2007 (8) TMI 36 - AAR - Income Tax

Taxability of Salary Income in India for Services Rendered Abroad: Legal Analysis and Rulings

The court held that the salary income received in India for services rendered in Norway was taxable in India as the applicant failed to provide evidence ... Non-resident - An Individual received salary income in India in Indian rupees for services rendered by him in Norway for a period exceeding 182 days - Held that individual income is taxable in Indian as per DTAA Issues Involved:1. Taxability of salary income received in India for services rendered in Norway.2. Applicability of the Indo-Norway Double Taxation Avoidance Agreement (DTAA) to the applicant's case.3. Interpretation of Article 16 of the Indo-Norway DTAA.4. Relevance of the ruling in British Gas India P. Ltd.5. Relevance of the Supreme Court decision in CIT v. P.V.A.L. Kulandagan Chettiar.6. Consideration of residential status under Section 6 of the Income-tax Act.Issue-wise Detailed Analysis:1. Taxability of Salary Income Received in India for Services Rendered in Norway:The applicant disclosed income from salary received in India and paid the due tax without claiming any exemption. The applicant was employed by Infosys Technology Ltd. and deputed to Norway for more than 182 days during the financial year 2005-06. Despite filing a return and paying taxes in India, the applicant sought a ruling on whether his salary income should be taxable in India given his non-resident status.2. Applicability of the Indo-Norway Double Taxation Avoidance Agreement (DTAA):The applicant's claim was based on the Indo-Norway DTAA, specifically Article 16, which deals with the taxability of income from employment. The applicant contended that his salary should not be taxable in India as he was a non-resident and the services were rendered in Norway.3. Interpretation of Article 16 of the Indo-Norway DTAA:Article 16(1) states that salaries derived by a resident of a Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. Since the applicant worked in Norway for more than 182 days, his income could be taxed in Norway. However, there was no evidence that the applicant paid any tax in Norway. The term 'may be taxed' indicates that both Contracting States have the right to tax the income. Thus, in the absence of proof of tax payment in Norway, the applicant's income remains taxable in India.4. Relevance of the Ruling in British Gas India P. Ltd.:The applicant referred to the ruling in British Gas India P. Ltd., which stated that salary paid to a non-resident employee for services rendered outside India is not taxable in India if it has been taxed in the other country. However, since the applicant did not provide proof of tax payment in Norway, this ruling was deemed not applicable.5. Relevance of the Supreme Court Decision in CIT v. P.V.A.L. Kulandagan Chettiar:The applicant cited this case to argue that the DTAA should prevail over the Income-tax Act. The Supreme Court had held that the provisions of a DTAA could override the Act if they are more beneficial to the assessee. However, the Court's decision was based on the closer personal and economic relations test, which did not apply to the applicant's case as he did not have closer ties with Norway.6. Consideration of Residential Status under Section 6 of the Income-tax Act:The applicant's counsel referred to the British Gas India Pvt. Ltd. case, which dealt with the residential status under Section 6 of the Income-tax Act. The Authority clarified that the issue in that case was different and pertained to the eligibility to seek an advance ruling based on non-resident status. The applicant's non-resident status did not exempt him from tax liability on salary income received in India.Conclusion:The application was answered in the affirmative, confirming that the salary income received by the applicant in India for services rendered in Norway was taxable in India. The applicant was not eligible for relief under the Indo-Norway DTAA as no tax was paid in Norway. The ruling in British Gas India P. Ltd. and the Supreme Court decision in CIT v. P.V.A.L. Kulandagan Chettiar did not support the applicant's case. The applicant's salary income was rightly taxed in India.