Treaty protection for foreign employment income: salary for UK services by a non-resident was not taxable in India.

A non-resident employee's salary attributable to services performed in the United Kingdom was held not taxable in India where the income had already been offered to tax in the UK. The treaty rule in Article 15(1) of the India-UK DTAA prevailed over the domestic charging provisions, so payment of salary in India and the continuance of the employer-employee relationship did not by themselves create Indian taxability for foreign employment income. The salary linked to work performed in India was not in issue on the same basis. The addition was deleted and that deletion was upheld.

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Issues: Whether salary received for services rendered in the United Kingdom by a non-resident assessee was taxable in India, or was exempt under Article 15(1) of the India-UK DTAA.

Analysis: The assessee was treated as a non-resident for the relevant assessment year. The salary in dispute related to employment exercised in the United Kingdom, while the salary continued to be paid in India by the employer. The decisive consideration was that the income attributable to services rendered in the foreign jurisdiction had already been offered to tax in the United Kingdom. In such a situation, the treaty provisions governing employment income prevailed over the domestic charging provisions, and the salary attributable to work performed outside India could not be brought to tax in India merely because payment was made in India or the employer-employee relationship continued. The salary referable to work performed in India was not in dispute in the same manner.

Conclusion: The salary earned for services rendered in the United Kingdom was not taxable in India, and the deletion of the addition was upheld.

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