Salary Income earned by Indian National not Taxable u/s 9(1) of Income Tax Act as well as under Article 15(1) of India Netherlands DTAA in India: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the salary income earned by the Indian National is not taxable under Section 9(1) of the Income Tax Act 1961 as well as under Article 15(1) of the India Netherland Double Taxation Avoidance Agreement (DTAA).

The assessee, Amit Jain was an Indian National was deputed from 01.01.2014 to 31.12.2017 on a long term assignment to Akzo Nobel Decorative Coatings B.V. (Akzo Netherlands) , a company incorporated under the laws of the Netherlands. During the year under consideration, the assessee rendered services outside India (Netherlands) and was a tax resident of Netherlands by virtue of domestic laws of Netherlands. The Tax Residency Certificate (TRC) was also received from Netherlands Tax Authorities.

It is not in dispute that the services were rendered by the assessee only in the Netherlands during the year under consideration. However, the assessee was also sent on deputation to India on behalf of Akzo Netherlands. For administrative convenience, the assessee received salary in India from Akzo Nobel India in respect of the services rendered outside India to Akzo Netherlands.

In order to ensure withholding tax compliance laid down under Section 192 of the Income Tax Act, Akzo Nobel India Ltd deducted tax at source on the salary paid in India and deposited it with the Government. However, Akzo Nobel India was reimbursed in full by Akzo Netherlands for the salary paid in India.

Since TDS was done, in order to claim refund of the same, the assessee filed his return of income for the Asst Year 2018-19 on 06.08.2018  in the status of Non-Resident , claiming the salary received in India for services rendered outside India to be exempted from tax in India, in accordance with section 90 of the Income Tax Act read with Article 15(1) of the India-Netherlands DTAA.

The AO issued assessment wherein an addition on account of salary received in India was made to the income of the assessee.

Vishal Kalra appeared on behalf of the assessee and Vizay B. Vasanta appeared on behalf of the revenue submitted that as per Section 9, of the Income Tax Act all incomes earned directly or indirectly through any source in India would be taxable in India.

The two-member Bench of Kul Bharat, (Judicial Member) and M. Balaganesh, (Accountant Member) observed that it was very clearly stated that the terms and conditions of the employment with Akzo Nobel India Ltd stood suspended for the duration of the assignment in the Netherlands. Further the AO had observed that throughout the international assignment, the salary was paid by Akzo Nobel India Ltd and it was factually incorrect.

As per the aforesaid explanation in Section 9(1) of the Income Tax Act salary payment could be said to be earned in India only if the corresponding services were rendered in India. Since the services were rendered outside India which was not in dispute before us, income could not be said to be deemed to accrue or arise in India.

The salary income of the assessee was not to be taxed in India under Article 15(1) of India Netherlands DTAA, which clearly stated that the employment income earned by the individual was exempted from tax if following conditions were satisfied :- a) If the individual was resident of Netherlands ; and b) If the employment was exercised outside India

The Bench allowed the appeal filed by the assessee holding that the salary income earned in India was not taxable under the Act as well as under the India Netherlands Treaty.

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