Treaty relief for UK assignment per diem upheld; remuneration linked to foreign employment not taxable in India.

A non-resident employee's per diem linked to a UK assignment was treated as not taxable in India under Article 16(1) of the India-UK DTAA read with section 90, because remuneration for employment exercised in the other contracting state may be taxed in that state. The assessee had filed the assignment agreement, passport travel records and a UK tax residency certificate, supporting the claim of non-resident status and treaty relief. The balance salary was already offered to tax in India, and the revenue's inference that the full amount had not been properly returned was not accepted. The addition made on the per diem amount was deleted.

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Issues: Whether the per diem amount received by a non-resident assessee during employment in the United Kingdom was taxable in India or exempt under Article 16(1) of the India-UK Double Taxation Avoidance Agreement read with section 90 of the Income-tax Act, 1961, and whether the addition made on that account was sustainable.

Analysis: The assessee was held to be a non-resident for the relevant assessment year and had produced the assignment agreement, passport travel details and UK tax residency certificate. The dispute was confined to the per diem amount of Rs. 16,17,724. Under Article 16(1) of the treaty, salary and similar remuneration derived in respect of employment exercised in the other contracting state may be taxed in that state. On the facts recorded, the per diem payment was linked to the UK assignment and, if taxable at all, fell within UK taxing rights. The balance salary was offered to tax in India, and the revenue's contrary inference that the full amount had not been duly offered to tax was not accepted.

Conclusion: The per diem amount was held not taxable in India, and the addition of Rs. 17,25,932 was deleted.

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