Non-resident salary for services performed in the United States is not taxable in India under the India-USA treaty.

Salary paid to a non-resident for employment services rendered wholly in the United States was not taxable in India, because taxability depended on the place where the services were actually performed. The fact that the amount was routed through an Indian entity and subject to deduction at source in India was immaterial when the underlying employment activity occurred outside India. Article 16(1) of the India-USA Double Taxation Avoidance Agreement applied on the basis of the service location, and the assessee was entitled to treaty protection.

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Issues: Whether the salary received in India by a non-resident assessee for services rendered wholly in the United States was taxable in India, and whether Article 16(1) of the India-USA Double Taxation Avoidance Agreement applied to such income.

Analysis: The assessee's non-resident status was accepted on the record. The services relating to the disputed salary were rendered in the United States and the income was taxed there. The fact that the amount was credited through an Indian entity and tax was deducted at source in India was held to be immaterial where the real nature of the transaction showed that the employment services were performed outside India. The applicability of Article 16(1) depended on the country where the services were rendered, and on the undisputed facts that country was the United States. Mere book entries or payment mechanics could not determine taxability when the underlying employment activity occurred outside India.

Conclusion: The salary was not taxable in India and the assessee was entitled to treaty protection under Article 16(1) of the India-USA Double Taxation Avoidance Agreement.

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