Treaty relief for foreign salary: pay received in India for services rendered in Ireland was held outside Indian tax net.

A non-resident employee's salary received in India for services actually rendered in Ireland was held not taxable in India because the employment was exercised outside India and the treaty conditions under Article 15(1) of the India-Ireland DTAA were satisfied. The fact that payment was routed through an Indian entity for administrative convenience did not alter the character of the income. On the same facts, section 9(1)(ii) did not deem the salary to accrue or arise in India, since that provision applies only where services are rendered in India. The addition was deleted.

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Issues: (i) whether salary received in India for services rendered in Ireland by a non-resident employee was exempt from tax in India under Article 15(1) of the India-Ireland Double Taxation Avoidance Agreement; (ii) whether such salary could be deemed to accrue or arise in India under section 9(1)(ii) of the Income-tax Act, 1961.

Issue (i): whether salary received in India for services rendered in Ireland by a non-resident employee was exempt from tax in India under Article 15(1) of the India-Ireland Double Taxation Avoidance Agreement.

Analysis: The assessee was treated as a non-resident and had rendered services outside India in Ireland. The material on record showed that the employment was exercised in Ireland and that the salary was paid in India only for administrative convenience, with reimbursement by the Irish entity. The conditions referred to under Article 15(1) were satisfied, as the employment was exercised outside India and the stay condition was not disputed.

Conclusion: The salary income was exempt from tax in India under Article 15(1) of the India-Ireland Double Taxation Avoidance Agreement and the disallowance was unsustainable.

Issue (ii): whether such salary could be deemed to accrue or arise in India under section 9(1)(ii) of the Income-tax Act, 1961.

Analysis: Section 9(1)(ii) treats salary as earned in India only when the services are rendered in India. Since the assessee's services were rendered in Ireland, the salary could not be regarded as income earned in India merely because it was paid through the Indian entity. The finding that the employment was exercised outside India negatived the deeming provision.

Conclusion: The salary could not be deemed to accrue or arise in India under section 9(1)(ii) of the Income-tax Act, 1961.

Final Conclusion: The addition made on account of salary income was deleted, and the assessee's appeal succeeded in full.

Ratio Decidendi: Salary paid in India for services actually rendered outside India by a non-resident employee is not taxable in India when the treaty conditions are satisfied and the deeming fiction under section 9(1)(ii) does not apply.

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