2023 (8) TMI 817 - AT - Income Tax

Salary earned for services rendered in China - taxation on salary income as accrued to the assessee for work performed in a foreign jurisdiction - Disallowance of claim of exemption u/s 15(1) of the Double Taxation Avoidance Agreement between India and China - HELD THAT - The proportionate salary for services rendered in India has already been offered to tax in India whereas the balance salary has been offered to tax in China. The salary reconciliation statement has been placed by Ld. AR on record. The assessee has not claimed any foreign tax credit in any of the jurisdiction. The China tax has been paid by the foreign entity i.e., M/s Ford Motor (China) Co. Ltd. and the assessee has offered salary income on gross basis. DR has relied on the decision of SMC bench in the case of Dennis Rozario 2017 (1) TMI 1816 - ITAT CHENNAI as well as another decision of SMC bench in Shri M. Ramesh Kumar 2017 (11) TMI 2030 - ITAT CHENNAI which has taken a view against the assessee. However, both these decisions have been rendered by SMC bench and therefore, we are inclined to follow our own decision as cited above which has been rendered by coordinate bench. The Ld. AO is directed to re-compute the income of the assessee. Grounds raised by the assessee stand allowed which render additional grounds of appeal as infructuous. In the result, the appeal of the assessee is allowed in terms of our above order.

Summary

Issues:
The issues involved in this legal judgment include the denial of exemption under Article 15(1) of the Double Taxation Avoidance Agreement (DTAA) between India and China for salary income, the determination of taxability of salary earned for services rendered in China, and the applicability of DTAA benefits to a non-resident individual.

Exemption under Article 15(1) of DTAA:
The appeal pertains to the denial of exemption under Article 15(1) of the DTAA between India and China for salary income earned by the appellant while working in China. The appellant argued that the income had already been taxed in China and no foreign tax credit was claimed in either jurisdiction. The lower authorities held that the salary received in India for work in China was taxable in India, rejecting the appellant's contention. The tribunal found that the salary income accrued for work performed in the UK would not be taxable in India, while the salary for work in India would be taxable in India. The tribunal directed the Assessing Officer to re-compute the income accordingly, considering the Tax Residency Certificate submitted by the appellant.

Applicability of DTAA Benefits:
The tribunal referred to a previous decision by a coordinate bench regarding the applicability of DTAA benefits to individuals who are residents of both countries involved in the agreement. It was held that the salary earned for work performed in a foreign jurisdiction would not be taxable in India, while the salary for work performed in India would be taxable in India. The tribunal directed the Assessing Officer to re-compute the income of the appellant based on these findings.

Judicial Precedents and Decision:
The tribunal cited various judicial precedents to support its decision, including cases where the taxability of salary income was determined based on the location of services rendered and the residency status of the individual. The tribunal found that the facts of the present case aligned with previous decisions and ruled in favor of the appellant, allowing the appeal and directing the re-computation of income by the Assessing Officer.

Conclusion:
The tribunal allowed the appeal, holding that the salary income accrued for work performed in a foreign jurisdiction would not be taxable in India, while the salary for work performed in India would be taxable in India. The tribunal directed the Assessing Officer to re-compute the income of the appellant based on this determination. The decision was supported by judicial precedents and the interpretation of relevant legal provisions and DTAA benefits.