2013 (11) TMI 222 - AT - Income Tax

Tax on salary - Salary received and taxed in U.K. - Whether salary received by assessee shall be taxable in India - Held that - there is no dispute about the fact that assessee is a NRI and the salary income received by him in India for employment exercised in U.K. has been offered by him for taxation in U.K in pursuance of Article 16 of DTAA with U.K. - The assessee is a resident of UK and UK is the contracting state for tax purpose. Only if the appellant had exercised his employment in India, this may have been taxed in India as per the DTA agreement. Clearly this is not the case. The income from salary received in India for employment exercised in UK is to be clubbed there and has been done by the assessee - Following decision of British Gas India Private Limited, In re 2006 (11) TMI 139 - AUTHORITY FOR ADVANCE RULINGS - Decided against Revenue.

Summary

Issues Involved:
1. Taxability of salary received by an NRI in India for employment exercised in the UK.
2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and the UK.
3. Compliance with Section 5(2) of the Income Tax Act, 1961.
4. Proof and documentation required to claim tax relief under DTAA.
5. Procedural fairness in the assessment and appellate proceedings.

Detailed Analysis:

1. Taxability of Salary Received by an NRI in India for Employment Exercised in the UK:
The primary issue was whether the salary received by the assessee, an NRI, in India for employment exercised in the UK should be taxable in India. The assessing officer initially taxed the salary under Section 5(2) of the Income Tax Act, 1961, which includes all income received or deemed to be received in India. The assessee claimed that the salary was taxed in the UK and sought a refund of taxes paid in India.

2. Applicability of Double Taxation Avoidance Agreement (DTAA) Between India and the UK:
The assessee argued that under Article 16 of the DTAA between India and the UK, the salary for employment exercised in the UK should only be taxable in the UK. The relevant provision states, "salaries, wages, and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State." The CIT(A) and ITAT upheld this view, concluding that the salary received for employment exercised in the UK should not be taxed in India.

3. Compliance with Section 5(2) of the Income Tax Act, 1961:
The assessing officer initially taxed the salary under Section 5(2) of the Income Tax Act, 1961, which includes all income received or deemed to be received in India. However, the CIT(A) and ITAT found that the income was already taxed in the UK under the DTAA provisions, and therefore, it should not be taxed again in India.

4. Proof and Documentation Required to Claim Tax Relief Under DTAA:
The assessee was required to provide proof of tax payment in the UK, proof of TDS in India, and documents showing that the same income was taxed in both countries, leading to double taxation. Initially, the assessee failed to provide these documents, leading to the rejection of the claim by the assessing officer and CIT(A). However, upon remand by the ITAT, the assessee provided the necessary documents, including the UK tax return, P60 form, and employment contract, which showed that the salary was taxed in the UK and claimed under the DTAA provisions.

5. Procedural Fairness in the Assessment and Appellate Proceedings:
The ITAT noted that the CIT(A) had not decided the issue on merit initially and had dismissed the appeal based on non-appearance and lack of document submission by the assessee. The ITAT remanded the case back to the CIT(A) for a decision on merits, allowing the assessee to present the necessary documents. The CIT(A) then reviewed the documents and found that the salary was indeed taxed in the UK, and the assessee was entitled to relief under the DTAA.

Conclusion:
The ITAT upheld the CIT(A)'s decision that the salary received by the assessee for employment exercised in the UK should not be taxable in India under the DTAA provisions. The appeal by the revenue was dismissed, confirming that the assessee was entitled to a refund of the taxes paid in India on the salary income. The decision emphasized the importance of procedural fairness and the need for adequate documentation to claim tax relief under international agreements.