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2017 (1) TMI 1816 - AT - Income TaxIncome taxable in India - bonus payments Pertaining to services rendered in China - tax paid in a Contracting State - methods of elimination of Double taxation u/a 23 - assessee held dual employment one with the original employer at the home country and another with the economic employer at the host entity and accordingly divided the salary compensation in two parts - AO disallowed a portion of the bonus attributing it as compensation for exercising his employment in the home country - DR submitted that the assessee not entitled for benefit of under article 15(1) since the assessee is a non resident and as per Article 23 of the DTAA between India and China allows exemption only to a resident of India - HELD THAT - As decided in Shri Swaminathan Ravichandran 2016 (8) TMI 1498 - ITAT CHENNAI in view of the specific condition under Article 23 of the India- China DTAA the assessee is not eligible to claim relief under article 15(1) since the assessee is non-resident and as per Article 23 of DTAA between India and China allows exemption only to a resident Indian. Under the above facts and circumstances the assessee is not eligible to claim exemption under section 5(2) of the Income Tax Act . Thus we are inclined to hold that the assessee is not entitled for exemption under Article 15(1) of the Double Taxation Avoidance Agreement (DTAA) between India and China - Ground raised by the assessee is dismissed.
Issues:
1. Denial of exemption under article 15(1) of DTAA for bonus payments. 2. Assessment of tax liability based on dual employment and bonus attribution. 3. Disallowance of a portion of the bonus amount by the Assessing Officer. 4. Dispute over the applicability of Article 15 of the DTAA between India and China. 5. Interpretation of bonus payments as part of remuneration for tax purposes. 6. Claim for tax credit under Article 23 of the DTAA. 7. Eligibility of the assessee for exemption under Article 15(1) of the DTAA. Analysis: 1. The appeal filed by the Revenue contested the denial of exemption under article 15(1) of the DTAA for bonus payments amounting to INR 1,040,052 related to services in China. The Assessing Officer viewed the bonus as part of social needs and compensation, disallowing a portion attributing it to employment in the home country, resulting in a tax liability dispute. 2. The Assessing Officer considered the assessee to have dual employment, leading to a division of salary compensation. The bonus was deemed a social obligation by the original employer, disallowing a portion as compensation for home country employment. Interest computation and penalty proceedings were initiated, further complicating the matter. 3. The CIT(A) upheld the Assessing Officer's decision, stating that bonus payments are part of remuneration and a discretion of the employer, not the second employer. The bonus was considered chargeable to tax in India, dismissing the assessee's claim for exemption under Article 15(1) of the DTAA. 4. The dispute centered on the interpretation of Article 15 of the DTAA between India and China, with the CIT(A) ruling that bonus payments are taxable in India as part of remuneration. The judgment cited precedents and principles to support the decision, emphasizing the employer's discretion in awarding bonuses. 5. The assessee sought tax credit under Article 23 of the DTAA for tax paid in China, arguing for exemption under Article 15(1). However, the Tribunal dismissed the claim based on the specific conditions outlined in Article 23, stating that the assessee, a non-resident, was not eligible for exemption under Article 15(1). 6. Ultimately, the Tribunal upheld the decision that the assessee was not entitled to exemption under Article 15(1) of the DTAA between India and China. The appeal was dismissed, emphasizing the non-resident status of the assessee and the limitations set forth in the DTAA. This comprehensive analysis covers the key issues raised in the legal judgment, detailing the arguments, decisions, and implications for each aspect of the case.
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