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2024 (6) TMI 815 - AT - Income TaxIncome deemed to accrue or arise in India - Taxability of salary received in India for services rendered in China - whether salary earned by an individual for services rendered in China could be subject to exemption under Article 15(1) of Double Taxation Avoidance Agreement (DTAA) between India and China? - AO held that the assessee did not shift his employer and the assessee continued to be on the payroll of its employer. There existed employer-employee relationship. Therefore the income so received would be chargeable to tax in India under section 15 of the Act which provides that any salary due from an employer would be chargeable to tax under the head salaries. HELD THAT - We find substance in the arguments of the Ld.AR that assessee being tax resident of China the salary income was taxable in China only. In fact salary to the tune of Rs. 1, 22, 09, 830/- received for the employment exercised in China is taxable in China and in the light of Article 15(1) of the India-China DTAA it is exempt income. The proportionate salary for services rendered in India has already been offered to tax in India whereas the balance salary has already been offered to tax in China. The assessee has not claimed any foreign tax credit in any of the jurisdiction. The China tax has been paid. Therefore we direct the AO to allow benefit of exemption under Article 15(1) of Double Taxation Avoidance Agreement (DTAA) between India and China. Decided in favour of assessee.
Issues Involved:
1. Exemption of salary income under Article 15(1) of India-China DTAA. 2. Employer-employee relationship and taxability of salary. 3. Tax residency certificate and evidence of residency. 4. Additional evidence and charge back of salary. 5. Taxability of salary received in India for services rendered in China. 6. Application of judicial precedents. 7. Penalty proceedings u/s 270A. Summary: Issue 1: Exemption of Salary Income under Article 15(1) of India-China DTAA The primary issue was whether the salary earned by the assessee for services rendered in China could be exempted under Article 15(1) of the India-China DTAA. The Tribunal held that the salary income was taxable in China and exempt in India under Article 15(1) of the DTAA, as the assessee was a tax resident of China and the salary was for employment exercised in China. Issue 2: Employer-Employee Relationship and Taxability of Salary The AO contended that there was an employer-employee relationship between the assessee and BMW India even during the period of work in China, making the salary taxable in India u/s 15 and 5(2) of the Act. The Tribunal, however, found that the salary was for services rendered in China and thus, taxable only in China under Article 15(1) of the DTAA. Issue 3: Tax Residency Certificate and Evidence of Residency The AO argued that the tax residency certificate was not filed by the assessee. The Tribunal accepted the China tax return as sufficient evidence of residency in China, supporting the assessee's claim of being a tax resident of China. Issue 4: Additional Evidence and Charge Back of Salary The AO did not consider the additional evidence filed before the DRP, which included documents evidencing the charge back of salary paid by BMW India to BMW China. The Tribunal found that the salary was indeed taxable in China and exempt in India under the DTAA. Issue 5: Taxability of Salary Received in India for Services Rendered in China The Tribunal held that the salary received in India for services rendered in China was not taxable in India under Section 5(2) read with Section 9(1)(ii) and Section 15(1)(a) of the Act, as the employment was exercised in China. Issue 6: Application of Judicial Precedents The AO relied on certain judgments, but the Tribunal found the issue covered in favor of the assessee by the Coordinate Bench decision in the case of Shri Ramesh Kumar AE Vs ITO and other relevant precedents, supporting the exemption claim under the DTAA. Issue 7: Penalty Proceedings u/s 270A The AO sought to initiate penalty proceedings u/s 270A for under-reporting of income. The Tribunal's decision to allow the exemption under the DTAA rendered the penalty proceedings issue as infructuous. Conclusion: The Tribunal directed the AO to allow the benefit of exemption under Article 15(1) of the India-China DTAA for the salary earned by the assessee for services rendered in China. Both appeals were allowed, and the income was to be re-computed accordingly.
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