Understanding Residential Status with latest case laws:

Residential status become very challenging in the case of individuals coming to India or going abroad for employment and for them the challenge become double taxation of same income.  In this respect given below few important case laws which enable yourself to understand the residential status.

·         Assessee, an Indian citizen, employed outside India returned to India in financial year 2010-11 after resigning employment. His total stay in India in preceding four years was more than 365 days and total stay in India for financial year 2010-11 was 119 days. Held, he is resident in FY 2010-11 and receipts taxable. Refer, SmitaAnand (Mrs.) In reaa, 362 ITR 38.

·         Assessee brought nothing on record to show that interest chargeable by it on advance to C as per the agreement was actually waived in the year under consideration. Such interest income had accrued to assessee and was liable to tax. Refer, ITO .v. Ricoh India Ltd, 98 DTR 435.

·         The Tribunal sent the matter back to Assessing Officer for proper quantification of the income on accrual basis as the fees received for full course from a student in one assessment year should be appropriated proportionately for each year under consideration during the course period. Refer, JB Educational Society .v. ACIT, 159 TTJ 236.

·         The assessee charged interest recoverable from customers on day to day basis and if any difference of interest recoverable was traced later, that was shown in the following year. The AO made an addition as interest was charged from the customers at a lower rate. Held that the assessee was consistently following the practice since the beginning that any interest extra charged or lesser charged was adjusted in the next year. In the facts and circumstances, the right to receive had accrued only in the following year and it had been charged in the following year itself. The charge could not be made during the relevant assessment year. Refer, Fazilka Central Co-op. Bank Ltd. .v. DCIT, 27 ITR 326.

·         Assessee was a non-banking finance company registered with Reserve Bank of India. Assessee claimed that it was not assessable in respect of interest on loans advanced to certain companies having regard to financial difficulties in which said debtor companies were placed. Assessee further submitted that its claim had been accepted by Tribunal in earlier years. Assessing Officer, however, found that companies to whom assessee had advanced loans were financially well off. He also noticed from balance sheets of those companies that they were making profit during year under appeal. Assessing Officer, therefore, concluded that assessee was no longer justified in not charging interest on loans granted to said companies. Commissioner (Appeals) upheld order of Assessing Officer. Tribunal, however, relying upon order passed by it in earlier years, allowed assessee's claim. Court held that since, in year under appeal, facts were different and this had been brought out well both in assessment order and in first appellate order, in such a situation, impugned order of Tribunal allowing assessee's claim merely on basis of order passed in earlier years was not sustainable.  Refer, CIT .v. Brahmaputra Capital & Financial Services Ltd, 219 Taxman 68.

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·         When grant was given to assessee for operational expenses of four aircrafts and assessee was utilizing said grant over a period of five years, and had followed AS-12, only a proportional amount of gran would be taxed in relevant year and not entire amount in one year. Refer, CIT .v. Airline Allied Services Ltd., 218 Taxman 396.

 

·         Accrual of interest on enhanced compensation on compulsory acquisition of assessee’s land would be determined on year to year basis. Refer, CIT .v. Tapeshwari Devi (Smt.), 218 Taxman 91.

·         Held, that part of the amount of surcharge on belated payment of bill that was subject to waiver/protest and was not mandatorily enforceable at time of payment of bills which was not realized, did not amount to accrued receipt taxable as income as it was hypothetical in nature. Refer, ACIT .v. Dakshin Haryana Bijli Vitran Nigam Ltd, 59 SOT 133.

·         The assessee made interest free advances to its sister concerns. The AO added notional interest on the  advances made to the assessee’s total income. The CIT(A) deleted the addition on the ground that no interest bearing borrowed funds were used to make such interest free advances to its sister concerns. He also observed that no interest expense has been claimed in the profit and loss account. The Tribunal confirmed the order of the CIT(A) relying on the decision of Guwahati High Court in the case of B & A Plantations & Industries Ltd. v. CIT (2000) 242 ITR 22.On appeal by the department, the High Court dismissed the departmental appeal observing that there was no substantial question of law. Refer, CIT .v. Arihant Avenue & Credit Ltd, 36 Taxmann.com 14.

