2024 (7) TMI 873 - AT - Income Tax

Taxability of salary income in India from employment in Korea - eligibility for exemption in terms of Article 15(1) of India-Korea DTAA - HELD THAT - Salary payment could be stated to be earned in India only if the corresponding services are rendered in India. Since in the instant case, the services are rendered outside India which fact is not in dispute before us and hence income cannot be said to be deemed to accrue or arise in India. We find that Article 15 (1) of India Korea treaty states that employment income earned by individual is exempt from tax in India if the following conditions are satisfied - (a) If the individual is resident of Korea; and (b) if the employment is outside India. In the instant case, both the conditions had been satisfied and hence in any event, the salary would not be taxable in India in terms of Article 15 (1) of India Korea treaty. Salary offered suo moto by the assessee in the return of income filed in India - Merely because a particular receipt has been erroneously offered to tax by the assessee in the return, it does not mean that the revenue acquires the right to tax the same in the hands of the assessee. The revenue could tax particular receipt only if the provisions of the Act enables it to do so. There is no estoppel against the statute. Thus, we hold that the salary income earned in India is not taxable under the Act as well as under the India Korea treaty. Accordingly the grounds raised by the assessee are allowed. Concessional rate of tax @ 15% on short term capital gains declared by the assessee - It is not in dispute that short term capital gain declared by the assessee had duly suffered Securities Transaction Tax ( STT) and thereby the assessee would be liable to tax in terms of section 111 A. From the perusal of the orders of the lower authorities, we find that there is no finding given with regard to this issue. Hence, we deem it fit to restore this issue to the file of AO for denovo adjudication in accordance with law. Accordingly, ground raised by the assessee is allowed for statistical purposes. Credit for tax deducted at source - This matter requires factual verification. Hence we direct the Ld. AO to grant the credit of TDS in accordance with law. Accordingly ground No.7 raised by the assessee is allowed for statistical purposes. Chargeability of interest u/s. 234B which is consequential in nature and hence does not require any specific adjudication.

Summary

Issues:
1. Eligibility of salary income for exemption under India-Korea DTAA.

Analysis:
The appeal concerns the eligibility of the Assessee's salary income of Rs. 5,11,71,307 for exemption under Article 15(1) of the India-Korea Double Taxation Avoidance Agreement (DTAA). The Assessee, a non-resident, worked in Korea under an international assignment from an Indian company. The Indian company paid the salary, which was cross-charged to the Korean company. The Assessee claimed exemption for the salary earned outside India. The Revenue contended that all incomes indirectly sourced in India are taxable in India. The Assessee provided various documents to establish non-residency and the nature of services rendered outside India.

The Assessing Officer (AO) relied on Section 9 of the Income Tax Act, stating that income is taxable in India if it arises directly or indirectly through any source in India. However, the Tribunal held that income can be deemed to accrue or arise in India only if services are rendered in India. As the Assessee's services were outside India, the income was not taxable in India. Article 15(1) of the India-Korea treaty exempts employment income if the individual is a resident of Korea and the employment is outside India, both of which were satisfied in this case. Therefore, the salary income was not taxable in India under the Act or the treaty.

Additionally, the Tribunal addressed other grounds raised by the Assessee, such as seeking a concessional rate of tax on short-term capital gains and credit for tax deducted at source. The Tribunal remanded the issue of short-term capital gains for fresh adjudication by the AO and directed the AO to grant TDS credit in accordance with the law. The Tribunal also dismissed the challenge against the initiation of penalty proceedings under section 270A of the Act as premature.

In conclusion, the Tribunal allowed the appeal partly for statistical purposes, holding that the salary income earned outside India was not taxable under the Act or the India-Korea treaty. The detailed analysis and interpretation of relevant provisions led to a favorable decision for the Assessee.

The judgment provided a comprehensive examination of the legal and factual aspects, emphasizing the importance of the specific provisions of the India-Korea DTAA and the Income Tax Act in determining the taxability of the Assessee's salary income. The Tribunal's detailed reasoning and consideration of documentary evidence ensured a thorough analysis of the issues raised in the appeal, resulting in a well-founded decision in favor of the Assessee.