2004 (11) TMI 40 - HC - Income Tax

DTAA - remuneration received abroad from his foreign employer - 1. Whether Tribunal was right in law in holding that retention remuneration received by the assessee in foreign currency from his foreign employer was liable to be included in the total income of the assessee? 2. Whether Tribunal was right in law in holding that the assessee was not entitled to relief under article XIV of the Convention for the Avoidance of Double Taxation between India and Austria? view taken by the authorities below that unless and until the assessee produces proof for payment of tax, he would not be entitled to claim relief under the agreement does not accord with the terms of the agreement and the language employed in article XIV(2)(c) of the agreement. - As the applicant-assessee is claiming benefit under an exception (exemption) provision, it will be upon the assessee to discharge the onus to show that it is subject to Austrian tax.

Summary

Issues:
1. Taxability of retention remuneration received in foreign currency by a non-resident.
2. Entitlement to relief under the Convention for Avoidance of Double Taxation between India and Austria.

Analysis:

Issue 1: Taxability of retention remuneration
The case involved the taxability of retention remuneration received in foreign currency by a non-resident individual working in India. The assessee argued that the remuneration should be outside the purview of the Income-tax Act, as he was a non-resident. Additionally, the assessee claimed relief under the Double Taxation Agreement between India and Austria. However, the Assessing Officer and subsequent authorities held that the remuneration was taxable in India, citing a retrospective amendment to the Act. The Tribunal upheld this decision, stating that all conditions of the Double Taxation Agreement must be satisfied for relief. The court analyzed the provisions of the agreement and emphasized that liability to tax under the Austrian statute was the key factor, not actual payment of tax. The court referred to precedents and international conventions to support this interpretation, concluding that the authorities' insistence on proof of tax payment was not justified by the agreement's language.

Issue 2: Relief under Double Taxation Agreement
The disagreement between the parties centered on the interpretation of sub-clause (c) of article XIV of the Double Taxation Agreement. The Revenue argued that the conditions under the agreement were cumulative, and the assessee must prove that the income was subject to tax in Austria. The court disagreed, stating that liability to tax did not equate to actual tax payment. The court highlighted that the authorities' requirement for proof of tax payment was unwarranted and contrary to the agreement's language. The court directed that the provisions of the Austrian statute should be examined, and the assessee should demonstrate liability to tax under Austrian law. The court declined to answer the specific questions referred, instructing the Tribunal to consider additional evidence and decide the matter accordingly.

In conclusion, the judgment clarified the taxability of retention remuneration for non-residents and the entitlement to relief under the Double Taxation Agreement. It emphasized that liability to tax, not actual tax payment, was crucial for determining tax obligations under international agreements. The court's decision highlighted the importance of interpreting such agreements in a beneficial manner for taxpayers and directed further examination of the Austrian tax laws to resolve the dispute effectively.