Treaty residence rules controlled salary taxation where employment was exercised in Thailand, not India, under the India-Thailand DTAA.

Salary paid to a Thailand resident for work physically performed in Thailand was held taxable only in Thailand under Article 15 of the India-Thailand DTAA. Because the employment was exercised in Thailand under the supervision and control of the Thailand company, Article 15(1) applied and Article 15(2) did not, as the employment was not exercised in India. Deduction of TDS in India did not alter the treaty position, and the addition by the tax authority was deleted.

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Issues: Whether salary received by a Thailand resident from an Indian employer was taxable in India or only in Thailand under Article 15 of the India-Thailand DTAA.

Analysis: The assessee was found to be a resident of Thailand during the relevant year and to have worked physically in Thailand under the supervision and control of the Thailand company. On these facts, the employment was exercised in Thailand, bringing the case within Article 15(1), under which salary derived by a resident of a contracting state in respect of employment is taxable only in that state unless the employment is exercised in the other contracting state. The conditions of Article 15(2) were not satisfied because the employment was not exercised in India. The deduction of TDS in India did not override the treaty position.

Conclusion: The salary income was taxable only in Thailand and not in India. The addition made by the Assessing Officer was rightly deleted.

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