2024 (1) TMI 969 - AT - Income Tax

Taxability of salary received by non-resident from an Indian company - Salary income accrued in India - addition on account of salary and allowances as the assessee did not furnish tax residency certificate (TRC) - assessee was an employee of an Indian company, deputed to work in a project awarded by IAEA, Vienna, Austria and stationed at Vienna and is a non-resident - HELD THAT - As per the provision of Section 9 (1)(ii), the income earned under head Salaries is taxable in India if it is earned in India. The explanation issued for removal of doubts declares that salaries if it is earned meets services rendered in India. In the instant case the assessee neither had any rest period nor leave period which is preceded and succeeded by the services rendered outside India. Since, the assessee has rendered services outside India, the salary cannot be taxable in India. As per the definition the salary paid or the advances received are to be included in the total income of the person when the salary becomes due. From the concurrent reading of Section 5 dealing with scope of total income, Section 15 dealing with computation of total income under the head salary and chargeability thereof and Section 9 dealing with income arising or accruing in India with reference to the salaries and the services rendered in India, we hold that no taxability arises on the salary/allowances received by the assessee since the assessee is a non-resident and has rendered services outside India. Appeals of the assessee are allowed.

Summary

Issues Involved:
1. Assessment of total income against returned income.
2. Validity of notice issued under section 148 of the Act.
3. Compliance with mandatory procedure under section 148A of the Act.
4. Timeliness of notice issuance under section 148 of the Act.
5. Obtaining proper approval for notice under section 148 of the Act.
6. Taxability of salary earned by the appellant.
7. Taxability of allowances paid to the appellant.
8. Initiation of penalty proceedings under section 271(1)(c) of the Act.

The present appeals were filed by the assessee against the Assessing Officer's order for the A.Ys. 2016-17 & 2017-18. The issues in both appeals were similar and were heard together. The assessee raised various grounds challenging the assessment, notice issuance, taxability of salary and allowances, and penalty proceedings. The Assessing Officer initiated proceedings under section 147/148 of the Act based on undisclosed allowances received by the assessee from an Indian company. The taxability of salary and allowances paid to a non-resident employee working abroad was a key issue.

Regarding the taxability of salary and allowances, the Assessing Officer made additions as the assessee did not furnish a tax residency certificate (TRC). The assessee, a non-resident employee of an Indian company working abroad, received salary and allowances in a foreign country. The taxability of such income was analyzed with reference to Sections 5, 9, and 15 of the Income Tax Act, 1961. Section 9 deems certain incomes to accrue or arise in India, including salaries earned in India. However, the explanation clarifies that salaries earned outside India are not taxable in India unless specific conditions are met.

The interpretation of Sections 5, 9, and 15 of the Income Tax Act was crucial in determining the taxability of the salary and allowances received by the non-resident assessee. Section 9(1)(ii) specifies that income under the head "Salaries" is taxable in India if earned in India. The explanation further clarifies the conditions under which salaries are considered earned in India. In this case, since the assessee rendered services outside India without any rest or leave periods in India, the salary was not taxable in India. The definition of salary under Section 15 reinforces the inclusion of salary when it becomes due.

After analyzing the relevant provisions and circumstances, it was concluded that no tax liability arose on the salary and allowances received by the non-resident assessee working abroad. Therefore, the appeals of the assessee were allowed, and the penalty proceedings were not upheld. The order was pronounced in the open court on 18/01/2024.