2016 (3) TMI 15 - AT - Income Tax

Court rules non-resident not liable for Indian tax on US salary under DTAA

The court ruled in favor of the non-resident assessee, holding that they were not liable for tax in India on the salary received for services rendered in ... Residential status - resident or nonresident of India - application of article 16(1) of Indo-USA DTAA denied - taxability of income - nationality - Held that:- As the facts emerge from record t the assessee’s residential status as nonresident has been accepted by the ld Assessing Officer, therefore, there is no justification on the part of the ld CIT(A) to hold that the assessee was a resident. It has not been disputed that the services in question was rendered by the assessee in US and taxed in the USA, which is evident from the relevant record filed on the paper book. The applicability of article 16(1) of Indo- USA DTAA depends on the country where services are rendered which in this case is undisputedly USA. The application of article 16(1) of Indo-USA DTAA cannot be denied to assessee merely because the salary check was paid by an Indian entity and the undisputed fact that no service was rendered by assessee for the impugned period in India. The Hon'ble Supreme Court in the case of Kedar Nath Jute Mnf. Co Ltd. Vs. CIT (Central) Kolkata [1971 (8) TMI 10 - SUPREME Court] has held that actual and legal nature of the transaction will decided the taxability and not mere book entries or assumptions. In view thereof, judgments in the case of CIT Vs. Nippon Limited (1998 (4) TMI 121 - CALCUTTA High Court), CIT Vs. Khambaty (1985 (10) TMI 91 - BOMBAY High Court) and Ranjit Kumar Bose Vs. ITO 18 ITD 230 (1986 (2) TMI 96 - ITAT CALCUTTA-C ), hold that the nonresident assessee is not liable for tax in India on the impugned amount. - Decided in favour of assessee Issues:1. Assessment of the assessee as a resident in India.2. Taxation of salary received in India for services rendered in the United States under the India-U.S. Double Taxation Avoidance Agreement.3. Charging of interest under Sections 244A and 234D.Analysis:Issue 1: Assessment of the assessee as a resident in IndiaThe appeal contended that the assessee was a non-resident in India during the relevant assessment year, having left India for employment in the United States. The argument emphasized that the provisions of Section 5 are subject to other provisions of the Act and cannot tax amounts outside the scope of taxation. The contention was supported by the claim that income should be taxed on an accrual basis rather than a receipt basis. The assessee's arguments were based on the applicability of the India-U.S. Double Taxation Avoidance Agreement (DTAA) and the definition of residence as per the treaty.Issue 2: Taxation of salary under DTAAThe dispute arose regarding the taxation of salary received in India for services rendered in the United States. The Assessing Officer proposed to assess the salary in India, citing the TDS deduction in India and the receipt of salary through an Indian entity. However, the assessee argued that the services were rendered in the U.S., supported by certifications and tax levies from U.S. authorities. The contention was that the salary was not taxable in India under Article 16(1) of the DTAA. The assessee relied on various judicial precedents to support the claim of exemption under the DTAA.Issue 3: Charging of interest under Sections 244A and 234DThe issue of charging interest under Sections 244A and 234D was raised in the appeal. However, the primary focus of the judgment was on the assessment of the assessee's residential status and the taxation of salary under the DTAA. The final decision allowed the appeal, concluding that the non-resident assessee was not liable for tax in India on the salary received for services rendered in the United States.In conclusion, the judgment favored the assessee's position, emphasizing the importance of where services were rendered for taxability under the DTAA and rejecting the taxation of salary in India based on the location of payment. The decision highlighted the significance of factual circumstances and legal nature in determining tax liability, as supported by relevant judicial precedents and treaty provisions.