2017 (11) TMI 2030 - AT - Income Tax

Income accrue or arise in India - Taxability of Foreign salary income in India - income received by the assessee towards salary for an employment outside India - assessee was seconded to Switzerland to work - Number of stay in India - During FY 2013-14 the assessee was in India for less than 182 days and qualified as a Non Resident as per explanation (a) to section 6(1) - exemption of salary under Article 15(1) of the Double Taxation Avoidance Agreement (tax treaty) between India and Switzerland seeked - HELD THAT - As the salary is includible in the assessment under section 5(2)(a) of the Act which says that any income received by a Non-Resident in India is taxable in India. There is a fair finding in the order of the lower authorities that there is no dispute that the salary was received in India. This should put end to the controversy therefore it was rightly taxed in India u/s.5(2)(a). In the present case the salary income was received by the assessee in India. It is necessary to examine whether the salary is deemed to accrue or arise in India by applying the Sec.9(1) and Explanation thereto. In my opinion the Explanation to 9(1)(ii) says that where the salary is payable for services rendered in India the same shall be regarded as income earned in India. The effect of Explanation is that it is no longer open to an assessee to say that though he rendered services in India since the contract of employment was entered into outside India the salary could not be said to have accrued or arisen in India. In such a case the Explanation deems the salary as having accrued or arisen in India notwithstanding that the contract of employment was entered into outside India. From the Explanation it is not permissible to infer the corollary viz. that in all cases where services are rendered outside India the salary cannot be deemed to accrue or arise in India. The Explanation deals with a different situation and its scope should not be extended to cases which are not contemplated by it. AO has rightly applied the first part of sec.5(2)(b). He held that since the contract of employment had been entered into in India and since all rights flowing there from were also enforceable in India the salary must be held to have accrued or arisen to the assessee in India. He had not therefore considered it necessary to address the question as to whether the salary could be deemed to accrue to the assessee in India. The salary received by the assessee has accrued or arisen to the assessee in India for the reasons given by A.O with which I fully agree and it is therefore not necessary to examine the question whether the salary is also deemed to accrue or arise to the assessee by applying s. 9(1) and the Explanation thereto. Therefore the salary received by the assessee in India was taxable u/s.5(2)(a) on receipt basis and also as having accrued or arisen to him in India u/s.5(20(b). Sec.9(1)(ii) read with Explanation thereto was not relevant for the controversy. As in view of Article 15(1) of the DTAA with Switzerland the said salary is not taxable in India. I have gone through Article 15(1) of the DTAA - In my humble opinion Article-15 of DTAA with India and Switzerland exemption allowable to only resident Indian and not to the nonresident. In the present case there is no dispute that as the assessee is a non-resident the said Article is not applicable. This view is fortified by the order of Tribunal in the case Shri Swaminathan Ravichandran 2016 (8) TMI 1498 - ITAT CHENNAI The decision in the case of Captain A L Fernandez 2001 (12) TMI 873 - ITAT MUMBAI clearly lays down that salary for services rendered aboard a ship outside the territorial waters of any country would be taxable in India if it was received in India as per Section 5(2)(a) of the Act. Following the decision of Captain A L Fernandez supra the salary income received by the non-resident taxpayer in the present case were held as taxable in India by virtue of receipt in India as per Section 5(2)(a) of the Act. Decided against assessee.

Summary

Issues Involved:
1. Disallowance of exemption claimed under Article 15(1) of the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland.
2. Interpretation and application of Article 23(1) of the DTAA.
3. Taxability of salary received in India for services rendered in Switzerland.

Detailed Analysis:

1. Disallowance of Exemption Claimed under Article 15(1) of the DTAA:
The assessee, a non-resident during the assessment year 2014-15, claimed an exemption for salary income under Article 15(1) of the DTAA between India and Switzerland. The assessee worked in Switzerland for Alcatel Lucent Schweiz AG and received salary in an Indian bank account. The Assessing Officer (AO) disallowed the exemption, stating that the salary received in India is taxable under Indian Income Tax laws. The AO cited that as per Article 23 of the DTAA, only residents are allowed to claim relief under the treaty.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, noting that the salary paid in India by an Indian company in Indian rupees is taxable under sections 5, 9, and 192 of the Income Tax Act. The CIT(A) relied on a previous decision of the Chennai Tribunal, which held that salary received in India is taxable in India.

2. Interpretation and Application of Article 23(1) of the DTAA:
The assessee argued that as a non-resident of India and a tax resident of Switzerland, the salary income should be exempt under Article 15(1) of the DTAA. The assessee provided various judicial precedents to support the claim that income derived from employment exercised outside India should not be taxable in India, even if received in an Indian bank account.

The Department contended that Article 23 of the DTAA, which deals with the elimination of double taxation, allows exemption only to residents. As the assessee was a non-resident in India, the exemption under Article 15(1) could not be claimed. The Department cited decisions from various tribunals and courts, including the Chennai Tribunal and Kolkata Tribunal, which supported the view that salary received in India is taxable in India, irrespective of where the services were rendered.

3. Taxability of Salary Received in India for Services Rendered in Switzerland:
The Tribunal examined whether the salary received in India for services rendered in Switzerland is taxable in India. The Tribunal noted that as per section 5(2)(a) of the Income Tax Act, any income received by a non-resident in India is taxable in India. The Tribunal also referenced section 9(1)(ii), which deems income to accrue or arise in India if it is earned in India. However, the Tribunal clarified that the explanation to section 9(1)(ii) does not extend to cases where services are rendered outside India.

The Tribunal held that the salary received in India is taxable under section 5(2)(a) on a receipt basis. The Tribunal also considered Article 15(1) of the DTAA and concluded that the exemption under this article is applicable only to resident Indians, not to non-residents. The Tribunal cited the decision in the case of Swaminathan Ravichandran vs. ITO, which supported this view.

The Tribunal dismissed the appeal, affirming that the salary received by the assessee in India is taxable in India, and the exemption claimed under Article 15(1) of the DTAA is not applicable.

Conclusion:
The Tribunal upheld the disallowance of the exemption claimed by the assessee under Article 15(1) of the DTAA between India and Switzerland, stating that the salary received in India is taxable under Indian Income Tax laws. The Tribunal concluded that Article 15(1) of the DTAA applies only to resident Indians and not to non-residents, thereby dismissing the appeal of the assessee.