The Income Tax Appellate Tribunal (ITAT), Chennai directed to re-compute Refund Claim as per India- UK Double Taxation Avoidance Agreement (DTAA).
The assessee, Kanagaraj Shanmugam admitted salary income of Rs.37.32 Lacs in the return of income filed on 25.06.2015. However, the return was revised on 26.05.2016 wherein the income was declared as ‘nil’ after claiming exemption under Article 16(1) of India-UK Double Taxation Avoidance Agreement (DTAA) and refund of Rs.9.73 Lakhs was claimed. The AO show-caused the assessee as to why salary income of Rs.38.42 Lakhs as reflected by assessee’s employer in Form 16 not be considered as total income of the assessee.
The assessee was an employee of M/s Oracle Financial Services Software Limited (OFSSL). The assessee was sent on an assignment to UK for the period from 22.04.2014 to 21.04.2016. The salary for that period has been paid by OFSSL in India though the same was reimbursable by foreign counterparts. As per Form 16, the assessee received gross salary of Rs.39.85 Lakhs. After claiming exemption under Section10, the taxable salary amounted to Rs.38.92 Lakhs.
The assessee submitted that his stay in India during financial year (FY) 2014-15 was only 63 days. Being a tax resident of UK in the year under consideration, his salary income for FY 2014-15 was taxable in UK only and the same had, in fact, been offered to tax in UK. The assessee also submitted that salary received for work performed in UK would be exempt in India as per Article 16(1) of DTAA between India and UK. It was further submitted that this salary would be taxable in India only if it accrues in India and salary is considered to be accrued where the employment is exercised.
A Division Bench consisting of Mahavir Singh, Vice President and Manoj Kumar Aggarwal, Accountant Member observed that “Upon perusal of UK tax return, it could be seen that the assessee has offered earnings from employment for £24184 on net basis which has been tax grossed up for £6046. This is in view of the fact that OFSSL has paid provisional payment of £9062 to UK revenue authorities since the employer has undertaken to meet the UK income tax liability arising from employee’s earnings in UK. Accordingly, the assessee has claimed refund of £3016. On the basis of the above, it could be seen that separate tax payment has been made by OFSSL to UK revenue authorities to discharge the tax liability of the assessee in that country. Accordingly, we direct AO to re-compute the income of the assessee”
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