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TMI Blog2018 (2) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... r. T N Santhosh Kumar on an expatriate assignment to Texas Inc., USA, for a period of two years effective from September 2010. During this period he was on the payroll of Texas Inc. During this period he would receive base salary and certain allowances in the USA for meeting his cost of housing, transportation etc. He also receives a part of the salary, based on a monthly basis, and certain bonuses in India from the applicant to meet certain obligations in India such as housing loans repayments etc. During this period he would be rendering services in the USA, and would not be rendering services in India. 2.1 In respect of the financial year 2011-12, Mr T N Santhosh Kumar would be a non-resident in India. During the financial year 2012-13 his presence in India is likely to exceed 60 days and also exceed 365 days during the four years preceding the financial year 2012-13, as well as 729 days during seven years preceding the financial year 2012-13. Accordingly in the year of return to India after completion of assignment, i.e. in financial year 2012-13, Mr T N Santhosh Kumar is expected to be a resident and ordinarily resident (ROR) in India. He would be filing his Income tax retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total income. The assessee is therefore entitled to adopt either the provisions of the Act or the Treaty, to the extent they are more beneficial to him. 4.1 Since Mr TN Santhosh Kumar would be a resident in the USA as per the Indo - US Treaty during the Financial Year 2011-12, he would have access to the benefits of the Treaty. As per Article 16 of the said Treaty salaries, wages, and other similar remuneration derived by a resident of USA in respect of employment shall be taxable only in USA,as the employment is not exercised in India and hence, salary income of Mr T.N. Santhosh Kumar is not liable to tax in India as per the provisions of the above Article. 4.2 The applicant further submits that Section 5(2) begins with "Subject to the provisions of this Act", the total income needs to be arrived at after considering all the relevant provisions of the Act. Section 15 of the Act provides for the chargeability of income under the head salaries which accrues to an employee, irrespective of whether it is received or not. The split pay and bonus paid by the Applicant to the assignee relates to services rendered in the USA and hence does not accrue to the assignee in India, and hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not arise. 5. With respect to Question no. 2, it is submitted that Mr T.N. Santhosh Kumar is expected to return to India during September 2012. His residential status for the financial year 2012 - 13 is expected to be resident and ordinarily resident. Hence, his income would be subject to tax in USA as well. Credit for the taxes paid in USA is available to Mr T.N. Santhosh Kumar, based on Article 25 of the treaty. It is stated that Section 192(2) provides that an employee who is working simultaneously under more than one employer can furnish the details of salary, tax deducted at source and such other particulars in a prescribed form to one of the employers, who would need to consider "such other particulars" and all the details provided by the employee, and is obliged to consider the same in computing the taxes and then arrive at the tax to be withheld. Since he is ROR in India and the salary paid overseas is taxable in India, the Applicant has an obligation to withhold taxes on such salary upon details being furnished by the employee. Hence the provisions of Section 192(2) of the Act are applicable to them and Applicant would accordingly need to provide credit for taxes paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues raised by the Authority during the course of these proceedings, the Revenue has stated that the salary of the employee (non-resident) in India was taxable under the provisions of the Indian Income Tax Act as the same is received in India, it has once again referred to section 5(2) of the Income Tax Act, 1961, to say that since the salary is received in India, the total income of the employee, includes all income from whatever source derived which is received in India. Further, the salary is accrued or arisen in India as the contract between the employer and the employee has been entered in India. As per Section 15 of the IT Act, any salary due from the employer shall be chargeable to income tax in India. Accordingly, the applicant must withhold the due taxes. 6.2 Further, on the question whether, such amount was taxable in India by "exercise of employment" in India as provided in the India USA DTAA, it was submitted that as per Article 16(1), the tax non-implication relies upon two factors that is, the employee must be a Non-Resident and the employment has to be necessarily not exercised in India. But in this case the contract between the employer and the employee has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red i.e. place of physical presence of the employee. 7.2 Regarding the Revenue's submission that the case law cited by the Applicant were not applicable as in those cases the employer was a foreign company, the Applicant cited the decision of the Mumbai High Court in the case of Avtar Singh Wadhawan, 2001, 247 ITR 260, where the employer was Shipping Corporation of India, an Indian company, which also supported its case. The fact that the employer happened to be an overseas shipping company in some cases was purely incidental. 8. With regard to Question No. 2, the Revenue submitted that on the above facts, the provisions of Article 25(2)(a) of the Treaty will be applicable. Several conditions are required to be satisfied for allowing the foreign tax credit. First of all, there should be actual payment of taxes by Shri T.N. Santhosh Kumar and that tax should be attributable to the income taxed in United States. Further, it involves interpretation of DTAA articles as well. Such verification has to be done by the assessing officer before allowing the credit. The deductor neither has the opportunity nor expertise to verify these aspects at the time of making TDS. The foreign tax cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies": (a)any salary due from an employer or a former employer to an assessee from an employer in the previous year, whether paid or not; (b)any salary paid or allowed to him in the previous year by or on behalf of an employer or former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year." 9.1.1 Although the recipient's case falls in (a) above, being a non-resident, since he was rendering services in the USA during that period, the salary accrued to him in the USA. Hence, since the income has not accrued in India, the same cannot be considered as chargeable to tax in India. In the case of Prahlad Vijendra Rao (supra), the Hon'ble Karnataka High Court held that where the assessee was not resident in India and was rendering services outside India, the salary relating to the period of services rendered outside India has not accrued in India and hence is not taxable in India. In coming to this conclusion the Hon'ble High Court also considered the case of Avtar Singh Wadhwan (supra) wherein the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, as per the Treaty also the income earned by Mr T N Santhosh Kumar from the services rendered in the USA would be chargeable to tax in the USA, and not in India, during the period that he was rendering services in the USA. 9.5 Coming to the question posed to us, which is whether in the above circumstances, the Applicant is obliged to withhold taxes on such salary paid in India, it is seen that the provisions of section 192 (1) are very clear. Tax is required to be deducted by the employer from the income payable which is chargeable to tax under the head salaries. This Authority had occasion to examine this issue in the case of British Gas India Private Limited, (AAR 725/2006), wherein on similar facts this Authority had ruled that salary paid for rendering services in the UK were not taxable in India and that no tax need be deducted therefrom, provided the tax on that income was paid in the UK. The Applicant's reliance on the cases of Eli Lily and Co. (India) Private Ltd. and Coromondal Fertilizers Ltd. support this view that unless there was an obligation on the employee to pay tax on income from salaries, there would not be any liability to deduct tax under section 192 by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details before computing the tax deductible. We cannot assume that the two parties would not do so, nor can we prescribe a procedure which is not in the Act or Rules. Under the existing provision in this section, the Applicant would exercise due diligence in this matter, in satisfying itself about the details of the period of residence, TRC, details of income earned and taxes deducted, the period they refer to etc., as may be necessary to work out the correct credit to be given while deducting tax at source in India, failing which, the Revenue can initiate action as the per the Act, as may be deemed necessary. 11. In view of the forgoing, the questions posed to us for a Ruling are answered as under: Question no. 1: As Mr. T N Santhosh Kumar is not liable to be taxed in India in respect of his income for the FY 2011-12, the Applicant is not obliged to withhold taxes on the salary paid to him in India for this period. Question no. 2: While discharging its obligation u/s 192 in respect of his income for the FY 2012-13, the Applicant may take into account the credit for the taxes paid in the USA for Mr. T.N. Santhosh Kumar, in view of Article 25 of the India-USA DTAA. The Ruling is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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