Treaty exemption for State-paid remuneration fails where a government-controlled corporation is not shown to be the Contracting State.

Article 20(1)(a) of the India-Korea tax treaty exempts remuneration only when it is paid by a Contracting State in respect of services rendered to that State. A government-owned or government-controlled corporation with separate corporate personality is not, by that fact alone, the State or a department of the State. The applicant failed to prove that the salary of the head of the Indian liaison office was paid directly from government funds specifically allocated for personnel expenses. Exemption was therefore denied, and the remuneration remained taxable in India.

---

---

Issues: Whether remuneration paid to the head of an Indian liaison office of a Korean government-controlled corporation was exempt from tax in India under Article 20(1)(a) of the Double Taxation Avoidance Agreement between India and the Republic of Korea.

Analysis: The exemption under Article 20(1)(a) applies only where the remuneration is paid by a Contracting State in respect of service rendered to that State. A government-owned or government-controlled corporation with corporate personality is not, by that fact alone, the State or a department of the State. The material placed before the Authority did not establish with supporting evidence that the remuneration was paid directly out of government funds specifically allocated for personnel expenses. Although payment out of earmarked State funds could satisfy the treaty requirement, the applicant failed to prove the necessary factual foundation.

Conclusion: The claim for exemption was rejected and the remuneration was held taxable in India.

Final Conclusion: The ruling held that the applicant had not shown that the salary was paid by the Contracting State within the meaning of the treaty, leaving the assessing authority free to consider any further material, if produced.

Ratio Decidendi: For Article 20(1)(a) to apply, the remuneration must be shown to have been paid by the Contracting State or out of government funds specifically allocated for that purpose, and a separate government-controlled corporation is not automatically treated as the State.

---