2024 (12) TMI 807 - AT - Income Tax

Taxability of salary received by the assessee for international assignment to UK - assessee has not paid any tax in UK - whether salary was accrued/ earned in India? - applicability of Article 16(1) of the India-UK Treaty by taxing the salary income earned in UK by a Resident of UK and a NR of India HELD THAT - As the assessee is non-resident during impugned assessment year. The substantial salary has been received by the assessee for international assignment to UK. The prime observation of lower authorities is that the assessee has not paid any tax in UK. The UK Tax Return as filed by the assessee has been placed. Upon perusal it could be seen that the assessee s net earnings are 27042. After grossing-up for tax, the same aggregates to 30677. The assessee has paid tax of 3635. The certificate of residence has been placed. Upon perusal of the same, it is quite clear that the assessee is resident of UK during the period 06-04-2019 to 05-04-2020. Therefore, lower authorities have erred in noting that the assessee has not paid any taxes in UK. Though the tax may have been paid / reimbursed by the employer, nevertheless, the assessee has offered income on gross basis and subjected to tax in UK. Therefore, the claim of the assessee is to be allowed. Thus, we direct Ld. AO to exclude the foreign assignment salary earned by the assessee while re-computing the income of the assessee.

Issues:
1. Taxability of salary income earned in the UK by a non-resident individual in India.
2. Applicability of Article 16(1) of India-UK Treaty.
3. Treatment of salary income based on accrual vs. receipt.
4. Consideration of taxability under sections 5(2), 9(1)(ii), and 15 of the Income-tax Act, 1961.
5. Judicial precedents and their relevance in determining tax liability.
6. Levying of interest under section 234D and initiation of penalty proceedings under section 270A.

Analysis:

Issue 1: Taxability of salary income earned in the UK by a non-resident individual in India
The appeal pertained to the taxability of salary income earned by a non-resident individual during an international assignment to the UK. The lower authorities held the income to be taxable in India due to the absence of tax payment in the UK by the assessee. However, the Tribunal noted that the assessee had paid taxes in the UK as evidenced by the UK Tax Return filed, and therefore, the salary income should not be taxed in India.

Issue 2: Applicability of Article 16(1) of India-UK Treaty
The assessee claimed exemption under Article 16(1) of the India-UK Treaty for the salary earned during the international assignment. The Tribunal found that the assessee had indeed paid taxes in the UK and was a resident of the UK during the relevant period, making him eligible for the treaty benefit. Therefore, the claim for exemption under the treaty was upheld.

Issue 3: Treatment of salary income based on accrual vs. receipt
The Tribunal emphasized that salary income should be taxed based on accrual rather than receipt. It was noted that the salary earned for work performed in the UK was offered to tax in the UK, and hence, should not be taxable in India.

Issue 4: Consideration of taxability under sections 5(2), 9(1)(ii), and 15 of the Income-tax Act, 1961
The Tribunal analyzed the provisions of sections 5(2), 9(1)(ii), and 15 of the Income-tax Act, 1961, in conjunction with the India-UK Treaty to determine the taxability of the salary income. It was concluded that the income earned for work performed in the UK should not be taxed in India.

Issue 5: Judicial precedents and their relevance in determining tax liability
The Tribunal cited various judicial precedents, including decisions of different High Courts and Tribunals, to support its findings regarding the taxability of the salary income earned during the international assignment. These precedents highlighted the importance of residency status and tax payment in the source country.

Issue 6: Levying of interest under section 234D and initiation of penalty proceedings under section 270A
The Tribunal addressed the levy of interest under section 234D and the initiation of penalty proceedings under section 270A. It found the levy of interest to be erroneous and directed the AO to re-compute the income accordingly. The penalty proceedings were also discussed, emphasizing the need for natural justice in such matters.

Overall, the Tribunal allowed the appeal partly, directing the AO to exclude the foreign assignment salary earned by the assessee while re-computing the income, based on the findings related to taxability and treaty benefits.

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