account at HDFC Bank and was the signing authority.
In view of the discussion hereinabove, and also keeping into account the case laws, circulars cited and on the basis of the arguments of the A.R. of the assessee on the subject, the disallowance of exemption under DTAA made by the Assessing Officer is not justified and the A.O. is directed to grant the full exemption under DTAA as claimed by the assessee in his Return of Income. Thus, the first ground raised by the appellant is allowed.
4. Aggrieved by the order of CIT (A), the Revenue is in appeal before us.
5. Ground No.1, the Ld. D.R. strongly urged that the assessee was not entitled to exemption of Salary income on account of following:-
6. During the year under consideration, the assessee was employed as a ‘Service Provider’ providing services for Polpharma Indian Representative, Office at Bangalore. Thus, the place of employment is Bangalore and not outside India and therefore, the income arises or accrued, due to the employment, is liable to tax in India.
7. As per Article 17(2) of the Agreement between India and Poland for Avoidance of Double Taxation, the person is required to be Top Legal Managerial position. In the instant case, the assessee is engaged as ‘Service Provider’ and the duties assigned to the assessee based on the service agreement was to support the establishing and preparing the representative office of Polpharma S.A. Thus, according to the A.R. it is clear that the assessee did not fall within the category of Top Managerial Position.
8. The Ld. A.R. on the other hand urged that the assessee’s case is covered by Article 17(2) of DTAA. It was urged that the salary was paid from Poland, tax @ 20% was deducted by the Poland company and deposited with the Poland Government an balance 80% was paid to the Assessee. Thus the real income of the assessee was only 80%. He further stated that the assessee was the Highest authority at India in respect of the Poland Company. He also relied on the opinion of the Advocates Mr. Udayan Vyas according to which the assessee falls within article 17(2) of DTAA and accordingly the assessee was entitled to benefit. He also relied on the Certificate from Polish Co which states that the assessee is an official in a top official employee. He further stated that the assessee enjoyed wide managerial powers which goes to show that the assessee was highest authority at Indian office of Poland Company.
9. During the course of hearing the Ld. A.R. has furnished additional evidence with a request to take the same on record. The submission made by it vide letter dated 22.9.2011 is as under:
“Reason for Non submission before AO and CIT(A):
(1) At the time of assessment proceedings, the assessee requested the Poland Company to issue certificate of the assessee as an official in a top level managerial position but the Poland authorities replied that they have already issued a certificate on 25.8.2005 mentioning the words “top official employee” and that certificate is sufficient. Then the assessee was continuously requesting the Poland company management to issue such certificate but due to their own business, other important works etc, such company could not issue the required certificate. Thus the assessee as prevented by sufficient cause due to which he could not submit such certificate before Assessing Officer.
(2) Now the Poland company has issued the certificate to the assessee mentioning the facts that the assessee was appointed in the capacity as an official in a Top Level Managerial Position in the Company for period of 14.6.2004 to 31.3. 2005 in Zaclady Farmacerutycrne Polpharma SA. Such certificate also contains the authorities given to the assessee as well as his appointment as Business Development Director in such company from 1.6.2005.
(3) We humbly request your honour to admit such certificate as an additional evidence.
(4) The Poland Company authorities have signed the certificate and send the scanned copy of such certificate to the assessee. As intimated by the assessee Poland Company shall send such certificate from Poland to Assessee at Banglore office and after receiving the same the assessee shall send us to our Ahmedabad Office. At this stage we have only scanned copy of such certificate; we shall submit the original certificate after receiving the same from the Assessee. Meanwhile we submit herewith the photocopy of such certificate.”
10. The additional evidence furnished by the Ld. A.R. is not considered and taken on record for the reason that the assessee has not made out a fit case for its acceptance. The assessee has only submitted general reasons for non issuance of certificate by the Poland Company. Further the reasons spelt out by the assessee has not been confirmed by the Polish Company. It is the assessee’s own admission that the original certificate is yet to be received by it and therefore a scanned copy has been submitted as additional evidence. Further, even on the scanned copy there is no mention of the date of issuance of certificate. For all these reasons, the certificate submitted as additional evidence is not considered and therefore not taken on record.
11. We have heard the rival contentions and perused the material on record. The undisputed facts of the case are that the assessee is employed with Zaklady Farmaceutyczne Polpharma SA’s at its office at Bangalore from 14.6.2004. From 1.6.2005, the Assessee was appointed as Business Development Director at Bangalore in India. The Assessee received gross salary of US $ 24,093 (equivalent to Rs 10,86,950/-) in AY 2005-06 and US $ 18,836 (equivalent to Rs 8,15,795) in AY 2006-07. The Assessee has furnished certificate dated 25th August 2005 issued by Polpharma and which is placed at page 98 of the paper book which certifies that the Assessee has been appointed by the company as “Service Provider” whose category in the set up of the organization falls under the Top official Employee. The Assessee has also placed at page 108 of the Paper book the co-operation agreement dated 14.12.2004 concluded between the Assessee and Zaklady Farmaceutyezne Polpharma SA. According to this agreement, the assessee has been referred to as “Service provider” and he shall support establishing and preparing organization of the Company’s representative office at Bangalore by 31st May 2005. The Assessee has also placed on page 134 of the Paper Book, certificate dated 14.6.2006 issued by polpharma certifying the salary paid to the assessee. It also states that the assessee is providing service to the company as “service provider” and the salary paid to the assessee. In view of these facts, the dispute that has to be decided is whether the Assessee can be considered as “Top Level Managerial Person” so as to become entitled to the benefit of Article 17(2) of the DTAA between India and Poland. It is a fact that the assessee was employed as “Service Provider” and during the period under dispute he was providing the service from Bangalore in India. As per the Co¬operation agreement dated 14.12.2004 entered into between the assessee and the Polish Company, the function of the assessee was “to support establishing and preparing organization of the company’s representative office in India by the date of 31st May 2005”. We are of the view that the function to support establishing and preparing organization can at best be termed as a management function but cannot be equated with “Top Level Managerial Position”. The term “Top Level Managerial Position” has not been defined in DTAA. Business dictionary.com defines top management as “The highest ranking executives (with titles such as Chairman/Chairperson, Chief Executive Officer, Managing Director, President, executive Directors, executive Vice Presidents etc.) responsible for entire enterprise. Top management translates the policy (formulated by the Board of Directors) into goals, objectives and strategies and projects a shared vision of future. It makes decisions that affect everyone in the organization and is held entirely responsible for the success and failure of the enterprise.”
