Non-resident salary taxation: overseas service income escapes Indian tax, and treaty relief should not fail on a procedural objection.

For a non-resident employee, salary and foreign assignment allowance are taxable in India only if received or deemed to be received in India, or if they accrue or arise in India. Where the services are rendered outside India, the corresponding salary income does not accrue in India and is not taxable in India. The text also states that treaty relief under the India-UK tax treaty should not be denied merely for non-production of a tax residency certificate when the substantive conditions for relief are otherwise met. On these facts, the salary and foreign assignment allowance for overseas services were not taxable in India and the addition was deleted.

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Issues: Whether salary and foreign assignment allowance received by a non-resident employee for services rendered outside India were taxable in India, and whether relief under the India-UK tax treaty could be denied on the ground that the employee did not produce a tax residency certificate.

Analysis: The assessee was treated as a non-resident and had rendered services in the United Kingdom. Once non-resident status was established, the taxable scope under the Act was confined to income received or deemed to be received in India, or income accruing or arising in India. Salary is compensation for services rendered, and where the services are rendered abroad, the salary income attributable to such services does not accrue in India. The record also showed that the income had been offered to tax in the United Kingdom. In these circumstances, the treaty claim could not be rejected merely on the procedural objection regarding non-production of the tax residency certificate when the substantive conditions for treaty relief were otherwise satisfied.

Conclusion: The salary and foreign assignment allowance earned for services rendered outside India were not taxable in India in the hands of the non-resident assessee, and the addition was liable to be deleted.

Ratio Decidendi: For a non-resident, salary income is taxable in India only to the extent it is received or deemed to be received in India, or accrues or arises in India; where the services are rendered outside India, the corresponding salary is not taxable in India.

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