Treaty protection for foreign employment income prevented Indian taxation of salary earned and taxed in the U.K.

A non-resident's salary for employment exercised in the U.K. was held not taxable in India because the services were rendered outside India and the income was offered to tax in the U.K. under the India-U.K. DTAA. The treaty rule taxing employment income in the State where the employment is exercised governed the matter, and the domestic charging provision could not be used to tax the same salary again in India merely because payment was routed through an Indian employer. The Indian addition was therefore unsustainable, and the exclusion of the salary from Indian taxation was upheld.

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Issues: Whether salary received by a non-resident assessee for employment exercised in the U.K. was taxable in India when the income had also been offered to tax in the U.K. under the India-U.K. tax treaty.

Analysis: The assessee was found to be a non-resident and the salary-related services were rendered in the U.K. The tax return and supporting material showed that the remuneration, including the Indian salary component, was offered for taxation in the U.K. The relevant treaty provision allowed salary income to be taxed only in the State where the employment was exercised, unless the employment was exercised in the other Contracting State. On those facts, the domestic taxing provision was not applied to bring the salary to tax in India, and the treaty position governed the taxability of the income.

Conclusion: The salary received for employment exercised in the U.K. was not taxable in India; the addition made in India was unsustainable and the assessee succeeded.

Final Conclusion: The revenue's challenge failed, and the exclusion of the salary income from Indian taxation was upheld on the basis of the applicable treaty position.

Ratio Decidendi: Where a non-resident's employment is exercised outside India and the salary is taxable in the foreign State under the applicable DTAA, the same salary cannot be taxed again in India merely because it was received through an Indian employer.

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