2024 (3) TMI 543 - AT - Income Tax

Income deemed to accrue or arise in India - income earned under head Salaries - computation of total income under the head salary and chargeability - assessee is a NRI and received salary for services rendered outside India - HELD THAT - As per the provision of Section 9 (1)(ii), the income earned under head Salaries is taxable in India if it is earned in India. The explanation issued for removal of doubts declares that salaries if it is earned meets services rendered in India. In the instant case the assessee neither had any rest period nor leave period which is preceded and succeeded by the services rendered outside India. Since, the assessee has rendered services outside India, the salary cannot be taxable in India. As per the definition the salary paid or the advances received are to be included in the total income of the person when the salary becomes due. From the concurrent reading of Section 5 dealing with scope of total income, Section 15 dealing with computation of total income under the head salary and chargeability thereof and Section 9 dealing with income arising or accruing in India with reference to the salaries and the services rendered in India, we hold that no taxability arises on the salary/allowances received by the assessee since the assessee is a non-resident and has rendered services outside India. Appeals of the assessee are allowed.

Summary

Issues involved:
The issues involved in the judgment are the taxability of salary income earned by a non-resident individual for services rendered outside India, applicability of Double Taxation Avoidance Agreement (DTAA), addition of certain amounts to the income, and violation of principles of natural justice in the assessment proceedings.

Taxability of Salary Income:
The Assessing Officer determined the income from salary of the assessee, a non-resident individual, after examining the provisions of Section 5, Section 9, and Section 15 of the Income Tax Act, 1961. Section 5 defines the scope of total income for residents and non-residents, specifying that income received or accrued in India is taxable for non-residents. Section 9 states that income deemed to accrue or arise in India includes income earned in India under the head "Salaries." The explanation clarifies that salaries earned in India include services rendered in India.

DTAA Applicability:
The assessee contended that the income earned in UAE and Ireland should not be taxable in India based on the India-UAE and India-Ireland Double Taxation Avoidance Agreement (DTAA). However, the Assessing Officer disregarded the documentary evidence submitted. The judgment emphasized the importance of considering DTAA provisions in determining tax liability on income earned in foreign countries.

Additions to Income:
The Assessing Officer made additions to the assessee's income, including an amount for contribution to provident fund, donation, and deduction of saving bank interest. The judgment highlighted the errors made by the Assessing Officer in adding these amounts to the income without proper justification or legal basis.

Violation of Natural Justice:
The assessee raised a ground of appeal regarding the violation of principles of natural justice, stating that they were not granted a reasonable opportunity to be heard before additions were made to the returned income. The judgment noted that denying a fair hearing to the appellant goes against the principles of natural justice in tax assessment proceedings.

Conclusion:
After analyzing the provisions of the Income Tax Act related to the taxability of salary income for non-residents and considering the specific circumstances of the case, the tribunal held that no tax liability arose on the salary/allowances received by the non-resident assessee for services rendered outside India. Therefore, the appeals of the assessee were allowed, and the additions to the income were deemed unjustified.