Foreign salary taxation turns on where services are performed, with India taxing only income linked to work done in India.

Salary income is taxable with reference to where the employment is actually exercised, so remuneration attributable to services performed in the United Kingdom by a non-resident could not be taxed in India merely because it was received there. The Tribunal applied Sections 15(a), 5(2) and 9(1)(ii) of the Income-tax Act, 1961, and accepted treaty relief under Article 16(1) of the India-UK Double Taxation Avoidance Agreement on the footing that the foreign salary had already been offered to tax in the United Kingdom. Salary attributable to services performed in India remained taxable in India, and the assessment was to be recomputed accordingly.

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Issues: Whether salary earned for services performed in the United Kingdom by a non-resident assessee was taxable in India, and whether the assessee was entitled to treaty relief under Article 16(1) of the India-UK Double Taxation Avoidance Agreement.

Analysis: The assessee was non-resident in India and had rendered services partly in India and partly in the United Kingdom. The salary relatable to work performed in the United Kingdom was received in India from the employer, but the decisive consideration was the place where the employment was actually exercised. The provisions governing salary income, namely Section 15(a), Section 5(2), and Section 9(1)(ii) of the Income-tax Act, 1961, had to be applied so that salary accrued where services were rendered, and salary earned for foreign services could not be taxed in India merely because payment was received in India. The Tribunal also followed the coordinate bench view that treaty protection could not be denied on the footing adopted by the lower authorities, and accepted that the foreign salary had already been offered to tax in the United Kingdom.

Conclusion: Salary attributable to services performed in the United Kingdom was held not taxable in India, while salary attributable to services performed in India remained taxable. The assessment was directed to be recomputed accordingly, resulting in partial relief to the assessee.

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