2024 (2) TMI 1372 - AT - Income Tax

Income taxable in India or not - taxability of the salary paid by the Indian company to a non-resident - incomes deemed to accrue or arise in India as assessee is a non-resident - HELD THAT - As per the provision of Section 9 (1)(ii), the income earned under head Salaries is taxable in India if it is earned in India. The explanation issued for removal of doubts declares that salaries if it is earned meets services rendered in India. In the instant case the assessee neither had any rest period nor leave period which is preceded and succeeded by the services rendered outside India. Since, the assessee has rendered services outside India, the salary cannot be taxable in India. As per the definition the salary paid or the advances received are to be included in the total income of the person when the salary becomes due. From the concurrent reading of Section 5 dealing with scope of total income, Section 15 dealing with computation of total income under the head salary and chargeability thereof and Section 9 dealing with income arising or accruing in India with reference to the salaries and the services rendered in India, we hold that no taxability arises on the salary/allowances received by the assessee since the assessee is a non-resident and has rendered services outside India. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this legal judgment include the taxability of salary income of the assessee, the applicability of Double Taxation Avoidance Agreement (DTAA) between India and the UK, the determination of residential status, the initiation of penalty proceedings for underreporting of income, and the interpretation of relevant sections of the Income Tax Act.

Taxability of Salary Income:
The assessee, a Non-Resident Indian (NRI), received salary for services rendered outside India. The Income Tax Act provisions of Section 5, Section 9, and Section 15 were examined to determine the taxability of this salary. Section 9(1)(ii) states that income under the head "Salaries" is taxable in India if it is earned in India. Since the assessee rendered services outside India with no rest or leave period in India, the salary was deemed not taxable in India.

Applicability of DTAA:
The assessee contended that the Assessing Officer erred in not appreciating the applicability of Article 16(1) of the India-UK DTAA. The AO incorrectly determined the residential status of the assessee as non-resident in the UK based on a remittance-based taxation system. The DTAA provisions were crucial in determining the tax treatment of the salary income.

Residential Status Determination:
The AO's determination of the assessee's residential status as a non-resident in the UK was challenged. This determination impacted the taxability of the income and required a correct interpretation of the provisions related to residential status under the Income Tax Act.

Penalty Proceedings Initiation:
The AO proposed the initiation of penalty proceedings under section 270A of the Act for underreporting of income. The correctness of this proposal and its compliance with the legal requirements were crucial in deciding whether penalty proceedings could be initiated against the assessee.

Interpretation of Income Tax Act Sections:
The judgment extensively analyzed and interpreted various sections of the Income Tax Act, including Section 5 (Scope of total income), Section 9 (Income deemed to accrue or arise in India), and Section 15 (Salaries). The correct interpretation of these sections was pivotal in determining the tax liability and the applicability of exemptions to the assessee's income.

Conclusion:
The Appellate Tribunal, ITAT Delhi, allowed the appeals of the assessee after considering the non-resident status, services rendered outside India, and the provisions of the Income Tax Act. The judgment emphasized that no tax liability arose on the salary/allowances received by the assessee due to being a non-resident and rendering services outside India. The correct application of the Income Tax Act provisions and the DTAA played a significant role in the favorable decision for the assessee.

Order Pronounced:
The order was pronounced in the Open Court on 14/02/2024 by the members of the Appellate Tribunal, including Shri Challa Nagendra Prasad, Judicial Member, and Dr. B. R. R. Kumar, Accountant Member.