Foreign salary included for tax rate purposes where the India-France treaty preserved domestic rate computation

A resident assessee's salary earned in France was includible in total income for rate purposes under the Income-tax Act, 1961. Section 5 brought foreign-source income of a resident within total income, and section 110 permitted income on which no tax was payable to be aggregated for computing the applicable rate on remaining income. The India-France double taxation agreement did not exclude the salary from total income; it only prevented taxation in the contracting state where the services were not rendered. Article XIX preserved domestic tax law, and Article XIX(4) expressly allowed such income to be taken into account for rate calculation. The foreign salary was therefore rightly included for rate purposes.

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Issues: Whether salary earned in France by a resident assessee was includible in total income for rate purposes under the Income-tax Act, 1961 in view of the India-France double taxation agreement.

Analysis: The assessee was a resident, and section 5 of the Income-tax Act, 1961 brought within total income income arising outside India. Section 110 showed that where an item is included in total income though no tax is payable on it, tax on the remaining income is to be computed at the applicable rate after taking such income into account. The agreement with France did not exclude the foreign salary from total income; it only provided that such income would not be subjected to tax in the contracting state where the services were not rendered. Article XIX preserved the operation of domestic tax law and article XIX(4) expressly permitted income not subjected to tax under the agreement to be included for calculating the rate of tax.

Conclusion: The foreign salary was rightly included in the total income for rate purposes, and the assessee's challenge failed.

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