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2011 (4) TMI 104 - HC - Income TaxDTAA - TDS - assessee, an employee of M/s Diego Company, UK, while filing his return of income for the assessment year 2001 02, claimed exemption on salary to the tune of Rs.15,25,577/- under Articles 16(1) and 16(2) of the DTAA between India and UK and for short stay in India - If it is the contention of the assessee that he was an employee of the UDV London alone, the payment would have been made by the said foreign company and not by the Indian company - Therefore, the condition stipulated in Article 16(2)(b) is not fulfilled in so far as the Indian company treated the assessee as its employee and issued a salary certificate deducting TDS - The Tribunal has failed to see that the condition laid down in Article 16(2)(b) was not fulfilled by the assessee and, therefore, the finding of the Tribunal is to be interfered with - Accordingly decided against the assessee
Issues:
1. Exemption under Double Taxation Agreement between India and UK for salary received by an employee of a foreign company from an Indian subsidiary. 2. Applicability of exemption under DTAA for income received from an Indian company with salary certificate showing TDS deduction in India. Analysis: 1. The appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal regarding the exemption claimed by the assessee under the Double Taxation Avoidance Agreement (DTAA) between India and UK for the assessment year 2001-02. The assessee, an employee of a UK company, claimed exemption on a portion of salary under Articles 16(1) and 16(2) of the DTAA for a short stay in India. The Assessing Officer disallowed the exemption, stating that the conditions in Article 16 were not met as the assessee had not paid tax in the UK on the income claimed. The Commissioner of Income Tax (Appeals) upheld this decision, but the Tribunal later deleted the addition. The Revenue appealed this decision. 2. The assessee argued that the salary claimed as exempt was paid in India for pensionary benefits and that income paid in India by a foreign employer should not be taxed under Article 16(2) of the DTAA. The relevant provisions of Article 16(1) and (2) of the DTAA state that if remuneration is received by a resident of one contracting state for employment exercised in the other state, it may not be taxed in the other state under certain conditions. The Tribunal found that the conditions regarding the stay and payment of remuneration were satisfied. However, the dispute arose over whether the salary paid by the Indian company met the conditions of the DTAA, as the Indian company treated the assessee as its employee and issued a salary certificate deducting TDS. The Tribunal held that the salary amount was not claimed as expenditure by the Indian company and was being recovered from the UK company, Diageo Plc. 3. The Court noted that the salary amount claimed as exempt under Article 16(2) was not taxed in either the UK or India. The payment was made through the Indian company, which indicated that the Indian company treated the assessee as its employee. As per the DTAA conditions, if the assessee was solely an employee of UDV London, the payment would have been made by the foreign company, not the Indian company. Therefore, the Tribunal's decision to interfere with the concurrent finding of the authorities without proper appraisal of the facts was deemed incorrect. The Court upheld the Commissioner's order, set aside the Tribunal's decision, and ruled in favor of the Revenue.
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