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2024 (3) TMI 197 - AT - Income TaxAccrual of income in India - period of stay in India - salary received by the assessee from his foreign employer - DTAA between India and USA - assessee qualified as resident but ordinarily resident in India and DTAA with the USA was not applicable to the assessee in respect of his global income ignoring the provisions of Section 90 - AO observed that since the assessee had conceded that he was physically present in India for more than 182 days (i.e. 200 days) during the financial year 2015-16 and for more than 729 days (i.e 1044 days) in the seven tax years (2008-09 to 2014-15) immediately preceding the financial year 2015-16, hence, the assessee qualified as resident and ordinarily resident of India during the tax year in question HELD THAT - Admittedly, the assessee stayed less than 183 days in United States, therefore, as per Clause (a) to Article 16(2) of the Indo-US DTAA, the income of the assessee is liable to be taxed in India. In view of the Clause (b) (c), the salary income of the assessee is liable to be taxed in United States as the remuneration was paid by the resident of the United States and therefore, Clause (b) (c) are not attracted in the case of the assessee. As per Article 16(1) of the Indo-US DTAA, such salary income of other similar remuneration, drived by a resident of a contracting state (in our case in India ) in respect of an employment exercised in the other State (in our case USA ) is taxable in that other state (USA). As per Article 16(2), notwithstanding the provisions of Article 16(1), if the conditions stipulated in Article 16(2) are attracted then the said salary or similar remuneration will be taxable in the contracting state of which the resident/assessee is a resident of. Whether the Clause (a), (b) (c) to Article 16(2) of the Indo-US DTAA are to be read together and that of the three clauses have to be simultaneously applied to see as to whether the salary income of a resident is liable to be taxed in the state of which the assessee is the ordinary resident or in the other contracting state where he has exercised his employment and received the remuneration? - A perusal of the provisions of Article 16(2) reveals that Clause (a), (b) (c) have been written together in conjunction of each other. These clauses are not separated with the word or , hence there is no impression given that they can be applied independent of each other or to say either of these clauses can be applied. Even, Clause (b) (c) have been conjuncted with the word and . Though, the word and has not been mentioned between Clause (a) and (b), however, that does not make a difference as until and unless Clause (a) is not separated from Clause (b) with the word or . Therefore, these clauses same have to be read together. Therefore, the reasonable interpretation would be that all of the conditions mentioned in Clause (a), (b) (c) are to be satisfied simultaneously to attract the provisions of Article 16(2) of the Indo-US DTAA. In the case in hand, though provisions of Clause (a) are attracted, however, the provisions of Clause (b) (c) are not applicable to the case of the assessee. When we read Article 16 of the DTAA as a whole, the reasonable interpretation which would come that the salary and other similar remuneration drived by resident of a contracting state in respect of an employment exercised in the other contracting state is liable to be taxed in that other state. However, if such resident has not stayed more than 183 days in that other state and the remuneration has not been paid by resident of that other state and even the remuneration is not borne by a permanent establishment or fixed base or a trade or business which the employer has in that other state, then the remuneration of the resident is liable for taxation in the state of which he is a resident. As observed in this case, the assessee is a resident of India, however, he has exercised employment and received remuneration in United States, therefore, at the first instance, as per the provisions of Article 16(1) of the Indo-US DTAA, such salary/remuneration of the assessee is liable to tax in the United States only. The exception clause as mentioned in Article 16(2) of the DTAA is not applicable in toto to the case of the assessee as the condition of Clause (b) and (c) to Article 16(2) of the DTAA have not been satisfied in this case. Since, we have held that the conditions mentioned in Clause (a), (b) (c) to Article 16(2) of the Indo-US DTAA have to be applicable together or to say simultaneously and since all the conditions mentioned in Article 16(2) of the DTAA are not attracted in the case of the assessee, therefore, it is held that the income of the assessee is taxable in USA and not in India. In the case in hand, 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 CIT(A) on this issue is not sustainable and the same is accordingly set aside. The additions made by the AO on this issue are accordingly ordered to be deleted.
Issues Involved:
1. Applicability of DTAA with the United States of America in respect of global income. 2. Taxability of salary earned in the USA. 3. Taxability of dividend income earned in the USA. Summary: Issue 1: Applicability of DTAA with the United States of America in respect of global income The assessee contended that the Double Taxation Avoidance Agreement (DTAA) between India and the USA should apply to his global income. The CIT(A) upheld the Assessing Officer's (AO) decision that the assessee qualified as a resident and ordinarily resident in India, hence, the DTAA was not applicable to the assessee's global income. The Tribunal, however, noted that under Section 90 of the Income Tax Act, the assessee has the option to choose the provisions of the DTAA or the Income Tax Act, whichever is more beneficial. The Tribunal held that the salary income earned in the USA was chargeable to tax in the USA as per Article 16 of the DTAA, and the conditions of Article 16(2) were not fully satisfied to tax the income in India. Issue 2: Taxability of salary earned in the USA The AO included the salary income of Rs. 42,58,111/- earned by the assessee in the USA in his taxable income in India, relying on Section 5(1)(c) of the Income Tax Act. The CIT(A) confirmed this addition. The Tribunal, however, found that as per Article 16(1) of the DTAA, the salary earned in the USA was taxable in the USA. The Tribunal emphasized that the conditions in Article 16(2) (a), (b), and (c) must be satisfied simultaneously to tax the salary in India, which was not the case here. Thus, the salary income was held to be taxable in the USA, and the addition made by the AO was deleted. Issue 3: Taxability of dividend income earned in the USA The AO added Rs. 4,10,558/- being dividend income earned in the USA to the assessee's income. The CIT(A) confirmed this addition. However, during the appeal, the assessee did not press this ground. Consequently, the Tribunal dismissed this ground as not pressed. Conclusion: The Tribunal held that the salary income earned by the assessee in the USA was taxable in the USA under the DTAA, and the addition made by the AO was deleted. The ground regarding dividend income was dismissed as not pressed. The appeal was partly allowed.
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