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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 ..... 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. - A.A.R. No 1299 of 2012 - - - Dated:- 29-1-2018 - Mr. R.S. Shukla, Incharge-Chairman And Mr. Ashutosh Chandra, Member (Revenue) For the Applicant : Mr. Percy J. Pardiwalla, Sr. Advocate For the Department : Mr. K.V. Arvind, Sr. Standing Counsel, Ms. Kavita Pandey, CIT(DR), Mr. A.K. Verma, DCIT (DR) RULING ( By Ashutosh Chandra ) The applicant, M/s Texas Instruments (India) Pvt. Ltd had filed an application seeking a Ruling on the questions, subsequently enumerated, on the issue of taxability in India of the salary of its employee, sent abroad for rendering services to a foreign company. The application was admitted on 12 February 2014. 2. The Applicant is incorporated in India, and is engaged in the business of digital signal processing and analog technologies etc., developing state-of-the-art solutions for applications like wireless handsets, wireless infrastructure, video, IP phones, set-top boxes, high-performance analog, etc.It has sent one of its employees Mr. T N Santhosh Kumar on an expatriate assignment to Texa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Kumar is expected to return to India during September 2012 and his residential status in India for the Financial Year 2012-13 would be Resident and Ordinarily Resident (ROR). Whether, while discharging its obligation u/s 192 during FY 2012-13, Texas Instruments (India) Pvt. Ltd. may take credit for the taxes paid in the USA for Mr. T.N. Santhosh Kumar as per Article 25 of the Indo-US Treaty. 4. The Applicant has further stated that Section 5 of the Act defines the scope of total income. Section 5 (2) of the Act states that the total income of the non-resident includes income received in India comprising of the salary paid by the applicant. However, as the computation of total income is subject to other provisions of the Act, benefits available to the assignee as per the provision of Section 90 of the Act need to be considered before arriving at the total income. Further, Section 2(45) of the Act provides that total income referred to in Section 5 needs to be computed in the manner laid down in this Act. Accordingly, the various reliefs and benefits including relief under Section 90 of the Act would need to be considered in computing the total income. The assessee is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of British Gas India Private Limited (AAR/725/2006), wherein it was ruled that when salary is not taxable in India in accordance with the treaty between India and UK, provided the same is taxed in UK, in pursuance of the Treaty, the applicant should not deduct tax at source, provided it is satisfied from the details and particulars furnished under Section 192(2) that taxes have been paid on such payments in the UK. The facts in this case were similar to the current situation. The applicant has also referred to the case of CIT vs Eli Lilly and Co. (India) Private Limited(2009), 312 ITR 225 (SC), to say that salary for services rendered in India, but not paid in India, was chargeable to tax under the head salaries in India, and hence subject to tax withholding in India. As a corollary, where salary income is not chargeable to tax under the head salary in India, the same should not be subject to tax withholding in India. In the case of CIT vs Coromandal Fertilisers Ltd, [1991],187 ITR 673 (AP), it was held that unless there is an obligation on the part of the recipient to pay tax under the head salaries, the obligation to deduct tax under Section 192 does not arise. 5. With r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The Revenuein its earlier submission referred to Section5(2) of Income Tax Act, 1961, which is as under: Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year . In the instant case, M/s Texas Instruments (India) Pvt. Ltd. is making payment in India to its employee working in USA, who even if considered as non-resident for the purpose of Income-tax during the FY 2011-12, the provision of Section 5(2) of IT Act will apply. Therefore, any salary paid in India by M/s Texas Instruments (India) Pvt. Ltd, to its employees outside India is liable to tax in India. Hence the applicant is required to deduct TDS u/s 192 on payment of such allowances. The reference made by the Applicant to Section 15 may not be applicable as the Section talks about accrual (due) and payment in a particular assessment year but not the place of accrual or payment. 6.1 Responding to the issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided below. 9. (1) The following incomes shall be deemed to accrue or arise in India:- (ii) income which falls under the head Salaries , if it is earned in India. For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India ; Thus salary is considered to be earned in India if services are rendered in India. Just because the salary is paid in India by an entity in India it cannot be concluded that the income is earned in India. 7.1 The Ld. Sr. Counsel for the Applicant also invited a reference to paragraph 1 of the OECD commentary to Article 15, wherein it is clarified that the place where the employee is physically present when performing the activities for which the employment income is paid is relevant for this purpose. Thus, based on both the domestic law as well as the Treaty, the term place of exercise of employment is to be determined basis the place where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant, to deduct tax there from. 9.1 Let us first examine the position with reference to the Income tax Act, 1961. Section 4 of the IT Act 1961 states that income-tax shall be charged in accordance with and subject to the provisions of this Act in respect of the total income of the previous year of every person. Total Income as provided in Section 2(45) of the Act means such total income as is referred to in section 5, computed in the manner laid down in this Act. Section 5 deals with the Scope of Total Income , and subsection (2) relates to non-residents. Section 5(2) begins with the words Subject to the provisions of this Act , which brings Chapter IV into play, ie. computation of total income. In this chapter, Section 14lists out the various heads of Income and Section 15 deals with the head Salaries . Thus chargeability to tax under the head salaries arises under section 5(2) read with section 15. Revenue s attempt to say that section 5(2) alone is the charging section and income received by Mr T N Santhosh Kumar should be taxed in India as it was received in India, cannot be accepted. Section 15 reads as under: The following income shall be chargeable to inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Klaus Vogel in his commentary on Dependent Personal Services, Article 15, which states that: As a rule, the place where the employment is exercised is the place where the employee is personally present for the purpose of exercising his employment. If the activities cannot be exercised elsewhere than on the spot, there is no question that this spot is the place where the employment is exercised All that matters under the MCs is whether or not the employee is personally present. 9.3 A reading of the explanation to section 9(1)(ii) of the Act also clearly indicates to the view held above. 9.4 Further, since section 5 (2) of the IT Act starts with the words Subject to the provisions of the Act , section 90 would also have to be considered, so as to allow any benefit arising there under to the Applicant. Article 16 of the India-USA DTAA, reads as under: salaries, wages and such other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that state unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e credit for the taxes deducted during his deputation outside India. This issue was also considered in the case of British Gas India Private Limited (supra), where this Authority had ruled, on similar facts, that where employees are working simultaneously with more than one employer, they are covered under Section 192(2) of the Act. In the case of Coromandel Fertilisers Ltd. (Supra) also it was held that where a foreign tax credit is available, the tax payable by the employee is lowered to the extent of the foreign tax credit available. 10.1 With regard to the Revenue s concern regarding proper verification, perhaps due to the fact that the Rule and form referred to in section 192(2), seem not fully equipped to deal with foreign tax credit, it has to be said that in the absence of any other provision, as admitted by Revenue, recourse to the specific provision in section 192 (2) alone is possible, as held by us in the above referred case. This provision casts an obligation on the employee to furnish to the employer, in this case the Applicant, such details of the salary etc. received by him from the other employer/s, the tax paid or deducted there from, and other particulars, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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