2024 (3) TMI 249 - AT - Income Tax

Taxability of salary income in India for the services rendered in US - remuneration derived by resident of a contracting state in respect of an employment exercised in the other contracting state - period of stay in India - scope of Article 16(2) of the Indo-US DTAA - assessee had not shown salary income in his Income Tax Return filed in India - requisitioned tax resident certificate of USA from the assessee - 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? HELD THAT - Though, the word and has not been mentioned between Clause (a) and (b), however, that does not make a difference until and unless Clause (a) is not separated from Clause (b) with the word or . Therefore, these clauses 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 not attracted, however, the provisions of Clause (b) (c) are applicable to the case of the assessee for the purpose of deciding the State of taxation of assessee s income. When we read Article 16 of the DTAA as a whole, the reasonable interpretation which would come that the salary and other similar remuneration derived 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. The condition mentioned in clause (a) of Article 16(2) is satisfied but the conditions 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, the provisions of Article 16(1) of DTAA will be applicable and accordingly it is held that the income of the assessee is taxable in USA and not in India. Our above view is fortified by the decision of Rajat Dhara 2024 (3) TMI 197 - ITAT KOLKATA - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of salary income received in India for services rendered in the US.
2. Determination of residential status of the assessee.
3. Application of Article 16 of the Indo-US Double Taxation Avoidance Agreement (DTAA).

Summary:

Issue 1: Addition of Salary Income Received in India for Services Rendered in the US
The assessee, employed with PricewaterhouseCoopers Private Limited (PWC) India, was on an international assignment to the USA during the relevant assessment year. The salary was received in India but was for services rendered in the USA and was also taxed in the USA. The assessee did not declare this income in his Indian Income Tax Return to avoid double taxation. The Assessing Officer (AO) added this salary to the assessee's income in India due to the absence of a tax resident certificate from the USA.

Issue 2: Determination of Residential Status of the Assessee
The assessee claimed non-resident status in India, having stayed in India for only 16 days during the relevant year. The AO required proof of the assessee's stay in India over the past four years to determine his residential status under section 6(1)(c) of the Income Tax Act. The CIT(A) found that the assessee qualified as a non-resident due to his limited stay in India but held that the salary income was still taxable in India as it was paid by an Indian employer and controlled by Indian employment terms.

Issue 3: Application of Article 16 of the Indo-US DTAA
The CIT(A) observed that the conditions of Article 16 of the Indo-US DTAA were not satisfied for exemption from Indian taxation. The Tribunal, however, disagreed, stating that the employment was exercised in the USA, and thus, the salary should be taxed in the USA under Article 16(1) of the DTAA. The Tribunal clarified that all conditions under Article 16(2) must be satisfied simultaneously for the exception to apply, which was not the case here.

Conclusion:
The Tribunal concluded that the salary income was taxable in the USA and not in India, as per Article 16(1) of the Indo-US DTAA. The appeal of the assessee was allowed, and the additions made by the AO were ordered to be deleted.