Salary Accrued for Work Performed in Foreign Jurisdiction is not Taxable but Salary Received for Work Performed in India would be Taxable: ITAT Allows Benefits under India-China DTAA [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) held that salary income as accrued to the assessee for work performed in a foreign jurisdiction would not be taxable in India whereas the salary received for work performed in India would be taxable in India. The benefit of DTAA (Double Taxation Avoidance Agreement) would be available to the assessee.

The assessee Ramesh Kumar AE was assessed as non-resident for the Assessment Year. He has been employed with M/s Ford Motor Private Ltd. in India was sent to China on an assignment from August, 2014 onwards.

The assessee filed original return of income admitting income of Rs.98.68 Lakhs. However, the return was revised at Rs.69.38 Lakhs and refund of Rs.9.10 Lakhs was claimed. The amount shown by his employer in Form 16 was Rs.99.20 Lakhs. Accordingly AO (Assessing Officer) held an opinion that this amount should be taxable instead of Rs.69.69 Lakhs as offered by the assessee.

The assessee submitted that he being tax resident of China, the salary income was taxable in China only and the same has been offered to tax in China. Further, he being non-resident, the salary received in India for work performed in China would be exempt in India as per Article 15(1) of DTAA between India and China.

The assessee submitted that salary is taxable in India only if it accrues in India and salary is considered to be accrued where the employment is exercised. The AO held that the assessee did not shift his employer and the assessee continued to be on the payroll of its employer. There existed employer-employee relationship. Therefore, the income so received would be chargeable to tax in India under Section 15 of the Income Tax Act which provides that any salary due from an employer would be chargeable to tax under the head salaries.

It was, however, held that the assessee could avail tax credit on the tax payable in China as per Article 23 of DTAA. The assessee was non-resident and therefore, he was not eligible to claim benefit of DTAA. Accordingly, the income as reflected in Form 16 was brought to tax.

Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which upheld the order of AO, Further Aggrieved the assessee filed an appeal before the Tribunal.

The Bench relied on the decision of coordinate bench of Chennai Tribunal in Paul Xavier Antonysamy vs ITO where it was held that The regular salary accrued to any assessee is chargeable to tax in terms of Section15(a) of the Income Tax Act. Even as per the provisions of Section 9(1)(ii) of the Income Tax Act, salary income could be deemed to accrue or arise in India only if it is earned in India in respect of services rendered in India.

And further in the case it was held that treaty benefit shall be applicable to persons who are residents of both India as well as Australia. Therefore, the contention of the revenue that the assessee being a non-resident and hence treaty benefit cannot be extended to assessee, is incorrect. Accordingly, it was held by the bench that the salary so earned for work performed in Australia would be taxable in Australia.

Thus the Two Member Bench comprising of Mahavir Singh, Vice President and Manoj Kumar Aggarwal, Accountant Member held that salary income as accrued to the assessee for work performed in a foreign jurisdiction would not be taxable in India whereas the salary received for work performed in India would be taxable in India. The benefit of DTAA would be available to the assessee as per the decision of coordinate bench.

Further the AO was directed to re-compute the income of the assessee and hence the appeal of the assessee was allowed.

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