2024 (11) TMI 865 - AT - Income Tax

Salary received by non-resident in India - appellant was seconded on overseas assignment to UK - Income taxable in India or not? - number of days stay in India - Taxability of Salary Income under the India-UK DTAA - whether employer-employee relationship existed or not? - assessee is assessed as non-resident in AY 2020-21 as he had spent less than 60 days in India and was an employee of the M/s. Ernst Young LLP during the previous year 2019-20. During Financial Year 2019-20 the appellant was seconded on overseas assignment to UK by his employer - Assessee submitted before AO that salary is taxable in India only if it accrues in India and salary is considered to be accrued where the employment is exercised HELD THAT - We find substance in the arguments of the Ld.AR that assessee being tax resident of UK, the salary income was taxable in UK only. In fact, salary received for the employment exercised in UK is taxable in UK and in the light of Article 15(1) of the India-UK DTAA it is exempt income. A similar view, has also been taken in the case of Nanthakumar Murugesan 2024 (6) TMI 815 - ITAT CHENNAI . We find that identical fact exists before us in the present appeals. The proportionate salary for services rendered in India has already been offered to tax in India whereas the balance salary has already been offered to tax in UK. The assessee has not claimed any foreign tax credit in any of the jurisdiction. The UK tax has been paid. Therefore, ld. CIT(A) has rightly deleted the addition - Decided in favour of assessee.

Issues Involved:

1. Taxability of salary income under the India-UK Double Taxation Avoidance Agreement (DTAA).
2. Eligibility of the assessee to claim exemption under Article 15(1) of the DTAA.
3. Applicability of Section 5(2) and Section 15 of the Income Tax Act, 1961.
4. Entitlement to foreign tax credit and the role of Section 90 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Salary Income under the India-UK DTAA:

The primary issue revolves around the taxability of salary income received by the assessee, a non-resident, in India for services rendered in the UK. The assessee claimed exemption under Article 15(1) of the DTAA between India and the UK, asserting that the salary income should be taxable only in the UK, where the services were performed. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this claim, directing the deletion of the addition of Rs. 23,26,204/- made by the Assessing Officer, as the income was offered to tax in the UK, and the DTAA provisions override the Income Tax Act, 1961.

2. Eligibility to Claim Exemption under Article 15(1) of the DTAA:

The assessee contended that as a tax resident of the UK, the salary income for services rendered in the UK is taxable solely in the UK under Article 15(1) of the DTAA. The Tribunal found merit in this argument, agreeing that the salary for employment exercised in the UK is exempt from Indian taxation under the DTAA. The Tribunal cited previous decisions, including the case of Shri Ramesh Kumar AE vs. ITO, which supported the position that salary for work performed in a foreign jurisdiction is not taxable in India if the DTAA provides otherwise.

3. Applicability of Section 5(2) and Section 15 of the Income Tax Act, 1961:

The Assessing Officer initially held that the salary income is taxable in India under Section 5(2) and Section 15 of the Income Tax Act, 1961, as the employer-employee relationship existed with an Indian entity, and the salary was received in India. However, the Tribunal concluded that the provisions of Section 5(2) are subject to the DTAA, and the salary accrued for services performed outside India should not be taxed in India. The Tribunal emphasized that income is taxable in India only if it accrues or arises in India, which was not the case here.

4. Entitlement to Foreign Tax Credit and Role of Section 90:

The Tribunal acknowledged that the assessee is entitled to a beneficial tax regime under Section 90 of the Income Tax Act, 1961, which allows for relief in cases of double taxation. The Tribunal noted that the salary income was offered to tax in the UK, and the assessee did not claim any foreign tax credit in India. The CIT(A)'s decision to delete the addition was based on the premise that the DTAA provisions take precedence, allowing the assessee to benefit from the treaty's favorable tax treatment.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 23,26,204/-, agreeing that the salary income for services rendered in the UK is exempt from Indian taxation under the DTAA. The appeal filed by the Revenue was dismissed, affirming the assessee's eligibility to claim exemption under the DTAA and the applicability of Section 90 for relief from double taxation. The Tribunal's decision aligns with previous judicial precedents, reinforcing the principle that DTAA provisions override domestic tax laws in cases of conflict.

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