Foreign salary in Sweden and treaty protection limited Indian taxation under the Black Money Act and section 90(2).

Salary earned in Sweden and credited to a Swedish bank account was examined under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, with the Tribunal reading sections 2(12), 3 and 4 harmoniously and treating the foreign account as a foreign asset linked to the income. It also noted that, on the facts, the Department received the relevant information only in November 2021, so taxation could not be sustained in the earlier assessment years on a year-of-detection basis. Further, Article 15 of the India-Sweden treaty, read with section 90(2) of the Income-tax Act, was applied to recognise Sweden's taxing over the remuneration and the more beneficial treaty position.

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Issues: (i) whether salary earned in Sweden and credited to a foreign bank account constituted undisclosed foreign income assessable under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 in AY 2016-17 and AY 2018-19; (ii) whether the proviso to section 3 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 required taxation only in the year of detection; and (iii) whether Article 15 of the Double Taxation Avoidance Agreement between India and Sweden, read with section 90(2) of the Income-tax Act, 1961, prevented taxation in India.

Issue (i): Whether salary earned in Sweden and credited to a foreign bank account constituted undisclosed foreign income assessable under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 in AY 2016-17 and AY 2018-19.

Analysis: The salary was received in Sweden and credited to a bank account maintained there. The Tribunal read sections 2(12), 3 and 4 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 harmoniously and held that undisclosed foreign income and the foreign asset to which it is embedded cannot be artificially separated. On the facts, the foreign bank account was treated as a foreign asset and the income linked to it was considered within the statutory scheme of the Act.

Conclusion: The salary income was not liable to be sustained as taxable undisclosed foreign income in the impugned assessment years.

Issue (ii): Whether the proviso to section 3 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 required taxation only in the year of detection.

Analysis: The Tribunal held that the information regarding the foreign income reached the Department only in November 2021. It concluded that, even assuming applicability of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, taxation could arise only in the year of detection and not in AY 2016-17. The addition for AY 2016-17 was therefore unsustainable, and the same reasoning was applied mutatis mutandis to AY 2018-19.

Conclusion: The addition could not be brought to tax in AY 2016-17 or AY 2018-19.

Issue (iii): Whether Article 15 of the Double Taxation Avoidance Agreement between India and Sweden, read with section 90(2) of the Income-tax Act, 1961, prevented taxation in India.

Analysis: The assessee was a resident of India, but the employment was exercised in Sweden and the employer was a tax resident of Sweden. The Tribunal held that Article 15(1) applied and that the remuneration was taxable in Sweden. It further held that section 90(2) of the Income-tax Act, 1961 gave effect to the more beneficial treaty position, and that income not chargeable in India under the treaty could not be brought to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Conclusion: The income was not chargeable to tax in India under the treaty and section 90(2).

Final Conclusion: The additions made for both assessment years were deleted, and the assessee obtained complete relief.

Ratio Decidendi: Where foreign salary is linked to a foreign bank account and the relevant treaty allocates taxing rights to the source State, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 cannot be used to sustain taxation in India in the year of the original earning if the income is not chargeable in India under the treaty read with section 90(2) of the Income-tax Act, 1961.

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