2020 (5) TMI 77 - AT - Income Tax

Assessee's Australia-earned salary not taxable in India under DTAA

The Tribunal allowed the appeal of the assessee, holding that the salary earned in Australia for services rendered there should only be taxable in ... Taxability of salary - Accrual basis of salary - Section 15 of the Act - Scope of total income - receipt in India - Section 5(2)(a) - Residence-based taxation under DTAA - Article 15(1) India Australia DTAA - dependent personal services - Personal scope of DTAA - Article 1 - Treaty entitlement of a person resident of one Contracting StateArticle 15(1) India Australia DTAA - dependent personal services - Personal scope of DTAA - Article 1 - Accrual basis of salary - Section 15 of the Act - Scope of total income - receipt in India - Section 5(2)(a) - Treaty entitlement of a person resident of one Contracting State - Whether salary paid for services rendered in Australia during 31.08.2014 to 31.03.2015 and credited to an Indian bank account is taxable in India or exempt by virtue of Article 15(1) of the India Australia DTAA. - HELD THAT: - The Tribunal found as undisputed that the assessee rendered services in Australia during 31.08.2014 to 31.03.2015, became a resident of Australia for the relevant period, filed Australian tax returns disclosing that salary and produced a tax residency certificate. Although the salary was credited to the assessee's bank account in India and included in Form 16 after TDS, Section 5(2)(a) is subject to the other provisions of the Act and to treaty obligations. Salary is chargeable on an accrual basis under Section 15, and income is deemed to accrue or arise in India under Section 9(1)(ii) only if earned for services rendered in India. Article 1 of the India Australia DTAA makes the treaty applicable to persons who are residents of one or both Contracting States. Article 15(1) provides that remuneration derived by a resident of one Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other State; where the employment is exercised in the other State, that State may tax remuneration attributable to such exercise. Applying these provisions, because the assessee was resident of Australia and the employment was exercised in Australia, the income for the period 31.08.2014 to 31.03.2015 was taxable only in Australia. The Tribunal distinguished an adverse coordinate bench decision relied on by the Department on facts (different treaty and claims) and noted supporting High Court decisions and CBDT Circular No.13/2017. On the combined statutory and treaty analysis, the Tribunal held that Indian taxation by reference to receipt in India under Section 5(2)(a) could not override the treaty entitlement and the accrual based chargeability under Section 15; accordingly the salary was not taxable in India. [Paras 4, 5, 8]Salary for the period 31.08.2014 to 31.03.2015 is taxable only in Australia under Article 15(1) of the India Australia DTAA and is not taxable in India; the assessee's appeal is allowed.Final Conclusion: The appeal is allowed: salary attributable to services rendered in Australia during 31.08.2014 to 31.03.2015, though paid into an Indian account, is taxable only in Australia under Article 15(1) of the India Australia DTAA and not taxable in India for Assessment Year 2015-16. Issues:1. Determination of assessed income and non-issuance of refund.2. Applicability of Article 15(1) of India-Australia DTAA on taxing salary income.3. Taxability of salary based on accrual vs. receipt.4. Invocation of provisions of India-Australia DTAA for double taxation elimination.5. Taxability of salary received in India for services rendered in Australia.Issue 1: Determination of assessed income and non-issuance of refund:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2015-16. The appellant challenged the determination of assessed income and non-issuance of refund amounting to INR 1,224,183. The grounds raised were dismissed by the CIT(A)-16, leading to no relief being granted.Issue 2: Applicability of Article 15(1) of India-Australia DTAA on taxing salary income:The main issue revolved around whether the salary received by the assessee from an Australian entity could be taxed in India. The assessee argued for the applicability of Article 15(1) of the India-Australia DTAA, claiming that the salary earned in Australia should not be taxable in India. The Tribunal analyzed the provisions of the treaty and concluded that the salary income of a resident of Australia is taxable only in Australia, not in India.Issue 3: Taxability of salary based on accrual vs. receipt:The Tribunal examined the taxability of the salary received by the assessee in India for services rendered in Australia. Despite the salary being received in India, the Tribunal held that under the Income-tax Act, salary earned for services in Australia should be taxable only in Australia, as per the provisions of Section 5(2)(a) and Section 15 of the Act.Issue 4: Invocation of provisions of India-Australia DTAA for double taxation elimination:The Tribunal addressed the invocation of specific clauses of the India-Australia DTAA for the elimination of double taxation. It was emphasized that the treaty benefit shall apply to residents of both India and Australia. The decision highlighted that the assessee, being a resident of Australia and non-resident of India, was entitled to the treaty benefits under Article 15 of the DTAA.Issue 5: Taxability of salary received in India for services rendered in Australia:The Tribunal considered the factual background where the assessee was employed in Australia but received salary in India. By analyzing the provisions of the India-Australia DTAA and relevant sections of the Income-tax Act, the Tribunal concluded that the salary earned for services in Australia should be taxed only in Australia, as the assessee was a resident of Australia during the relevant period.In conclusion, the Tribunal allowed the appeal of the assessee based on the detailed analysis of the treaty provisions, relevant sections of the Income-tax Act, and judicial precedents supporting the non-taxability of the salary in India for services rendered in Australia by a resident of Australia.