2013 (1) TMI 508 - HC - Income Tax

Service rendered in India - salaries - taxability in India - Respondent/assessee is a non-resident company engaged in certain businesses in India who inturn employed 13 people each one of them was a Danish national - Held that - Tribunal noticed the treaties on DTAA between Denmark and India which specifically provided that the remuneration derived by a resident of either of those two countries in respect of an employment exercised in the other country shall be taxable only in the country, to which he belongs, if he is present in the other country for a period or periods not exceeding in the aggregate 183 days in the fiscal year of the other country and the remuneration is paid by or on behalf of an employer, who is not a resident of the other country and the remuneration is not borne by a permanent establishment or a fixed base, which the employer has in the other country. Therefore, by reason of the said treaty it was accepted that such income while shall not be deemed to have arisen in India, the same will also not be construed as payable in India as the fact remains that the Tribunal found as a fact that each of those 13 Danish nationals were remunerated in respect of employment in India for a period not exceeding 183 days in the concerned fiscal year and that the remuneration was paid by or on behalf of an employer, who is not a resident of the country and, in any event, the remuneration was not borne by a permanent establishment or a fixed base, which the employer has in India. Tribunal, accordingly, held that those remunerations are, therefore, in view of the said treaty, taxable at Denmark and not in India - in favour of Respondent/assessee.

Summary

Issues:
Interpretation of Sections 4 to 9 of the Income Tax Act, 1961 regarding taxation of income earned in India by non-resident individuals.

Analysis:
The judgment involves a dispute regarding the taxability of salaries earned in India by 13 Danish nationals employed by a non-resident company. The Income Tax Act, 1961, specifically Section 5(2) and Section 9(1)(ii), addresses the taxation of income earned in India by non-residents. The Act states that income earned in India, including salaries, shall be regarded as income earned in India. The explanation clarifies that income payable for services rendered in India falls under the head "salaries." The Assessing Officer and Commissioner of Appeals held that the salaries of the Danish nationals are taxable in India since they were remunerated for services rendered in India.

The matter was taken to the Tribunal, which considered the Double Taxation Avoidance Agreement between India and Denmark. The treaty stipulates that remuneration for employment exercised in another country shall be taxable only in the country of residence if the individual is present in the other country for less than 183 days and the remuneration is not borne by a permanent establishment in the other country. The Tribunal found that the Danish nationals were remunerated for work in India for a period not exceeding 183 days and the remuneration was not borne by a permanent establishment in India. Therefore, the Tribunal held that the remuneration is taxable in Denmark, not in India, as per the treaty.

The Tribunal's decision was based on undisputed facts, including the nationality of the individuals and the duration of their stay and work in India. The Tribunal also noted that the residence of the assessee being in the UK instead of Denmark is immaterial, as the treaty requires the employer to be a non-resident of India. Additionally, the presence of a permanent establishment or fixed base in India by the assessee does not impact the taxability of the remuneration unless the remuneration is borne by that establishment, which was not the case here.

Ultimately, the High Court concluded that no legal question arose in the appeals as they were primarily factual issues based on accepted facts. Therefore, the appeals were dismissed based on the Tribunal's decision regarding the taxability of the salaries earned by the Danish nationals in India.