Mumbai: In a recent order, the Income Tax Appellate Tribunal (on it), Mumbai Bench held that the purchase of a flat by a non-resident by using his Foreigner Income is an act of investment or application of income. it is different from earning Income amount invested from immovable property in India and cannot be subject to do in country.
ITAT said the domestic tax provisions relating to unexplained investments or unexplained income would not apply in such cases and would be governed by the Persons Tax Treaty (which in this case was the India-UAE tax treaty). The tribunal’s order will benefit non-resident investors who have invested in India using their foreign funds, but have found themselves embroiled in a tax litigation.
In this case which was recently settled by ITAT, Rajiv Ghai, resident United Arab Emirates For the last three decades, Rs 8.5 crore was invested in residential flats in Mumbai. He said that all these payments from abroad were made through official channels and he provided necessary evidence.
Based on a search-and-seizure operation conducted on a builder group, the Income Tax (IT) department’s investigation wing provided information to the tax officer that Ghai allegedly took Rs 2.5 crore in cash as ‘on-money’. had paid. builder and also received Rs. 4.47 lakh as interest in cash. The IT officer treated these amounts as ‘unexplained investment’ and ‘unexplained income’, which would be taxable under sections 69 and 68 of the IT Act. The rate of basic tax under these sections is 60% with a surcharge of 25%. With cess and penalty, the overall tax rate is above 80%.
The UAE resident was not given an opportunity to view the objectionable material or to cross-examine the builder.
Under tax treaties, the right to levy tax is vested with either the source country (the country where the income originates) or the country of residence (of which the person is a tax resident). In this case, India was the best in an investment jurisdiction, the ITAT bench comprising vice-chairman Pramod Kumar and judicial member Ravish Sood said.
Unexplained investment in India may be taxed under section 69, if it can be proved that such investment was made out of income earned in India.
An economic activity or association of an income with the source country (India) would trigger the occurrence of tax in India, but this was absent.
Even if an amount of Rs 2.5 crore is treated as income, the tax authority under Article 22 of the Indo-UAE treaty would lie with the country of residence (which was the United Arab Emirates) and not India. , the bench said. Accordingly, the ITAT bench upheld the order of the Commissioner (Appeals), which was in favor of the UAE resident.
With respect to the alleged interest income of Rs 4.47 lakh, the IT department failed to produce any concrete evidence, hence ITAT rejected its taxability in India.
ITAT said the domestic tax provisions relating to unexplained investments or unexplained income would not apply in such cases and would be governed by the Persons Tax Treaty (which in this case was the India-UAE tax treaty). The tribunal’s order will benefit non-resident investors who have invested in India using their foreign funds, but have found themselves embroiled in a tax litigation.
In this case which was recently settled by ITAT, Rajiv Ghai, resident United Arab Emirates For the last three decades, Rs 8.5 crore was invested in residential flats in Mumbai. He said that all these payments from abroad were made through official channels and he provided necessary evidence.
Based on a search-and-seizure operation conducted on a builder group, the Income Tax (IT) department’s investigation wing provided information to the tax officer that Ghai allegedly took Rs 2.5 crore in cash as ‘on-money’. had paid. builder and also received Rs. 4.47 lakh as interest in cash. The IT officer treated these amounts as ‘unexplained investment’ and ‘unexplained income’, which would be taxable under sections 69 and 68 of the IT Act. The rate of basic tax under these sections is 60% with a surcharge of 25%. With cess and penalty, the overall tax rate is above 80%.
The UAE resident was not given an opportunity to view the objectionable material or to cross-examine the builder.
Under tax treaties, the right to levy tax is vested with either the source country (the country where the income originates) or the country of residence (of which the person is a tax resident). In this case, India was the best in an investment jurisdiction, the ITAT bench comprising vice-chairman Pramod Kumar and judicial member Ravish Sood said.
Unexplained investment in India may be taxed under section 69, if it can be proved that such investment was made out of income earned in India.
An economic activity or association of an income with the source country (India) would trigger the occurrence of tax in India, but this was absent.
Even if an amount of Rs 2.5 crore is treated as income, the tax authority under Article 22 of the Indo-UAE treaty would lie with the country of residence (which was the United Arab Emirates) and not India. , the bench said. Accordingly, the ITAT bench upheld the order of the Commissioner (Appeals), which was in favor of the UAE resident.
With respect to the alleged interest income of Rs 4.47 lakh, the IT department failed to produce any concrete evidence, hence ITAT rejected its taxability in India.
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