Salary Earned for Services Rendered in the U.S. Not Taxable in India: ITAT directs AO to Verify TRC and Grant DTAA Relief [Read Order]

The appeal was filed by Prakash Raman, an employee of M/s Solvay Specialities India Ltd., against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Chennai-16, dated 10.10.2024, for the Assessment Year (A.Y.) 2019-20.

The assessee had been deputed by his Indian employer to the United States on a foreign assignment during the relevant financial year. The Assessing Officer (AO) observed that the salary amounting to ₹1,31,04,562 was received in India from the Indian company, which had deducted tax at source, and thus treated it as taxable under Section 5(2)(a) read with Section 15 of the Income Tax Act, 1961. The AO denied relief under Article 16(1) of the India-U.S. DTAA on the ground that no valid TRC issued by U.S. authorities had been produced.

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The CIT(A) upheld the AO’s view, holding that the TRC furnished pertained to Korea and that the secondment agreement established the employer-employee relationship with the Indian company. Accordingly, the CIT(A) concluded that the salary was rightly taxable in India.

Appearing for the appellant, Abdul Kadir Jawadwala, contended that the assessee was a non-resident during the year under consideration and that salary earned for services rendered abroad could not be taxed in India. It was argued that, in light of Section 5 read with Sections 9 and 15 of the Income Tax Act, 1961, and Article 16(1) of the India-U.S. DTAA, income for services rendered outside India was taxable only in the country where such services were performed.

It was further submitted that the assessee had now furnished the U.S. Tax Residency Certificate as additional evidence before the Tribunal and relied on judicial precedents including Ramesh Kumar AE v. ITO (2018), which upheld that salary earned abroad cannot be taxed in India even if received here. He also sought deletion of interest charged under Section 234B of the Act.

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Appearing for the Revenue, R. Anitha, submitted that the TRC had not been produced before the lower authorities and, therefore, its genuineness must be verified. Supporting the orders of the AO and CIT(A), emphasized that since the salary was received in India from the Indian employer, it was taxable under domestic law.

The Bench comprising of Judicial Member, Manu Kumar Giri and Accountant Member, Jagadish observed that the issue was squarely covered by judicial precedents wherein it had been consistently held that salary income earned for services rendered abroad is not taxable in India under Section 5(2) read with Section 9(1)(ii) of the Income Tax Act, 1961.

The Tribunal ruled that the situs of accrual of salary income is the place where the services are rendered and that mere receipt of salary in India does not render it taxable here. Reliance was also relied upon by the Tax Residency Certificate issued by the U.S. authorities, U.S. tax receipts, and Form W-2 for the relevant period, which substantiated the claim of residency and eligibility under the DTAA.

The Bench affirmed that income accrued outside India cannot be taxed in India solely due to its receipt in the country.

Consequently, the Tribunal remanded the matter to the AO for verification with the direction that if, upon verification, the AO finds the TRC, relief under Section 90 read with Article 16(1) of the India-U.S. DTAA must be granted, and the salary income of ₹1,31,04,562 should be excluded from taxable income in India.

Accordingly, ITAT allowed the appeal for statistical purposes.

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