2022 (4) TMI 632 - AT - Income Tax

Income accrued in India - Period of stay in India - Salary earned by the assessee in the USA from his foreign employer - taxability of global income of any individual resident - resident and ordinarily resident in India - exemption claimed under Article 16(1) of the Double Taxation Avoidance Agreement (DTAA) between India and USA - whether salary income of the assessee was taxable in USA and not in India? - HELD THAT - Article 16 of the DTAA with USA, the salary income of a resident earned by him in other State shall be taxable in that State if such a resident is present in that other State for a period not exceeding 183 days in the relevant taxable year. The case of the assessee is that his total stay during the year was 165 days only, therefore, the salary income earned by him as per the aforesaid provisions of Article 16 was taxable in USA and not in India. This claim of the assessee has not been rebutted or denied by any of the lower authorities. Both the lower authorities have simply relied upon the provisions of section 5 and section 90 to state that since the assessee was a resident and ordinarily resident in India during the year, therefore, the provisions of DTAA would not apply in the case of the assessee. However, a perusal of section 90 read with Article 16 of the DTAA would show that section 90 did not bar in any manner the operation of the relevant provision of DTAA in respect of income earned by the assessee in other country, with whom the Central Government has entered into a DTAA. In view of this, the impugned order of the ld. CIT(A) on this issue is not sustainable and the same is accordingly set aside. The additions made by the Assessing Officer on this issue are accordingly ordered to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Tax residency status of the assessee and applicability of DTAA with the United States of America.
2. Taxability of salary income earned in the USA in India.
3. Taxability of dividend income earned in the USA in India.

Issue 1: Tax residency status and DTAA Applicability

The assessee claimed to be a resident but not ordinarily resident in India and asserted that the DTAA with the USA should apply to his global income. The Assessing Officer determined the assessee as a resident and ordinarily resident in India, making his global income taxable in India. The CIT(A) upheld this decision, emphasizing the economic nexus and period of stay in India. However, the ITAT found that the DTAA provisions should prevail if beneficial to the assessee. Article 16 of the DTAA stated that salary income earned by a resident in another state is taxable in that state if the stay does not exceed 183 days. As the assessee's stay was within this limit, the salary income should be taxed in the USA, not India. The ITAT set aside the CIT(A)'s order, ruling in favor of the assessee.

Issue 2: Taxability of Salary Income

The Assessing Officer taxed the salary income earned in the USA in India based on the assessee's residency status. The CIT(A) agreed, citing the predominance of income earned in India over that in the USA. However, the ITAT noted that the DTAA provision should apply if beneficial to the assessee. As the assessee's stay in the USA did not exceed 183 days, the salary income should be taxed in the USA. Consequently, the ITAT directed the deletion of the additions made by the Assessing Officer.

Issue 3: Taxability of Dividend Income

The assessee challenged the addition made by the Assessing Officer regarding dividend income earned in the USA. However, the assessee's counsel withdrew this ground during the appeal. Consequently, the ITAT dismissed this ground as not pressed.

In conclusion, the ITAT partially allowed the assessee's appeal, ruling in favor of the assessee regarding the taxability of salary income earned in the USA under the DTAA provisions. The appeal was dismissed concerning the dividend income issue.