2023 (8) TMI 1493 - AT - Income Tax

Taxability of income in India - foreign assignment allowance received by the assessee for the services rendered outside India - HELD THAT - While reaching the conclusion that such an amount of foreign assignment allowance received for the services rendered outside India by way of TCC abroad is not taxable in India, reliance was placed on the decisions of Avtar Singh Wadhwan 2000 (11) TMI 116 - BOMBAY HIGH COURT , Prahlad Vijendra Rao 2010 (11) TMI 803 - KARNATAKA HIGH COURT and Utanka Roy 2016 (12) TMI 876 - CALCUTTA HIGH COURT In the case of Bodhisattva Chattopadhyay 2019 (11) TMI 1031 - ITAT KOLKATA the facts are identical. In that case also the assessee was found to be a nonresident and the assessee received the foreign assignment allowance which the employer transferred from the employer s bank account held in Bangalore to Axis Bank nostro account for top up to the TCC and also that the employer affected TDS on the entire remuneration that was paid to the assessee both in India and abroad. The contention of the Revenue was that the impugned foreign assignment allowance did not suffer any tax in the host country and, therefore, it was a case of double non-taxation which is impermissible under law. Tribunal reached a conclusion that the foreign assignment allowance that was topped up to the TCC of the assessee, though it was transferred by the employer from their bank account in India to the Axis bank s nostro accounts, is not taxable in India. Tribunal repelled contentions of the Revenue as to the double non-taxation of this amount, because it was not subjected to any tax in the host country, stating that such a fact is immaterial to decide the issue, because the question effectively is whether such foreign assignment allowance is taxable in India or not? For such question, the subjection of the said amount to tax in the host country is totally irrelevant. Assessee appeal allowed.

Summary

Issues:
1. Taxability of foreign assignment allowance received by the assessee for services rendered outside India.

Analysis:
The appeal centered around whether the foreign assignment allowance received by the assessee for services outside India should be taxed in India. The assessee, an employee of an Indian company, was sent on a long-term assignment to Abu Dhabi, UAE, where he received a salary including a foreign allowance component. The dispute arose as the assessee claimed the foreign allowance received outside India to be exempt income. The Assessing Officer contended that since the employer deducted TDS in India, the situs of employment was in India, making the salary income taxable in India.

The CIT(A) upheld the Assessing Officer's view, stating that the salary income accrued in India, as evidenced by TDS deduction in India. The assessee, disagreeing with this decision, argued that as a non-resident, the foreign assignment allowance should not be taxed in India. The AR cited various cases where similar issues were decided in favor of the assessee, emphasizing that income derived by a non-resident for services outside India cannot be taxed in India.

The Revenue argued that the control and governance of the assessee's service conditions by the Indian company, along with the TDS deduction in India, indicated that the situs of employment was in India. They contended that the income was received in India when the foreign assignment allowance was transferred to the Travel Currency Card. However, the Tribunal, after examining the facts and legal precedents, concluded that the foreign assignment allowance received for services outside India was not taxable in India. They emphasized that the taxability in the host country was irrelevant to the Indian tax treatment of such income.

Given the consistent decisions of the Tribunal and higher authorities on similar issues, the Tribunal accepted the assessee's contentions and allowed the appeal, rejecting the Revenue's arguments. The judgment highlighted that the foreign assignment allowance, even if transferred through Indian accounts, was not taxable in India, as established by previous rulings.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the foreign assignment allowance received for services outside India was not subject to taxation in India, following established legal precedents and rejecting the Revenue's arguments regarding the situs of employment and income receipt location.