12. Collinsdictionary.com defines top management or senior management “as the most senior staff of the organization or business, including the heads of various divisions or departments led by Chief Executive”.
13. Wikipedia.ORG. defines Top Level Managers as “consists of Board of Directors, President, Vice President, Chief Executive Officers etc They are responsible for controlling and over-seeing the entire organization. They develop goals, strategic plans, company policies and make decisions on the direction of the business. In addition top level managers play a significant role in the mobilization of outside resources and are accountable to the shareholders and general public.
14. According to Lawrence & Kleiman the following skills are needed at the top managerial level.
15. Bordened understanding of how competition world economies policies and social trend affect organizational effectiveness.”
16. Viewed in light of the above definition, the assessee cannot be considered to be of a Top Level Managerial position. Further the A.O. has given a finding that the Assessee has made only two short visits to Poland. This finding has not been controverted by the Assessee. The assessee has been functioning from India and therefore the income is deemed to accrue and arise in India. In view of the aforesaid facts, we are of the view that the order of the CIT (A) needs to be set aside on this issue and that of the A.O. be upheld. Thus the ground No.1 for A.Y. 2005-06 and 2006-07 of the Revenue’s appeal are allowed.
17. The second ground taken in appeal in ITA No 2190 for AY 2005- 06 is as under:
2. The Ld. CIT (A) has erred in law and on facts in allowing deduction u/s. 80G of the Act of Rs. 1,00,000/-made in cash.”
18. The facts are that the assessee had made donation of Rs.20,000/- each on 10-4-2004, 2-5-2004, 12-7-2004, 20-11-2004 and 15- 12-2004 to Shree Mahavir Research Foundation by cash. The assessee was asked to justify the donation with reference to cash withdrawals made. The assessee vide letter dated 19-12-2008 submitted that he made cash withdrawals of Rs.3,06,200/- from various banks for household expenses and others. The AO was of the view that considering the status of the assessee, the withdrawals are found to be sufficient for household expenses and there left nothing to make donation. Accordingly he denied the benefit of deduction u/s 80G.
19. Aggrieved by the denial of benefit the Assessee filed appeal before CIT (A). CIT (A) allowed the benefit by holding as under:
“Before me the A.R. submitted that the family of the assessee is very small containing himself, his wife and minor daughter. Such family is a very simple South Indian family not having any ostentatious expenses or expensive lifestyle. The assessee has also incurred/paid for household expenses by Credit Card/Debit Card, expenses of Rs.64,269.54 during this period. Under these circumstances, the money withdrawn by cash and expenses by credit card/ debit card is more than sufficient for their simple lifestyle and to make the donations. The A.R. further argued that when the Assessing Officer has not looked the face and figure of the assessee and his family which is very simple, not looked the residential house of the assessee – which was very small during the year under consideration at Ahmedabad and not looked the lifestyle of the assessee and his family – which has been a very simple, how he can conclude that the life style of the assessee is costly, expensive and very rich for which cash withdrawals of an amount of more than Rs.3 lakhs are insufficient to donate Rs. 1 lakh after meeting household expenses. The A.R. further argued that the A.O. has not considered the credit card payments made for household expenses.
In view of the discussion hereinbefore and also keeping into the factual back ground stated by the A.R. on this subject, I do not agree with the disallowance of donation claimed under section 80G which cannot be upheld and I delete such disallowance and direct the A.O. to grant the deduction under section 80G.”
20. The Revenue being aggrieved by the decision of CIT(A), is in appeal before us.
21. The Ld. D.R. has not been in a position to bring any cogent evidence to justify the disallowance. He relies on the order of the A.O. On the other hand the Ld. A.R. stated that the assessee had submitted bank statements and excel sheets containing the narration of bank statement including the cheque numbers, receipt of payment details etc including the payments made through credit cards. The disallowance has been made on the basis of assumption and presumption. He relied on the order of CIT(A).
22. We have heard the rival contentions and perused the material on record. The Ld. D.R. has not brought any material on record which could prove that the donations made were not genuine. On the other hand the assessee has submits that the donations were made by cheque and also furnished the copies of the receipts of the donations. In view of these facts, we find no infirmity in the order of CIT(A) allowing the benefit of deduction u/s 80G and therefore decline to interfere with his order. Thus this ground of the Revenue is dismissed.
23. Thus the appeal of the Revenue for AY 2005-06 is partly allowed and the appeal for AY 2006-07 is allowed.
