The Income Tax Appellate Tribunal (ITAT) Hyderabad bench held that foreign assignment allowances received by the assessee during the employment for his company for services rendered outside india should not be taxed in India
Durga Prasad Sana, the taxpayer is an employee of IBM India Private Limited, which is an Indian company. The said company sent the assessee on long term assignment to Abu Dhabi, UAE. During the year, the assessee received salary which includes the component of the foreign allowance received outside India.
The employee transferred the foreign assignment allowance from the bank accounts held in India to the nostro accounts to top it up to the Travel Currency Card (TCC), which the assessee can use only abroad, but not in India, and it is a foreign currency denominated account.
During the assessment proceedings AO observed that the assessee claimed the foreign assignment allowances received outside India as ‘exempt income’.
Further the AO noted that employer deducted the TDS in India on the entire amounts paid to the assessee itself shows that as per the employer, it was an Indian source income earned by the assessee in India, and, therefore, the situs of employment is in India only, because the contract of employment was in India.
Therefore AO concluded that the situs of employment is in India and accordingly, the salary income accrued to the assessee in India and foreign assignment allowances received outside India are also taxable in India.
Aggrieved by the order, the assessee filed an appeal before the commissioner of Income Tax Appeal(CIT(A), who dismissed the appeal. Thereafter the assessee filed another appeal before the tribunal.
Nageswar Rao, counsel for the assessee submitted that the foreign assignment allowance for the services rendered outside India and received during the financial year 2018-19 and physically working outside India shall not be taxed in India .
Further, the counsel for assessee argued that income derived by a non-resident for performing services outside India, the accrual thereof happens outside India, such income could not be taxed in India under section 5(2) of the Income Tax Act.
Shakeer Ahamed, Counsel for the revenue, argued that the assessee is on the payroll of the Indian company while he is on assignment abroad, that the parent company in India controls and regulates his service conditions, and that the parent company deducted TDS from the assessee’s entire remuneration all conclusively demonstrate that the assessee’s place of employment is in India.
Further Counsel for revenue argued that when the employee transferred the foreign assignment allowance from the bank accounts held in India to the nostro accounts to top it up to the Travel Currency Card (TCC), income was received by the assessee in India.
As a result, the point of receipt is the point of payment, demonstrating that since the employer transferred the money in India, the receipt must also take place there.
It was observed that the tribunal relied upon the decision of CIT vs. Avtar Singh that foreign assignment allowance received for the services rendered outside India by way of TCC abroad is not taxable in India.
After considering the facts submitted by both parties, the two member bench of RamaKanta Panda, (Vice President) and K. Narasimha Chary, (Judicial Member)held that foreign assignment allowance that was topped up to the TCC of the assessee, though it was transferred by the employer from their bank account in India to the Axis bank’s nostro accounts, is not taxable in India.
Therefore the bench allowed the appeal filed by the assessee .
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