Non-resident salary tax relief applies when employment is exercised abroad and treaty benefit is otherwise established

Salary received in India by a non-resident for employment actually exercised in Australia was treated as not taxable in India because the services were rendered wholly outside India and salary income is chargeable only when earned in India under sections 5, 9 and 15 of the Income-tax Act, 1961. Article 15(1) of the India-Australia DTAA, read with section 90, was applied to give the assessee the more beneficial treaty exemption. The later or absent tax residency certificate did not defeat treaty relief where foreign residency and taxation were otherwise shown.

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Issues: Whether salary received in India by a non-resident for services rendered and employment exercised in Australia was taxable in India, or exempt under Article 15(1) of the India-Australia DTAA read with section 90 of the Income-tax Act, 1961.

Analysis: The Assessee was held to be a non-resident in India and a resident of Australia for the relevant year. The salary was received in India only for administrative convenience, while the employment was exercised in Australia and the services were rendered wholly outside India. On a combined reading of sections 5, 9 and 15 of the Income-tax Act, 1961, income under the head salaries is taxable in India only when it is earned in India, and salary for services rendered outside India does not fall within that charge. The treaty provisions were also applied, and Article 15(1) governed the remuneration derived by a resident of Australia in respect of employment exercised in Australia. The absence or later production of the tax residency certificate did not defeat the substantive treaty entitlement where residency and foreign taxation were otherwise evidenced.

Conclusion: The salary was not taxable in India and the exemption under Article 15(1) of the India-Australia DTAA read with section 90 was allowable in favour of the Assessee.

Final Conclusion: The assessment disallowing the foreign salary exemption could not be sustained, and the addition made on that account was set aside.

Ratio Decidendi: Salary received in India by a non-resident is not taxable in India when the employment is actually exercised and the services are rendered outside India, and the applicable DTAA exemption prevails under section 90 where it is more beneficial to the assessee.

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