The Hyderabad bench of Income Tax Appellate Tribunal (ITAT) deleted the addition made by the Assessing officer (AO) and ruled that the salary received by the assessee in India for the services rendered in USA are not liable to tax in India.
The assessee, an employee of Wells Fargo (EGS) India Pvt. Ltd (“Wells India”) and was sent on short-term assignment to Wells Fargo Bank N.A., USA (Wells USA) from 20th October 2017 and such short term assignment continued in the 18th October 2018 and thereafter the assessee was directly employed by the Wells USA.
During his short-term assignment to Wells USA, the assessee made on the payrolls of Wells India and his salary for the services rendered was credited to his Indian bank account by Wells India after deducting tax at source.
Assessee claimed that he was part of it as a tax resident of USA and, therefore, eligible to avail the provisions of the India-US Double Taxation Avoidance Agreement (DTAA) to the extent it is beneficial to him as provided under section 90 of the Income Tax Act, 1961.
Accordingly, at the time of filing of the Income Tax Return, the assessee claimed benefit under article 16(1) of DTAA and claimed that the income earned from services rendered in the USA is only taxable in the USA and not in India.
The Assessing Officer, disallowed the exemption claimed by the assessee under article 16(1) of the DTAA and made an addition of Rs. 46,13,736 on that score and passed the draft assessment order, holding that in as much as the assessee was under the payrolls of Wells India till his services were terminated here and he was appointed by the Wells USA, his employment was exercised only in India, is not entitled to claim the benefit of article 16 (1) of the DTAA.
The bench observed that the assessee contended that the employment is exercised where the services are rendered and at such place only the salary accrues, and, therefore, his salary had accrued in USA for the relevant period.
Further observed that that 5(2)(b) of the Income Tax Act his salary would be chargeable to tax in India only if it is accrued in India, but since his salary had accrued in USA and since he is an Non-Resident of India under section 5(2)(b) of the Income Tax Act, the same cannot be brought to tax in India.
However, the Revenue contended that his salary was actually received in India and, therefore, under section 5(2)(a) of the Act, the same is chargeable in India.
The tribunal of Rama Kanta Panda (Accountant Member) and K. Narasimha Chary (Judicial Member) decided that though the provision under section 5(2)(a) of the Income Tax Act fastens tax liability on the assessee, but, because of the overriding effect of section 90 of the Act, article 16 of the DTAA would prevail over the 5(2)(a) of the Income Tax Act.
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