2024 (7) TMI 944 - AT - Income Tax

Taxability of salary income earned from long-term international assignment to Singapore - residential status of assessee - entitlement to treaty benefits - HELD THAT - As the assessee was employed with Indian entity but sent on a foreign assignment. Thought the salary has been received in India for administrative reasons, the employment has been exercised in Singapore only. The assessee is non-resident in India and resident of Singapore which is evidenced by Tax Residency certificates as furnished by the assessee. It is also the submission that this income has already been offered to tax in Singapore and the assessee has paid taxes thereon. It has further been stated that no credit of Tax paid in India has been taken in Singapore. On these facts, the assessee, in our considered opinion, would be entitled for the benefit of Article 15 of relevant DTAA which provides that the salary would be taxable in the country wherein the employment is exercised. The same would be subject to verification by Ld. AO that this income has already been offered to tax in Singapore and the assessee has paid due taxes thereon. AO would also verify that no credit of Taxes paid in India has been taken by assessee in Singapore. As decided in Shri Kanagaraj Shanmugam 2022 (10) TMI 711 - ITAT CHENNAI regular salary accrued to any assessee is chargeable to tax in terms of Sec. 15(a). Even as per the provisions of Sec. 9(1)(ii), salary income could be deemed to accrue or arise in India only if it is earned in India in respect of services rendered in India. The bench, reading down Article-1 and Article-15 of India-Australia DTAA, held that Treaty benefit shall be applicable to persons who are residents of both India as well as Australia - contention of the revenue that the assessee being a non-resident and hence, treaty benefit cannot be extended to assessee, is incorrect. Accordingly, it was held by the bench that the salary so earned for work performed in Australia would be taxable in Australia.

Issues Involved:
1. Taxability of foreign salary earned by the assessee during the year.
2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
3. Eligibility for DTAA relief under Article 15 of the India-Singapore DTAA.
4. Verification of tax residency and tax payments in Singapore.

Detailed Analysis:

1. Taxability of Foreign Salary Earned by the Assessee During the Year:
The primary issue revolves around whether the salary earned by the assessee, who was on an international assignment in Singapore, should be taxed in India. The Assessing Officer (AO) maintained that since the salary was paid by the Indian employer and the employee-employer relationship continued, the salary should be taxable in India under Section 15 read with Section 5(2) of the Income Tax Act. The AO argued that the salary received in India is covered by Section 5(2) and hence taxable in India.

2. Applicability of Double Taxation Avoidance Agreement (DTAA) Between India and Singapore:
The assessee contended that as a resident of Singapore, the provisions of Article 15(1) of the India-Singapore DTAA should apply, which states that salaries and other similar remuneration derived by a resident of a contracting state in respect of employment shall be taxable only in that state unless the employment is exercised in the other contracting state. The assessee argued that since the employment was exercised in Singapore, the salary should be taxable only in Singapore.

3. Eligibility for DTAA Relief Under Article 15 of the India-Singapore DTAA:
The CIT(A) observed that the assessee is a tax resident of Singapore as evidenced by the Tax Residency Certificate (TRC) issued by the Singapore Tax Authorities. The assessee's stay in India during the year was less than 60 days, qualifying them as a non-resident in India. The CIT(A) concurred with the assessee's submission that under Article 15(1) of the DTAA, the salary received in India for employment exercised in Singapore should be taxable in Singapore. The CIT(A) also noted that the salary was received in India for administrative convenience and was cross-charged by the Indian entity to the Singapore entity.

4. Verification of Tax Residency and Tax Payments in Singapore:
The Tribunal noted that the assessee had furnished a Tax Residency Certificate (TRC) from Singapore and had paid taxes on the salary income in Singapore. The Tribunal directed the AO to verify that the salary income had indeed been offered to tax in Singapore and that no credit for taxes paid in India had been claimed in Singapore. The Tribunal referenced similar cases, including the decision in Shri Kanagaraj Shanmugam vs. ITO, which supported the view that salary income for work performed outside India should not be taxable in India if it has already been taxed in the country of employment.

Conclusion:
The Tribunal concluded that the assessee's salary income for work performed in Singapore should not be taxable in India, provided the income has been taxed in Singapore and no credit for taxes paid in India has been claimed in Singapore. The Tribunal upheld the CIT(A)'s decision, subject to verification by the AO. The appeal was partly allowed for statistical purposes. The Tribunal's decision aligns with previous rulings that support the application of DTAA provisions to avoid double taxation and ensure that income is taxed in the country where the employment is exercised.

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