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2015 (4) TMI 133 - AT - Income TaxTaxation rights for the salary earned for work done in the USA - India USA DTAA - Held that - Following the decision of the Apex Court in the case of P.V.A.L. Kulandagan Chettiar (2004 (5) TMI 8 - SUPREME Court), the interpretation of the phrase 'may be' in Article 16(1) is applied in the impugned assessment year so as to exempt from the Indian taxable income of the assessee, his salary income which has been offered to tax in USA. We therefore allow this ground of the assessee on this aspect. - Decided in favour of assessee. Levying to tax in India the salary income which accrued and arose outside India and was also received by the Appellant outside India - Held that - From a plain reading of Section 5(2), it is clear that the per diem paid in the USA is not income received or deemed to be received in India; neither does it accrues or arises in India as it is towards working in the USA. As held by in the case of Avtar Singh Wadhwan 2000 (11) TMI 116 - BOMBAY High Court the situs of accrual is the situs of services rendered which in the instant case is clearly in the USA and the amounts are also received in the USA. Hence, it cannot form part of income taxable in India as per Section 5. Mutually exclusive to this argument, we can apply the same rationale of the earlier ground (i.e, interpretation of Article 16(1)) can be applied too applying the 'exemption regime' for the impugned year and hence even under this view the per diem cannot be brought to tax in India. - Decided in favour of assessee.
Issues:
1. Interpretation of Article 16(1) of the Double Taxation Avoidance Agreement (DTAA) between India and the USA regarding the taxability of salary income. 2. Tax treatment of per diem income received outside India. 3. Residential status determination. 4. Relief under Article 25 of the DTAA for double taxation. 5. Charging of interest under sections 234B and 234C of the Income Tax Act. Analysis: 1. Interpretation of Article 16(1) of DTAA: The appellant, an individual working in the USA for 306 days, claimed exemption for salary income earned in the USA under Article 16(1) of the DTAA. The tribunal analyzed the provisions of Article 16(1) which state that income from employment shall be taxable in the contracting state where the employment is exercised. Citing the Supreme Court decision in CIT v. P.V.A.L. Kulandagan Chettiar, the tribunal concluded that once tax is paid in the foreign country, India loses its right to tax, following the exemption regime. However, the tribunal noted that a notification clarified that income taxed in another country shall be included in the total income chargeable to tax in India, but this clarification was not applicable for the assessment year 2002-03. Ultimately, the tribunal allowed the appellant's claim for exemption based on the interpretation of Article 16(1). 2. Tax Treatment of Per Diem Income: The appellant also received per diem outside India and argued that this income should not be taxable in India as per Section 5(2) of the Income Tax Act. The tribunal agreed that per diem received outside India, for services rendered outside India, should not be taxed in India. Applying the exemption regime similar to the interpretation of Article 16(1), the tribunal allowed the appellant's claim regarding the tax treatment of per diem income. 3. Residential Status Determination: The appellant contended that he was a non-resident for the assessment year 2002-03 due to limited stay in India. The tribunal considered the appellant's stay in the USA and upheld the non-resident status based on the facts presented. 4. Relief under Article 25 of DTAA: The tribunal discussed the relief for double taxation under Article 25 of the DTAA and directed the Assessing Officer to recompute the relief while giving effect to the order. 5. Charging of Interest under Sections 234B and 234C: The tribunal found the charging of interest under sections 234B and 234C to be consequential and directed the Assessing Officer to recompute any interest chargeable accordingly. In conclusion, the tribunal allowed the appellant's appeal, granting relief on the taxability of salary income under Article 16(1) of the DTAA and the treatment of per diem income received outside India. The tribunal also addressed the residential status, relief for double taxation, and the computation of interest, providing detailed reasoning for each issue.
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