2024 (2) TMI 1371 - AT - Income Tax

Income deemed to accrue or arise in India - Taxability of income in India - salary income earned by the assessee for services rendered in Ireland - assessee being non-resident and covered under Article 15(1) of India - Ireland DTAA - HELD THAT - Despite the submissions and evidence on record, AO erred in incorrectly holding that the Assessee was based in India and that the salary was taxable in India, where infact the salary was earned from BA PLC, Ireland and the services were rendered outside India. DRP after perusing the documents submitted by the Assessee erroneously noted that there is a failure on the part of Assessee to provide agreement between Irish and Indian entity. Evidently, the ld. DRP failed to appreciate certificate / letter of reimbursement issued by BA PLC, Ireland substantiates the assessee's submission that during the impugned Assessment Year, the assessee was employed with BA PLC. Ireland and was paid salary in India merely for administrative convenience. Salary income of the Assessee was not exigible in India under Article 15 of the DTAA - AO was not correct in not granting relief under Article 15 of the DTAA and disregarding that income is accrued where employment is exercised. As per the Article 15 of the DTAA between India and Netherlands, the income earned by the person is exempt from tax if following conditions are satisfied - If the person has not stayed for more than 183 days in India, and If the employment is exercised outside India. In the present case, both the conditions prescribed in the Article 15 are satisfied. The first condition has not been disputed by the Assessing Officer, whereas the second condition has been justified by various evidences furnished by the assessee. The Assessing Officer himself in para 7 of the Assessment Order has accepted that the services were rendered outside India. Therefore, it is hereby held that the assessee was a residing and exercising employment in Ireland under the complete control of BA PLC, Ireland for the impugned Assessment Year. Further, the salary was also borne by BA PLC, Ireland. Thus, the salary of the assessee derived from BA PLC, India on behalf of BA PLC, Ireland are duly considered exempt from tax in India. Salary income earned by the assessee for services rendered in Ireland cannot be said to be deemed to accrue or arise in India under section 9 of the Act - if the services are rendered outside India, for which salary has been paid, then the income cannot be said to accrue or arise in India. The contention of AO that the assessee rendered services from India in incorrect in light of the tax residency certificate for Ireland. The assessee for the year under consideration was a tax resident of Ireland - since the employment was not exercised in India, such income cannot be held to be taxable in India and hence, the addition made by the AO on this issue is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves issues related to the assessment of the appellant's income, tax exemption under the India-Ireland Double Taxation Avoidance Agreement (DTAA), interpretation of the letter of assignment, consideration of documents and evidence furnished by the appellant, relief under Article 15 of the DTAA, application of Section 9 of the Income Tax Act, interest under Section 234B, and penalty proceedings under Section 270A.

Assessment of Appellant's Income:
The appellant, an individual employed with British Airways PLC, was deputed on a long-term assignment to the company's Ireland branch. Despite rendering services outside India, the appellant received salary in India for administrative convenience, with tax deducted at source and reimbursed by British Airways PLC, Ireland. The appellant claimed the income to be exempt from tax in India under the India-Ireland DTAA. However, the assessing officer made an addition to the appellant's income, which was affirmed by the Dispute Resolution Panel. The Tribunal held that the salary earned for services in Ireland was not taxable in India, as the appellant qualified as a non-resident under the Income Tax Act.

Interpretation of DTAA and Section 9 of the Act:
The Tribunal found that the appellant met the conditions for tax exemption under Article 15 of the India-Ireland DTAA, as the services were rendered outside India and the appellant did not stay in India for more than 183 days. The assessing officer erred in disregarding this and holding the salary as taxable in India. Additionally, the Tribunal clarified that under Section 9 of the Act, salary earned outside India cannot be deemed to accrue or arise in India, especially when the employment is not exercised in India.

Consideration of Documents and Evidence:
Despite the appellant providing various documents to substantiate her claims, the assessing officer incorrectly held that the salary was taxable in India. The Dispute Resolution Panel also erred in not appreciating the evidence provided, leading to an incorrect decision. The Tribunal, after thorough examination, concluded that the salary derived from British Airways PLC, Ireland, was exempt from tax in India.

Relief under DTAA and Taxability of Income:
The Tribunal emphasized that the appellant's salary for services in Ireland could not be deemed to accrue or arise in India under Section 9 of the Act. The assessing officer's contention that the appellant rendered services from India was refuted based on the tax residency certificate for Ireland. Consequently, the Tribunal directed the deletion of the addition made by the assessing officer, allowing the appellant's appeal.

Interest and Penalty Proceedings:
The assessing officer's decision to levy interest under Section 234B and initiate penalty proceedings under Section 270A was deemed erroneous in light of the Tribunal's findings that the appellant's income was not taxable in India. The appeal of the assessee was allowed, and the additions made by the assessing officer were directed to be deleted.

Order:
The Tribunal pronounced the order in the open court on 14/02/2024, allowing the appeal of the appellant and directing the deletion of the addition made to the appellant's income by the assessing officer.