2023 (8) TMI 138 - AT - Income Tax

Residential status - taxability of income of assessee earned from foreign assignment - attributing the tax residency of resident to one of the contracting States - permanent home available OR habitual abode - Tax Authorities have primarily focused on the fact that the assessee has a house in India therefore, the assessee cannot be considered to be resident of Indonesia - HELD THAT - Admittedly assessee is not a person having permanent home available to him in Indonesia as he has occupied a leased premises provided by local employer there. House located in India is under lease and rent received is submitted as rental income. Therefore, as per Article 4(2)(a) the assessee has to be assumed to be a person who does not have a permanent home available to him. So, the concept of the centre of vital interest referred in Article 4 (2) (a) is not relevant and for that reason Article 4(2)(b) becomes applicable and the status of assessee had to be determined on the basis where he has a habitual abode In the case in hand the evidence on record about the assignment of job at Indonesia, shifting of family by the assessee to Indonesia, children getting education at Indonesia, submitting income earned from foreign assignment for taxable purposes in Indonesia and having economic communication on the basis of holding a bank account and insurance in Indonesia are sufficient to show that the habitual abode of the assessee is at Indonesia. The period is irrelevant and what is relevant was the income earned on the job assigned at Indonesia cannot be considered to be global income of the assessee to be taxable in India. Thus the concept of permanent home available has been wrongly interpreted by the Ld. Tax Authorities. Ld CIT(A) has further fallen in error to not consider the applicability of other parameters of Article 4 (2)(b), which Ld. AO had infect taken note of and determined against the assessee. The findings of the Tax Authorities below in regard to taxing the income of assessee earned from foreign assignment are liable to be reversed. Decided in favour of assessee.

Issues Involved:
1. Determination of Assessee's residential status for tax purposes.
2. Applicability of India-Indonesia Double Tax Avoidance Agreement (DTAA).
3. Taxation of salary income earned in Indonesia.
4. Eligibility for exemption under Article 15(1) of the Treaty.
5. Consideration of personal and economic relationships, habitual abode.
6. Credit for taxes paid in Indonesia under Article 23 of the Treaty.

Issue-wise Detailed Analysis:

1. Determination of Assessee's Residential Status for Tax Purposes:
The primary issue is whether the Assessee should be considered a resident of India or Indonesia for the Assessment Year (AY) 2016-17. The Assessee was on a long-term assignment in Indonesia and claimed to be a resident of Indonesia under the domestic tax laws of Indonesia and the India-Indonesia DTAA. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] determined the Assessee to be a resident of India based on the fact that he owned a house in India.

2. Applicability of India-Indonesia Double Tax Avoidance Agreement (DTAA):
The Assessee argued that under Article 4(2) of the India-Indonesia DTAA, he should be considered a resident of Indonesia as he had a permanent home available only in Indonesia during the relevant period. The AO and CIT(A) focused on the Assessee's ownership of a house in India to conclude that he was a resident of India, thereby subjecting his global income to tax in India.

3. Taxation of Salary Income Earned in Indonesia:
The AO added the salary income earned by the Assessee in Indonesia for the period January 2016 to March 2016 to his taxable income in India. This addition was based on the conclusion that the Assessee was a resident of India and thus liable to tax on his global income.

4. Eligibility for Exemption under Article 15(1) of the Treaty:
The Assessee claimed exemption for the salary earned in Indonesia under Article 15(1) of the Treaty, arguing that he was a resident of Indonesia during the relevant period. The CIT(A) rejected this claim, concluding that the Assessee was a resident of India and thus not eligible for the exemption.

5. Consideration of Personal and Economic Relationships, Habitual Abode:
The CIT(A) did not consider the Assessee's personal and economic relationships or habitual abode in Indonesia, focusing solely on the ownership of a house in India. The Tribunal noted that the CIT(A) erred in not considering the evidence provided by the Assessee, such as the relocation of his family to Indonesia, tax residency certificate from Indonesia, and other relevant documents.

6. Credit for Taxes Paid in Indonesia under Article 23 of the Treaty:
The AO acknowledged that the Assessee had filed a tax return in Indonesia and paid taxes there for the income earned during the relevant period. However, the AO did not grant credit for these taxes in the assessment order, leading to double taxation of the same income.

Tribunal's Findings:
The Tribunal found that the CIT(A) and AO had wrongly interpreted the concept of "permanent home available" under Article 4 of the DTAA. The Tribunal emphasized that owning a residential property in India does not necessarily mean having a permanent home available in India for tax residency purposes. The Tribunal highlighted that the Assessee's personal and economic relations, habitual abode, and other relevant factors indicated that his habitual abode was in Indonesia during the relevant period. The Tribunal concluded that the Assessee should be considered a resident of Indonesia under the DTAA, and thus, the salary income earned in Indonesia should not be taxed in India. The Tribunal allowed the Assessee's appeal, reversing the findings of the lower tax authorities.

Order:
The appeal was allowed, and the findings of the lower tax authorities were reversed. The Assessee was deemed a resident of Indonesia for the relevant period, and the salary income earned in Indonesia was not taxable in India. The Tribunal directed the AO to accept the revised return of income filed by the Assessee.

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