2023 (9) TMI 1680 - AT - Income Tax

Taxability in India of an amount received as salary income -determination of assessee s residential status - assessee has claimed that the salary income was not received by her towards any service exercised in India but was received in USA - HELD THAT -We find that the assessee has not brought on record before the departmental authorities necessary and relevant material such as TRC evidences regarding earning of salary income outside India and evidence regarding stay outside India during the entire year etc. In our view aforesaid evidences are vital for deciding the claim of the assessee. Since assessee has submitted before us that as on date she is in possession of TRC issued by the competent authority we are inclined to restore the issue to the AO for de novo adjudication so as to enable the assessee to furnish TRC and any other credible evidence to establish her claim of treaty benefit and also that the salary income did not arise or deemed to have arisen in India in terms of section 5(2)(a) of the Act. AO is directed to consider the evidences in proper perspective and decide the issue accordingly after providing reasonable and due opportunity of being heard to the assessee. Grounds are allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The core legal issue in this appeal is the taxability in India of the salary income amounting to Rs. 55,60,693/- received by the assessee, a non-resident individual, under the provisions of the Income-tax Act, 1961, and the applicability of the India-USA Double Taxation Avoidance Agreement (DTAA). The specific questions considered include:

1. Whether the salary income received by the assessee is taxable in India under section 5(2)(a) of the Income-tax Act, 1961.

2. Whether the assessee is eligible for exemption under Article 16(1) of the India-USA DTAA based on her tax residency status in the USA.

3. The implications of the absence of a Tax Residency Certificate (TRC) on the assessee's claim for treaty benefits.

ISSUE-WISE DETAILED ANALYSIS

1. Taxability of Salary Income in India

Relevant Legal Framework and Precedents: Section 5(2)(a) of the Income-tax Act, 1961, provides that income received or deemed to be received in India by a non-resident is taxable in India. The India-USA DTAA, particularly Article 16(1), provides relief from double taxation by allowing income to be taxed in the country where the income earner is a resident.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer denied the treaty benefits due to the absence of a TRC, which is necessary to establish the assessee's tax residency in the USA. The Tribunal emphasized the need for the TRC and other relevant evidence to substantiate the claim that the salary income was not received or deemed to be received in India.

Key Evidence and Findings: The assessee did not initially furnish the TRC or any evidence to prove that the salary income was earned outside India. The Assessing Officer, therefore, applied section 5(2)(a) to tax the income in India.

Application of Law to Facts: The Tribunal acknowledged that the absence of the TRC was a significant factor in the Assessing Officer's decision. However, it recognized the assessee's current possession of the TRC and the opportunity to present additional evidence.

Treatment of Competing Arguments: The Tribunal considered the assessee's argument for treaty benefits and the Departmental Representative's agreement to remand the matter for further examination. The Tribunal balanced the need for compliance with procedural requirements against the opportunity to substantiate the claim for treaty benefits.

Conclusions: The Tribunal concluded that the matter should be remanded to the Assessing Officer for a fresh examination of the evidence, including the TRC, to determine the applicability of the treaty benefits and the taxability of the salary income in India.

2. Eligibility for Exemption under India-USA DTAA

Relevant Legal Framework and Precedents: Article 16(1) of the India-USA DTAA provides that salary income is taxable in the country where the individual is a resident, subject to certain conditions.

Court's Interpretation and Reasoning: The Tribunal highlighted the importance of the TRC in establishing the assessee's residency status in the USA, which is crucial for claiming exemption under the DTAA.

Key Evidence and Findings: The lack of a TRC initially led to the denial of treaty benefits. The assessee's subsequent possession of the TRC was considered a significant development.

Application of Law to Facts: The Tribunal recognized that the TRC and additional evidence regarding the nature and location of services rendered are essential to determine the applicability of Article 16(1).

Treatment of Competing Arguments: The Tribunal considered the Departmental Representative's agreement to remand the case, allowing the assessee the opportunity to present the TRC and other evidence.

Conclusions: The Tribunal decided to remand the issue to the Assessing Officer for a de novo adjudication, allowing the assessee to furnish the TRC and other evidence to support her claim for treaty benefits.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Assessing Officer is directed to consider the evidences in proper perspective and decide the issue accordingly after providing reasonable and due opportunity of being heard to the assessee."

Core Principles Established: The necessity of a TRC to establish tax residency for claiming treaty benefits under the India-USA DTAA. The importance of providing relevant evidence to substantiate claims of non-taxability under domestic law and international agreements.

Final Determinations on Each Issue: The Tribunal allowed the appeal for statistical purposes, remanding the matter to the Assessing Officer for a fresh examination of the evidence, including the TRC, to determine the applicability of the India-USA DTAA and the taxability of the salary income in India.

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