Treaty relief for salary earned in Australia: remuneration remained taxable only in Australia despite credit in India.

Salary credited in India for services rendered in Australia by an assessee treated as a non-resident of India was held to fall within the India-Australia DTAA. The analysis applied section 5(2), section 15(a) and section 9(1)(ii) of the Income-tax Act together with Article 1 and Article 15(1) of the treaty, and treated salary taxation on an accrual basis. Because the assessee was a resident of Australia and the employment was exercised in Australia, the remuneration was taxable only in Australia, notwithstanding receipt in India. The foreign tax credit reasoning relied on was found inapplicable on the facts.

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Issues: Whether salary received in India for services rendered in Australia during the relevant period was taxable in India, or taxable only in Australia under the India-Australia DTAA.

Analysis: The assessee was treated as a non-resident of India and had rendered services in Australia during the relevant period. The salary for that period was credited in India, but the dispute turned on the combined operation of section 5(2)(a), section 15(a) and section 9(1)(ii) of the Income-tax Act, 1961, together with Article 1 and Article 15(1) of the India-Australia DTAA. Section 5(2) is subject to the Act, and salary is governed by section 15 on an accrual basis. On the treaty scheme, Article 1 applies to residents of one or both Contracting States and Article 15(1) provides that remuneration derived by a resident of one State is taxable only in that State unless the employment is exercised in the other State. Since the assessee was a resident of Australia and the employment was exercised in Australia, the salary fell within the treaty protection. The relied-upon foreign tax credit reasoning was also found inapplicable on the facts.

Conclusion: The salary for the period 31.08.2014 to 31.03.2015 was not taxable in India and was taxable only in Australia.

Ratio Decidendi: Where an assessee is a resident of Australia, is a non-resident of India, and earns salary for employment exercised in Australia, Article 15(1) of the India-Australia DTAA prevails so that such salary is taxable only in Australia, notwithstanding receipt in India.

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