Foreign assignment allowance utilized abroad not taxable in India under Income Tax Act.

The Tribunal upheld the CIT(A)'s decision to delete the addition of foreign assignment allowance received outside India from the assessee's total income under section 5(2) of the Income Tax Act, 1961. The Tribunal found that the foreign allowance was received and utilized outside India for services rendered abroad, aligning with legal precedents and confirming the non-taxability of such income in India. Consequently, the Revenue's appeal was dismissed, affirming the exemption of the foreign assignment allowance from taxation in India.

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Issues Involved:
1. Justification of the deletion of the addition made by the Assessing Officer under section 5(2) of the Income Tax Act, 1961 for foreign assignment allowance received outside India.

Detailed Analysis:

Issue: Justification of the deletion of the addition made by the Assessing Officer under section 5(2) of the Income Tax Act, 1961 for foreign assignment allowance received outside India.

Facts:
- The assessee, an employee of IBM India Private Limited, was on a short-term assignment in Switzerland for 331 days during the financial year 2012-13, making his residential status for the year Non-Resident.
- The assessee received a gross salary in India of Rs. 6,77,128 and foreign allowances in Switzerland of Rs. 51,84,489.
- IBM deducted TDS of Rs. 16,04,063 on the entire emoluments, including the foreign allowances.
- The assessee filed a return of income declaring only the salary received in India and claimed a refund of Rs. 15,58,060.

Assessee's Argument:
- The foreign allowance of Rs. 51,84,489 was not offered to tax in India as it was received outside India for services rendered outside India, and thus does not form part of the total income under section 5(2) of the Act.
- The foreign assignment allowance was credited to the assessee’s Travel Currency Card (TCC) issued by Axis Bank, which is denominated in foreign currency and can be used only outside India.
- Axis Bank confirmed that the allowance was credited to the International Travel Card through its Nostro Account situated outside India.

Assessing Officer's (AO) Argument:
- The AO contended that the foreign assignment allowance was received pursuant to the employment contract entered in India, and the first point of receipt was in India before it was transferred to the TCC.
- Therefore, the receipt is taxable in India as per section 5(2) of the Act, and denied the exemption claim of Rs. 51,84,489.

CIT(A)'s Decision:
- The CIT(A) deleted the addition and granted relief to the assessee, leading to the Revenue's appeal.

Tribunal's Analysis:
- The Tribunal reviewed various documents, including the passport, IBM's certificate, Axis Bank TCC statement, and details of Nostro Accounts.
- It was established that the assessee was a non-resident and had rendered services outside India, receiving the foreign assignment allowance outside India.
- The first point of receipt of the funds in the TCC was outside India, and the funds were used for sustenance in Switzerland.
- The foreign assignment allowance was subjected to tax in Switzerland, and the assessee paid taxes in India on the salary received in India.

Legal Precedents:
- The Tribunal referred to the Jaipur Tribunal decision in the case of ADIT (International Taxation) vs Sri Kartik Vyas, which held that foreign allowances received by a non-resident for services rendered outside India are not liable to tax in India under section 5(2) of the Act.
- The Tribunal also considered the decisions of the Hon’ble Karnataka High Court in DIT (International Taxation) vs Prahlad Vijendra Rao and the Hon’ble Bombay High Court in CIT vs Avtar Singh Wadhwan, which supported the view that income accruing or arising outside India to a non-resident is not taxable in India.

Conclusion:
- The Tribunal concluded that both the accrual and receipt of the foreign assignment allowance occurred outside India, making it exempt from tax under section 5(2) of the Act.
- The CIT(A)'s decision to delete the addition was upheld, and the Revenue's appeal was dismissed.

Final Order:
- The appeal of the Revenue was dismissed in all the three cases.

Pronouncement:
- The order was pronounced in the Court on 11.07.2018.

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