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2014 (12) TMI 1325 - AT - Income TaxTaxability of foreign allowance received from Indian Employer - assessee was a non-resident during the year - assessee had paid taxes on the salary and allowances received in Netherlands - tax liability borne by the employer was being redeemed by the assessee in India - CIT(A) deleted the addition by observing that the appellant was non-resident and foreign allowances were not received in India during the year under consideration but received in Netherland. Such allowances wee paid by IBM India using a foreign currency travel card which could be used only outside India. Held that - The appellant was non-resident during the year under consideration and allowances were received by him in Netherlands. - The employer wrongly deducted TDS the appellant had claimed refund on it. The Indian income has been considered by the appellant as taxable but the allowances paid outside the India are not taxable U/s 5(2) of the Act in the case of non-resident - Decided against the revenue.
Issues:
1. Taxability of foreign allowance received by a non-resident in India. 2. Interpretation of Sections 5(2), 6(1), and 9(1)(ii) of the Income Tax Act. 3. Double Taxation Avoidance Agreement (DTAA) between India and Netherlands. 4. Application of relevant case laws in determining tax liability. Issue 1: Taxability of Foreign Allowance: The appeal was filed by the Revenue against the deletion of an addition of Rs. 17,27,360 made by the Assessing Officer (AO) on account of treating foreign allowance as income liable to be taxed in India. The AO observed that since the salary had been received in India by the employee, it would be taxable in India regardless of residential status. However, the CIT(A) allowed the appeal, noting that the appellant was a non-resident and the foreign allowances were received in Netherlands, not India. The appellant had paid taxes on the salary and allowances received in Netherlands, making them not liable to be taxed in India. Issue 2: Interpretation of Relevant Sections: The CIT(A) based the decision on Section 5(2) of the Income Tax Act, which states that income received outside India by a non-resident is not taxable in India. Additionally, Section 6(1) defines the residence status, emphasizing physical presence in India. The CIT(A) also referred to Section 9(1)(ii), which deems salary earned in India as income arising in India. However, these sections were deemed not applicable to a non-resident for income accruing outside India. Issue 3: Double Taxation Avoidance Agreement (DTAA): The CIT(A) considered the DTAA between India and Netherlands, specifically referring to Article 15, which states that salaries derived by a resident in one state shall be taxable only in that state unless the employment was exercised in the other state. The appellant had paid taxes in Netherlands on the salary and allowances received there, which prevented double taxation. Issue 4: Application of Case Laws: The CIT(A) relied on case laws such as Director of Income Tax vs. Prahlad Vijendra Rao and British Gas India (P) Ltd. vs. Revenue to support the decision. These cases emphasized that if an item was not taxable in law, no admission or misapprehension could make it taxable. The CIT(A) directed the AO to delete the addition of Rs. 17,27,360 based on these legal principles. In conclusion, the Tribunal confirmed the order of the CIT(A), dismissing the Revenue's appeal. The decision was based on the non-resident status of the appellant, the taxability of foreign allowances received outside India, the provisions of relevant sections of the Income Tax Act, and the application of the DTAA and case laws in determining the tax liability.
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