Treaty taxation of foreign employment income: Indian tax applies absent proof of foreign taxation or treaty relief.

Employment income paid by an Indian employer to a non-resident employee for services rendered in Norway remained taxable in India, because Article 16(1) of the Indo-Norway DTAA allowed taxation in the State where the employment was exercised and Article 16(2) did not apply on the facts. The phrase "may be taxed" was treated as permitting taxation under domestic law, so Indian taxation was not excluded merely because the salary was paid in India or the employee was non-resident. No treaty relief was available, since the applicant produced no evidence of actual Norwegian taxation, tax payment, exemption, or credit entitlement.

---

---

Issues: Whether salary paid by an employer in India to an employee who was non-resident during the relevant year, for services rendered in Norway, was taxable in India and whether relief under the Indo-Norway Double Taxation Avoidance Agreement was available.

Analysis: The applicable treaty provision was Article 16(1), because the employee rendered services in Norway for more than 182 days and Article 16(2) was therefore inapplicable. Under Article 16(1), remuneration derived by a resident of one Contracting State from employment exercised in the other Contracting State may be taxed in that other State. The expression "may be taxed" was treated as permitting taxation by either Contracting State under its domestic law, and the applicant produced no proof that Norway had actually taxed the income or that any tax had been paid there. The earlier rulings relied on were distinguished because those cases turned on actual foreign taxation or materially different treaty language and facts. The reliance on the decision concerning residential status under section 6 was also rejected because that issue was unrelated to the present treaty-based taxation question.

Conclusion: The salary income was taxable in India and no treaty relief was available to the applicant.

Final Conclusion: The treaty did not exclude Indian taxation of the employment income, and the applicant remained liable to be taxed in India without any credit or exemption on the facts found.

Ratio Decidendi: Where a treaty provides that employment income "may be taxed" in the State where the employment is exercised, Indian taxation is not excluded merely because the employee is non-resident or the salary is paid in India; relief depends on actual foreign taxation or a treaty entitlement to exemption or credit.

---