2024 (11) TMI 1316 - AT - Income Tax

Income deemed to accrue or arise in India - income received and accrued in Indonesia for rendering service outside India - assessee, an employee of an Indian company sent on a short-term assignment to Indonesia - number of days of stay in India 61 days - CIT(A) contending that the foreign income during service rendered outside India qualifies for exemption u/s 5(2) of the Act and Article 15(1) of the India Indonesia DTAA - HELD THAT - Assessee was present in India for only 61 days during the financial year 2015-16 which qualifies as a non-resident u/s 5(2) of the Act and only income received or deemed to have accrued or arisen in India, is taxable for a non-resident. We undisputedly note that the assessee is a non-resident employee in IBM India Pvt. Ltd. (an Indian Company) and was sent to abroad to Indonesia for rendering services there. We find no dispute that the services were rendered in Indonesia and the foreign assignment allowances received by the assessee for services rendered in Indonesia and no evidence suggests that income accrued or arose in India. We note that the assessee failed to produce the TRC before the AO which is a procedural lapse and does not negate the substantive compliance. After considering the facts and circumstances of the case and following the decision in the case of DCIT vs. Sudipta Maity 2018 (8) TMI 730 - ITAT KOLKATA we find it necessary to delete the addition made by the Assessing Officer based on the fact that the income related to services rendered received outside India is not taxable in India. The Assessing Officer is also directed to allow the refund as claimed by the assessee.

Summary

Issues:
Assessment of foreign income for a non-resident employee under the Income Tax Act and the Double Tax Avoidance Agreement (DTAA).

Analysis:
The judgment involves an appeal by an assessee against the Commissioner of Income Tax (Appeals) order for the assessment year 2016-17. The assessee, an employee of an Indian company, was sent on a short-term assignment to Indonesia. The assessee claimed non-resident status for the assessment year based on the days spent in India and income earned in India and Indonesia. The Assessing Officer rejected the claim, adding foreign income to the total taxable income in India. The assessee contended that the foreign income earned for services outside India was not taxable and the TRC requirement was a procedural lapse. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.

The primary contention in the appeal was that only income earned or accrued in India is taxable for a non-resident. The assessee argued that the foreign allowances received for services in Indonesia should not be taxed in India. The failure to produce TRC was deemed a procedural lapse and not a substantive compliance issue. The Tribunal considered the passport details showing the assessee's non-resident status and the nature of services rendered in Indonesia. Relying on a previous Kolkata Tribunal case, the Tribunal ruled in favor of the assessee, deleting the additions made by the AO and allowing the refund claimed by the assessee. The Tribunal emphasized that income related to services rendered outside India is not taxable in India for a non-resident.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that only income earned or deemed to have accrued in India is taxable for a non-resident. The Tribunal ruled in favor of the assessee, deleting the additions made by the AO and directing the allowance of the claimed refund. The judgment highlights the importance of substantiating foreign income exemptions under the DTAA and clarifies the taxability of income earned outside India for non-residents.