Resident taxation of foreign salary bonus and full foreign tax credit for tax paid on the same employment income.

A resident assessee's bonus received from a Singapore employer was treated as taxable in India because it was received during the relevant year and formed part of salary income, even though it related to earlier services rendered in Singapore. The India-Singapore treaty was noted to permit taxation of employment remuneration in the state where the employment is exercised. On foreign tax credit, the tax paid in Singapore on the same salary and bonus income was held not to be subject to an artificial percentage restriction, as no such limitation was supported by the Act or treaty. Full foreign tax credit was therefore allowable for the foreign tax actually paid on that income.

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Issues: (i) Whether bonus received from a Singapore employer was taxable in India in the hands of a resident assessee; (ii) whether foreign tax credit on the Singapore tax paid on such bonus and related salary income was to be restricted or allowed in full.

Issue (i): Whether bonus received from a Singapore employer was taxable in India in the hands of a resident assessee.

Analysis: The bonus was declared and paid in the relevant previous year, when the assessee was a resident of India, though it related to services rendered earlier in Singapore. The income was treated as part of salary by the employer and was received during the year. On these facts, the receipt was held to fall within the charging provisions governing resident taxation and to be taxable in India for the year under consideration. Reference was also made to the India-Singapore treaty, under which employment remuneration may be taxed in the state where the employment is exercised.

Conclusion: The bonus was taxable in India in the assessee's hands.

Issue (ii): Whether foreign tax credit on the Singapore tax paid on such bonus and related salary income was to be restricted or allowed in full.

Analysis: The tax paid in Singapore related to the same salary and bonus income. The restriction adopted by the Assessing Officer by applying a percentage formula was held to have no support in the Act or the treaty. Since the foreign tax was paid on the very same income, full credit was held allowable under the foreign tax credit mechanism embodied in section 90.

Conclusion: Full foreign tax credit was directed to be allowed for the Singapore tax paid on the relevant salary and bonus income.

Final Conclusion: The addition was not deleted, but the assessee succeeded on the foreign tax credit claim and the Assessing Officer was directed to grant credit in full, resulting in a partial substantive relief.

Ratio Decidendi: Where the same employment-related income is taxable in India in the year of receipt for a resident assessee, foreign tax credit cannot be artificially curtailed by a percentage formula and must be allowed in accordance with the Act and the applicable treaty for the tax actually paid on that very income.

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