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2022 (12) TMI 1352 - AT - Income TaxIncome of salary earned by the assessee in USA to tax in India - resident alien in USA - Grant of foreign tax credit of the taxes paid by the assessee in USA in accordance with law - calculating the SPT in the context of US Tax resident - assessee replied that he was qualified to be a resident of two countries for the period between 17/10/2015 and 31/3/2016, he is entitled to avail the benefit under the Income Tax Act, 1961 or India-USA Double Taxation Avoidance Agreement (DTAA) and, therefore, in terms of Article 4 of DTAA and more particularly in terms of Article 4(2) thereof, his residency breaks to USA for the period between 17/10/2015 and 31/3/2016 and tackling him to claim exemption in terms of schedule EI of the Act - HELD THAT - There is nothing before us to show that an internal transfer of an employee of Amazon is equivalent to fresh employment or that under the letter dated 03/06/2015 the assessee was offered a permanent employment straight away in USA, in which case it would have been but natural to mention the place of employment along with the designation. The continuity of employment from India to USA is evident from the contents of the letter dated 03/06/2015 wherein it is stated that save as otherwise provided in the letter all the terms and conditions of employment in India shall remain unchanged. It does not indicate that there is any need of permanent movement of the assessee to America by vacating the residence in India once for all. It is also not clear whether the assessee moved to America at once with wife and children and severed all his connections with India on his first movement itself. Apart from that the assessee made an election under IRC section 7701(b)(4) to qualify as a resident in the resident of arrival in US, for which one of the conditions is that the assessee shall not meet the SPT in the current year. It is, therefore, clear that the election of the assessee under IRC section 7701(b)(4) shows that in the relevant year, he did not meet the SPT, which is mandatory to be considered as a tax resident in US. It would be worth to note that for calculating the SPT in the context of US Tax resident consideration, it is enough if the assessee stays for 31 days in the current year or 183 days during the period of three years which includes current year and two immediately preceding years counting all the days of the current year, 1/3rd of the days of presence in the first year and 1/6th of the days of presence in the second year before the current year. This calculation does not automatically trigger the US residency for the period between 17/10/2015 and 31/03/2015 and that is the reason why instead of claim the status of resident of USA , the assessee opted to be a resident alien . For the period between 17/10/2015 and 31/03/2016, the assessee was not taxed in USA not on the residence basis but on the basis of source. Article 4(1)(a) of DTAA clearly excludes a person who is liable to tax in USA in respect only on income from the sources in USA from the definition of resident who is otherwise liable to be taxed by reason of his domicile, residence, citizenship, place of management, place of incorporation etc. There is nothing before us to contradict the findings of the learned CIT(A) in respect of the tie breaker test, inasmuch as mere securing a house on rent in USA is not the conclusive fact that the assessee had become an USA resident the moment he moved from India to USA. Viewing from the angle of surrounding facts enumerated by the learned CIT(A) in the impugned order, we find it difficult to hold that tie breaks in favour of US residency, because it cannot be said that the moment he shifted to USA, he had no permanent residence whatsoever in India or that all his vital interests in the form of personal and economic relations ceased to be centered in India or that he will have no habitual abode at all in India more particularly when the assessee was not given to understand where exactly will his new place of work will be in USA in the letter dated 03/06/2015. We are of the considered opinion that the impugned order does not suffer any illegality or irregularity and, therefore, decline to interfere with the same. We, however, deem it just and necessary to direct the AO to consider the request of the assessee in respect of grant of foreign tax credit of the taxes paid by the assessee in USA in accordance with law. Additional ground is accordingly allowed. Appeal of the assessee is allowed in part.
Issues:
1. Delay in filing appeals due to pandemic. 2. Residency status of the assessee for the assessment year 2016-17. 3. Claim for exemption under the India-USA Double Taxation Avoidance Agreement (DTAA). 4. Application of tiebreaker rule under DTAA. 5. Taxability of salary earned in the USA in India. Analysis: 1. The delay in filing the appeals was condoned by the ITAT based on the Supreme Court's order extending the limitation period due to the pandemic. 2. The assessee, an individual, was found to be a Resident and Ordinarily Resident (ROR) in India for the assessment year 2016-17 as he resided in India for more than 183 days during the relevant financial year. 3. The assessee claimed exemption under the DTAA for the income earned in the USA. However, the Assessing Officer rejected the claim, stating that the assessee did not automatically qualify as a resident of the USA and that his global income needed to be taxed in India. 4. The tiebreaker rule under the DTAA was applied by the CIT(A) to determine the residency status of the assessee. The CIT(A) found that the assessee's permanent home and habitual abode were in India, leading to the conclusion that the tiebreaker test favored India as the resident country. 5. The ITAT upheld the decision of the lower authorities, stating that the assessee's income earned in the USA should be taxed in India as per the provisions of the Act and the DTAA. However, the ITAT directed the Assessing Officer to consider the assessee's request for foreign tax credit for taxes paid in the USA. In conclusion, the ITAT partially allowed the assessee's appeal, confirming the taxability of the salary earned in the USA in India but directing the consideration of foreign tax credit.
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