2020 (3) TMI 1172 - AT - Income Tax

Income accrued in India - Claim of deduction u/s.90 - tax the salary income and the foreign allowance received by the assessee for services rendered outside India - Article 15(1) of India Austria DTAA agreement and section 90 and section 5(2) of the Act - bar in law for receiving the money in India - HELD THAT - From the facts of the case it is apparent that during the previous relevant to AY 2014-15, the assessee qualifies as a non-resident in India and as a tax resident in Austria. The salary and allowances are earned by the assessee in respect of employment rendered in Austria due to his foreign assignment. Hence, the first two conditions enumerated under Article 15(1) of the India-Austria DTAA stands satisfied. Therefore, the assessee s claim of exemption in regard to his salary income as per the provisions of Article 15(1) of the India-Austria DTAA in the return of income filed by him is appropriate. In the case of DIT Vs. Prahlad Vijendra Rao 2010 (11) TMI 803 - KARNATAKA HIGH COURT on which reliance placed by the assessee, the Hon ble Karnataka High Court held that under section 15 of the Act even on accrual basis salary income is taxable i.e. it becomes taxable irrespective of the fact whether it is actually received or not; only when services are rendered in India it becomes taxable by implication. However, if services are rendered outside India such income would not be taxable in India. Other objections raised by the Ld. AO that evidence was not produced for receiving the foreign allowance outside India and the bank account of the assessee maintained abroad was not produced is not relevant because the facts of the case establishes that the salary and the foreign allowance was received in India for the services rendered abroad and by virtue of DTAA and the Act, there is no bar in law for receiving the money in India - We direct the Ld.AO to delete the tax imposed on the assessee with respect to his salary income which includes foreign allowance earned by him outside India during the relevant assessment year. - Decided in favour of assessee.

Summary

Issues:
Appeal against order of CIT(A) upholding taxation of salary income and foreign allowance received for services outside India, invoking India-Austria DTAA and IT Act provisions.

Detailed Analysis:

Issue 1: Taxability of Salary Income and Foreign Allowance
- The assessee filed return admitting Nil income, but AO taxed salary income and foreign allowance.
- AO sought Tax Residency Certificate, evidence of foreign allowances, and assignment letter.
- Assessee claimed exemption under India-Austria DTAA and section 5(2) of IT Act.
- CIT(A) upheld AO's decision, leading to the appeal.

Issue 2: Non-Production of Tax Residency Certificate
- AO disallowed exemption due to lack of TRC from Austria.
- Assessee argued impossibility to obtain TRC and claimed DTAA benefits.
- Tribunal cited precedence where treaty prevails over domestic law.
- Held that non-production of TRC doesn't bar Treaty benefits.

Issue 3: Conditions for Exemption under India-Austria DTAA
- Assessee must be resident of Austria and earn income for employment exercised in Austria.
- Assessee qualified as non-resident in India and tax resident in Austria.
- Salary and allowances earned during foreign assignment in Austria.
- Tribunal ruled in favor of exemption under India-Austria DTAA.

Issue 4: Precedents and Interpretation of DTAA
- Cited cases where salary income for services outside India not taxable in India.
- AO's objections on evidence of foreign allowances and bank accounts deemed irrelevant.
- Directed AO to delete tax on salary income and foreign allowance.

Conclusion:
- Tribunal allowed the appeal, deleting tax on salary income and foreign allowance.
- Decision based on Treaty provisions prevailing over domestic law and DTAA conditions met.
- Rulings of previous cases supported the assessee's claim for exemption.
- Tax imposed by Revenue authorities held to be incorrect, granting relief to the assessee.