2012 (7) TMI 657 - AT - Income Tax

Denial of Exemption claim on Salary - DTTA between India and Japan - the assessee had aggregate stay in India for 83 days - appellant was working as Managing Director of Motorola, Japan - Held that - Assessee being a full time employee of Motorola Japan was wholly and exclusively working for Motorola Japan and his entire salary was earned in Japan. Even under the Indian Income Tax Act, 1961, the assessee being governed by the provisions of section 9(1)(ii), was not taxable in India as, having exercised his employment in Motorola Japan - As per Article 15(1) of the DTAA between India and Japan, the tax resident of Japan can be taxed in India only if the assessee is present in India for more than 183 days whereas from the assessment order it is clear that the assessee was present in India only for 83 days and hence, the assessee cannot be taxed in India for any part of salary for services rendered to Motorola Japan. As for the assessee, the normal place where the employment services rendered is in Japan and not in India. His visits to India are in connection with business and not for rendering employment services for any Indian entity. There is no employment agreement for having rendered any services for Indian entity. In the instant case, the salary accrues to the assessee in Japan and the accrued salary is partly delivered by Motorola India in India. Hence, there is no accrual of salary in India - as the salary is not earned for rendering services in India. Therefore, salary for the entire year is not taxable - in favour of assessee. As no argument was raised by the assessee with reference to levy of interest under section 234D hence no ground in appeal is dismissed.

Summary

Issues Involved:
1. Denial of exemption claimed by the assessee for salary income.
2. Eligibility for exemption under the Income Tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and Japan.
3. Levy of interest under section 234D of the Income Tax Act.

Detailed Analysis:

1. Denial of Exemption Claimed by the Assessee for Salary Income:
The primary issue revolves around the denial of tax exemption on salary income claimed by the assessee. The assessee, a former employee of Motorola India, was transferred to Motorola Japan and worked there from May 2000 to April 2006. Despite working exclusively for Motorola Japan, his salary was paid in India for administrative convenience. The Assessing Officer (AO) disallowed the exemption and taxed the salary for the days the assessee was in India (45 days from April 1, 2005, to December 31, 2005, and 90 days from January 1, 2006, to March 31, 2006). The CIT(A) partially allowed the appeal, taxing 15 days' salary (Rs. 1,72,013) for the first period and the entire salary (Rs. 17,70,151) for the second period.

2. Eligibility for Exemption under the Income Tax Act, 1961 and the DTAA between India and Japan:
The assessee argued that he was a non-resident in India and a resident in Japan during the relevant period, thus eligible for tax exemption under both the Indian Income Tax Act and the India-Japan DTAA. Article 15(1) of the DTAA stipulates that salaries derived by a resident of a contracting state are taxable only in that state unless the employment is exercised in the other contracting state. Since the assessee was present in India for only 83 days, he did not meet the 183-day threshold for taxation in India. Furthermore, the salary was accrued in Japan, where the employment services were rendered, and thus should not be taxed in India.

3. Levy of Interest under Section 234D of the Income Tax Act:
This issue was not argued during the hearing, and hence, the ground regarding the levy of interest under section 234D was dismissed.

Conclusion:
The Tribunal concluded that the assessee was a non-resident of India and a tax resident of Japan for the relevant period. Under Article 15(1) of the India-Japan DTAA, the salary income was not taxable in India as the assessee did not meet the 183-day presence requirement. The salary was earned for services rendered in Japan and was not taxable in India under sections 5(2) and 9(1)(ii) of the Income Tax Act. Consequently, the appeal was partly allowed, granting the exemption for the entire salary income, while the ground related to interest under section 234D was dismissed.