·         The Tribunal held that the entire fee / commission accrued in this year and no part of it can be spread to next year. The CIT(A) was not justified in directing the spread over of the advisory fee over the period of loan. Refer, Dy. DIT v. Toronto Dominion Bank Ltd, 153 TTJ 303.

·         Tribunal held that the project was ongoing, so the release of retention money against bank guarantee was not assessable during the relevant year. Tribunal & CIT(A) both followed the decision of Hon’ble Bombay High Court in the case of CIT v. Associated Cables (P) Ltd. Refer, Addl. DIT (IT) v. Ballast Nedam Dredging, 154 TTJ 280.

·         Notional gains from derivates held as stock-in-trade is taxable in the year of its actual realization. The notional loss is allowable as no contingencies are attached. Refer, Urudavan Invt. & Tdg. (P.) Ltd. v. Addl. CIT, 56 SOT 69 (Mum.).

·         Where only an invoice had been raised and work had not even commenced, it did not constitute income for that year since revenue recognition on completion of certain milestone of work is an accepted method in mercantile system of accounting. Refer, Davis Langdon & Seah Consulting India (P.) Ltd. v. DCIT, 58 SOT 124 (Bang.)(Trib.).

·         Where assessee, a NRI, received salary income in India against employment exercised in U.K. and offered same for taxation in U.K. in pursuance of article 16, it could not be taxed in India as per DTAA between India and U.K. Refer, ITO v. Sri Sunil Chitranjan Muncif, 58 SOT 356 (Ahd.)(Trib.).

·         In view of decision of Gujarat High Court in case of Anup Engineering Ltd. v. CIT [2001] 247 ITR 457/114 Taxman 584 retention money could not be said to have accrued to assessee and therefore, this amount did not represent assessee's accrued income. Refer, DIT v. Ballast Nedam International, 215 Taxman 254 (Guj) (HC).

·         Interest income representing the difference between the purchase price of debentures and the redemption price after six years was rightly taxed on spread over basis and not in the year of allotment of debentures itself. It would be futile to ask the department or the assessee to recompute the income as it would merely be a theoretical exercise.  Refer, Rakesh Shantilal Mardia v. Dy. CIT, 79 DTR 302(SC).

·         On facts “advance rent” received by the assessee from the lessee being the consideration for being let into possession of the leased premises as evident from the report of the assessee’s council of Management and the terms of the lease, it was in fact a premium rather than advance rent and constituted the assessee’s income; leasing out of commercial spaces by the assessee cannot be regarded as sale of properties as the assessee was only a lessee of the land which belonged to the Govt. and it was not even entitled to sell the construction put up on the land. Constituted the assessee’s income. Refer, M. Visvesvaraya Industrial Research and Development Centre v. CIT, 79 DTR 387.

·         RI Ltd. in terms of the agreement, had only the right to use the network during the tenure of the 20 years agreement. Further, the agreement was liable to be terminated at the sole discretion of RI Ltd. and consequently, the amount received as advance for 20 years lease period would have to be returned on such termination for the balance unutilized period. Tribunal also held that the agreement dated 30th April 2003 was only in the nature/form of a lease agreement. Therefore, the assessee had in terms of AS-19 correctly spread the entire fee of Rs.3,037 crores over the period of 20 years and to pay tax thereon over the entire period. Entire amount was not assessable during the relevant year. Refer, CIT v. Reliance Communication Infrastructure Ltd, 79 DTR 198.

·         Assessee, as a part of its banking business provided bank guarantees and charged guarantee commission on the same. Guarantee commission was being recognized by assessee over life of guarantee on accrual basis. Guarantee commission received for year under consideration to some extent was not recognized by assessee as its income on ground that guarantee period relating to said commission was subsequent to 31-3-2004. It was held that addition made by Assessing Officer on the basis that period of guarantee had nothing to do with assessee's right to receive commission and accordingly, said amount was brought to tax for assessment year in question holding that said income accrued to assessee at time when corresponding guarantees were issued. Refer, Shinhan Bank v. Dy.DIT, 54 SOT 140 (Mum.)(Trib.).

·         Income from deferred guarantee commission did not accrue or arise in the year in which guarantee agreements were entered and such income should be spread over the period to which the guarantee commission related and should be assessed proportionately. Refer, BNP Paribas Sa v. Dy. DIT, 79 DTR 310.

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