2012 (8) TMI 202 - HC - Income Tax

Rent free accommodation provided to the Assessee, an employee of Suzuki Motors Corporation (Japan)- collaboration agreement between M/s. Suzuki Motors, Japan and M/s. Maruti Udhyog Ltd., India - Held that - In terms of Section 5(1)(c) r.w.s. 6(6) the assessee was a person not ordinarily resident in India and that the salary earned in Japan for employment under Suzuki Motors Corporattion cannot be assessed in his hands in the assessment made in India - since the assessee did not fall within the purview of Income Tax Act, 1961 there was therefore no question of bringing any amount paid to him by his foreign employer to taxation. Tax the salary of the assessee earned outside India - Reliance on the provisions of Article 15 of India Japan DTAA holding that the provisions of DTAA override the provisions of taxing statute - Held that - The provisions of Section 90(2) of the Income Tax Act, 1961 are clear that the provisions of the said Act shall be applicable to the extent they are more beneficial to the assessee to whom the relevant DTAA applies - Since in the present case, the provisions of Section 6(6) r.w.s.(5)(1)(c) and Section 9(1)(i) were beneficial to the assessee the same should have been preferred by the authorities over DTAA and the income earned by the assessee outside India during the year under consideration ought to have been held to be not taxable in India as per the said provisions. It was confirmed by Suzuki Motors Corporation (Japan) that the amount of daily allowance received by it from Maruti Udhyog Ltd., India in terms of license agreement was not paid by it to any individuals including the assessee. It is pertinent to note here that nothing has been brought on record either by the Assessing Officer or by the learned CIT (A) to dispute this position - therefore, the income of the assessee earned in India alone was taxable in his hands in India and the income earned by him outside India was not taxable in India as rightly claimed - in favour of assessee.

Summary

Issues:
1. Taxability of rent-free accommodation provided by Maruti Udyog Ltd. to the employee under Section 17(2) of the Income Tax Act, 1961.
2. Taxability of salary earned by the employee for the entire year under consideration.
3. Application of Double Taxation Avoidance Treaty between India and Japan.
4. Assessment of income earned outside India in India.

Analysis:

1. The case involved the taxability of the rent-free accommodation provided by Maruti Udyog Ltd. to an employee of Suzuki Motors Corporation (Japan) under Section 17(2) of the Income Tax Act, 1961. The Assessing Officer proposed to assess the rent paid as a perquisite. The assessee argued that there was no employer-employee relationship between him and Maruti Udyog Ltd. The Commissioner of Income Tax (Appeals) partly accepted the appeal, leading to appeals to the Income Tax Appellate Tribunal (ITAT). The ITAT rejected the Revenue's appeal and allowed the assessee's appeal, stating that the assessee, being a "not ordinarily resident" in India, should not be taxed for the salary earned in Japan. The ITAT's reasoning was based on the provisions of the Income Tax Act being more beneficial to the assessee than the Double Taxation Avoidance Treaty.

2. The issue of the taxability of the salary earned by the employee for the entire year under consideration was also addressed. The ITAT held that the income earned by the assessee outside India during the year should not be taxable in India, as per the provisions of the Income Tax Act. The Tribunal emphasized that the assessee's income earned in India alone was taxable in his hands in India, and income earned outside India was not taxable in India. The ITAT's decision was supported by the assessee's status as "not ordinarily resident" in India.

3. The application of the Double Taxation Avoidance Treaty between India and Japan was crucial in determining the taxability of the income earned outside India. The ITAT rejected the Revenue's argument that the treaty should override the provisions of the Income Tax Act. The Tribunal emphasized that the provisions of the Income Tax Act, which were more beneficial to the assessee, should be preferred over the treaty provisions. This approach led to the conclusion that the income earned outside India by the assessee should not be taxed in India.

4. The assessment of income earned outside India in India was a significant aspect of the case. The ITAT's decision, supported by the assessee's status as "not ordinarily resident" in India, highlighted that the income earned outside India during the year under consideration should not be taxable in India. The Tribunal's reasoning, in line with previous court decisions, emphasized the importance of the assessee's residential status and the provisions of the Income Tax Act in determining the taxability of income earned outside India.