section 10(13)/income-tax act

[2004] 138 taxman 121 (aar - new delhi)

Authority For Advance Rulings, New Delhi

Yogesh Prabhakar Modak, In re

Justice Syed Shah Mohammed Quadri, Chairman

K.D. Singh and K.D. Gupta, Member

A.A.R. No. 621 of 2003

May 31, 2004

Section 10(13) of the Income-tax Act, 1961, read with article 16(1) of the Double Taxation Avoidance Agreement between USA and India - Approved superannuation fund, payment from - Applicant, who was working as an employee in an Indian company, resigned from said company and left India in 1998 to take up job in USA - During year 2002-03, applicant received staff-superannuation fund from Indian company - Whether amount received by applicant from superannuation fund in 2002-03 for services rendered in India is taxable in India as per DTAA with USA - Held, yes - Whether amount having been received by applicant from superannuation fund, on resignation before specified age, is eligible for exemption under section 10(13) - Held, no

Facts

The applicant, who was working as an employee in an Indian company, resigned from the said company and left India in 1998 to take up job in USA. He claims that he is a non-resident from the assessment year 1999-2000 onwards. During the year 2002-03, the applicant received staff superannuation fund from the Indian company. The applicant is seeking advance ruling on the questions as to whether the amount received from superannuation fund in 2002-03 is taxable in India in view of the DTAA with USA and whether said amount is entitled to exemption under section 10(13).

Held

Section 10(13) exempts only the payments received on retirement at or after a specified age. Payment made on resignation will be exempt only if it is after the specified age. Undoubtedly, it is not the claim of the applicant that he resigned only after the age specified for voluntary retirement. [Para 5]

In the instant case, article 16(1) of the DTAA with USA is also of no help. The said article only says that salaries in respect of employment in USA shall be taxable only in that State. The payment received from former employer in India is taxable under the head ‘Salaries’ in India in the year of receipt. [Para 6]

In the light of the above, the amount received from superannuation fund in 2002-03 for services rendered in India is taxable in India as per the DTAA with USA and the amount received from superannuation fund on resignation before specified age is not eligible for exemption under section 10(13). [Para 7]

Cases referred to

CIT v. J. Visalakshi [1994] 206 ITR 531/74 Taxman 532 (Mad.) [Para 2] and CIT v. R.J. Shahney [1986] 159 ITR 160 (Mad.) [Para 2].

Ruling

K.D. Singh, Member - The applicant is an individual who was working as an employee of Morgan Stanley India Securities Pvt. Ltd. He resigned from Morgan Stanley in 1998 and left India on 15th August, 1998 to take up job in U.S.A. Afterwards, he was on very short visits (20 to 25 days) to India. He claims that he is a non-resident from assessment year 1999-2000 onwards.

   (i)  During the year 2002-03, the applicant received Rs. 5,87,647 being payment from Morgan Stanley Staff Superannuation Fund. The payment was made to the applicant after deducting tax at source of Rs. 1,85,109.

  (ii)  In view of the above mentioned facts, the applicant seeks advance ruling from this Authority on the following two questions :—

“(i)  On the facts and circumstances of the case stated in the Statement of Facts, whether the amount received from superannuation fund in 2002-03 is taxable in India in view of Double Taxation Avoidance Agreement with U.S.A. ?

  (ii)  On the facts and circumstances of the case stated in the Statement of Facts, whether the amount received from superannuation fund can be claimed exempt under section 10(13) ?”

2. It is the contention of the applicant that amount received from superannuation fund is taxable in the year of receipt.

   (i)  He has relied upon Articles 16(1) of the DTAA between India and USA. The applicant has submitted that the provisions of this Article are to be applied in the year in which the applicant received the amount which in the present case happens to be the previous year relevant to assessment year 2003-04. During this period the applicant has not rendered any services in India and therefore, the amounts received are not liable to tax in India.

  (ii)  He has contended that he has fulfilled the conditions laid down in section 10(13) of the Income-tax Act, 1961 which exempts payments received from approved superannuation fund. In this regard the applicant contends that the term retirement includes resignation and that as the applicant is entitled to receive payment from the aforesaid fund, he is deemed to have retired at specified age. He has relied upon the decisions in CIT v. J. Visalakshi [1994] 206 ITR 5311  (Mad.) and CIT v. R.J. Shahney [1986] 159 ITR 160 (Mad.).

3. The jurisdictional Commissioner i.e., CIT (International Taxation), Bangalore in his comments has pointed out as under—

   (i)  That since the income has not arisen on account of present employment in USA but has accrued and arisen in India, it is clearly taxable in India only.

  (ii)  That article 16 lays down that if the employment is exercised in the other State (in this case-India), such remuneration as is derived from there is to be taxed in that other State (India). In the present case since the employment was exercised in India, the salary will be taxable in India. Salary for the purposes of section 15 of the Income-tax Act, 1961 includes salary received from a former employer also.

(iii)  That it is not the case of applicant that the amount has been taxed in the USA also.

(iv)  That the reference to rule 6 of Part B of Schedule IV is not of much relevance, as that Rule deals with deduction of tax at source by the Fund disbursing Authority and not the taxability of the receipt.

  (v)  That since the amount has not become payable on account of the circumstances mentioned in section 10(13), the applicant is not eligible for exemption under section 10(13). The amount became payable on account of resignation and not on account of death or retirement, the applicant’s contention that resignation should be deemed as retirement, is not supported by any authority; and it is not the intention of the law to do so.

(vi)  That the applicant’s reliance on J. Visalakshi’s case (supra) is misplaced. That case relates to grant of relief under section 89(1) to ex gratia paid at the time of termination. The case of R.J. Shahney (supra) deals with applicability of section 10(10AA) relating to exemption of encashment of leave salary at the time of resignation. This does not apply to superannuation fund which is on a different footing altogether.

4. It is to be examined if the applicant is entitled to exemption under section 10(13) of the Act. Insofar as the case of the applicant is concerned, the relevant portion of section 10(13) reads as under :—

“(13) any payment from an approved superannuation fund made—

   (i)  **                                                                         **                                                                                       **

  (ii)  to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement;”

5. It is the claim of the applicant that as per judgments of Madras High Court in the cases of J. Visalakshi (supra) and R.J. Shahney (supra) ‘retirement’ includes ‘resignation’. However, it is to be noted that in view of the different wording of the section 10(13), the ratio of these cases would not apply to the applicant’s case. The clause exempts only the payments received on retirement at or after a specified age. Payments made on resignation will be exempt only if it is after the specified age. Undoubtedly it is not the claim of the applicant that he resigned only after the age specified for voluntary retirement.

6. In this case Article 16(1) of the DTAA with USA is also of no help. The said article only says that salaries in respect of employment in USA shall be taxable only in that State. The payment received from former employee in India, is taxable under the head ‘salaries’ in India in the year of receipt.

7. In the light of the above, in application No. 621 of 2003 we rule as under :—

Question No. (i) - The amount received from superannuation fund in 2002-03 for services rendered in India is taxable in India as per DTAA with USA.

Question No. (ii) - The amount received from superannuation fund on resignation before specified age is not eligible for exemption under section 10(13) of the Income-tax Act, 1961.

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 [S1]1. 74 Taxman 532.