TaxTMI 
TaxTMI 
2018 (2) TMI 521
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....he periods of deputation in respect of the said employees are as under: S.No. Name of the employee Period of deputation 1. Mr. Rajendrababu Two years and three months - effective from 16.01.2010 2. Ms. Prashanth Two years - effective from 01.01.2011 2.1 During the period of deputation the assignees would continue to be on the payrolls of the applicant and would regularly receive salaries in India from the applicant and would receive certain allowances in their respective country of deputation for meeting their cost of housing, transportation etc. During this period of assignment the employees would be rendering services in their respective country of deputation. 2.2 It is stated in the application that the assignees would be non- residents in India during the Financial Year 2011-12, and in the year of arrival in India after completion of assignment i.e. Financial Year 2012-13 the residential status of the assignees would be as follows: (i) Mr. Rajendrababu's presence in India is expected to exceed 182 days. Further, his presence in India would exceed 729 days during the preceding 7 years as evidenced by the passport. (ii)....
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....ed as resident of USA as per the Treaty. (ii) As per Article 4(1) of the Indo-Germany treaty, Ms. Prashanth would be non-resident in India and liable to tax in India only on the income accrued / arising / received / deemed to accrue / arise in India. In other words Ms. Prashanth is liable to be taxed only on India sourced Income and therefore would not qualify as a resident of India as per Article 4(1) of the Treaty. Further, as per the Germany domestic tax laws, Ms. Prashanth would be treated as resident of Germany for the calendar years 2011 and 2012. She would therefore be liable to tax on her worldwide income in Germany during the assignment period and accordingly be treated as resident of Germany as per the Treaty. 2.5 The Applicant has been withholding taxes on the salary paid in India as a matter of abundant caution. These assignees are entitled to relief under the provisions of the Treaty, and hence refund would be claimed by them for the taxes withheld by the applicant in their respective tax returns by virtue of the beneficial provisions of the Treaty. The applicant has also submitted that the department has granted refunds to other employees being non-r....
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.... Article 16 of the said Treaty. In other words salaries, wages, and other similar remuneration derived by a resident of USA in respect of employment shall be taxable only in USA as the employment is not exercised in India. As regards Ms.Prashanth, she would be a resident of Germany as per the Treaty, she would have access to the benefits of Article 15 of the said Treaty, and salaries, wages, and other similar remuneration derived by a resident of Germany in respect of employment shall be taxable only in Germany under the treaty as the employment is not exercised in India. 4.2 The applicant further submits that Section 5(2) begins with "Subject to the provisions of this Act", the total income needs to be arrived at after considering all the relevant provisions of the Act. Section 15 of the Act contemplates that salary is chargeable to tax on accrual basis. It is chargeable to tax on paid basis only when it is paid in advance, and arrears of salary are chargeable to tax on receipt if they have not already been taxed on accrual basis. Further the salary paid by the applicant to the assignees relates to services rendered in USA and Germany respectively and hence does not accrue to t....
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....t to tax withholding in India. In the case of CIT vs Coromandal Fertilisers Ltd, [1991], 187 ITR 673 (AP), it was held that unless there is an obligation on the part of the recipient to pay tax under the head salaries, the obligation to deduct tax under Section 192 does not arise. 5. With respect to Question no. 2, it is submitted that the assignees would be RORs in India during the financial year 2012-13. Hence the assignees would be subject to tax in India on their worldwide income. Given that the assignees are residents of the USA and Germany respectively till the date of departure, such income would be subject to tax in USA and Germany as well. Credit for the taxes paid in USA and Germany is available to the assignees based on Article 25 and 23 of the Treaties respectively. It is stated that Section 192(2) provides that an employee who is working simultaneously under more than one employer can furnish the details of salary, tax deducted at source and such other particulars in a prescribed form to one of the employers, who would need to consider "such other particulars" and all the details provided by the employee, and is obliged to consider the same in computing the ta....
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....Act will apply. Therefore, any salary paid in India by the applicant to its employees outside India is liable to tax in India. Hence the applicant is required to deduct TDS u/s 192 on payment of such salary and allowances. The reference made by the applicant to Section 15 may not be applicable as the Section talks about accrual (due) and payment in a particular assessment year but not the place of accrual or payment. 6.2 Responding to the issues raised by the Authority during the course of these proceedings, the Ld. Standing Counsel for the Revenue, Mr K V Arvind again referred to Section 5(2),to say that in the instant case, the salary is received in India. Hence, the total income of the employees, including all income from whatever source derived which is received in India, will be taxed in India. Further, the salary is accrued or arisen in India as the contract between the employer and the employee has been entered in India. As per Section 15 of the IT Act, any salary due from the employer shall be chargeable to income tax in India. Accordingly, the applicant must withhold the due taxes. 6.3 Further, on the question whether such amount was taxable in India by "exerci....
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....ion he also invited reference to paragraph 1 of the OECD commentary to Article 15, wherein it is clarified that the place where the employee is physically present when performing the activities for which the employment income is paid is relevant for this purpose. Thus, based on both the domestic law as well as the Treaty, the term "place of exercise of employment" is to be determined basis the place where services are rendered i.e. place of physical presence of the employee and hence salarywould be considered as "earned in India" only if the employee is physically present and is rendering the services in India. 7.1 Regarding the Revenue's submission that the cases cited by the Applicant were not applicable as in those cases the employer was a foreign company, the Applicant has cited the decision of the High Court of Bombay in the case of Avtar Singh Wadhawan, 2001, 247 ITR 260, where the employer was Shipping Corporation of India, an Indian company, which also supported its case. The fact that the employer happened to be an overseas shipping company in some cases was purely incidental. 8. With regard to question No. 2, the Revenue submitted that on the above facts, the ....
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....r laid down in this Act. Section 5 deals with the "Scope of Total Income", and sub-section (2) relates to non-residents. Section 5(2) begins with the words "Subject to the provisions of this Act", which brings Chapter IV into play, i.e. computation of total income. In this chapter, Section 14lists out the various heads of Income and Section 15 deals with the head "Salaries". Thus, chargeability to tax under the head "Salaries" arises under section 5(2) read with section 15. Revenue's attempt to say that section 5(2) alone is the charging section and income received by the assignees should be taxed in India as it was received in India, cannot be accepted. Section 15 reads as under: "The following income shall be chargeable to income-tax under the head "Salaries": (a) any salary due from an employer or a former employer to an assessee from an employer in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or....
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....t is exercised is the place where the employee is personally present for the purpose of exercising his employment. If the activities cannot be exercised elsewhere than on the spot, there is no question that this spot is the place where the employment is exercised.........All that matters under the MCs is whether or not the employee is personally present." 9.5 A reading of the explanation to section 9(1)(ii) of the Act also clearly indicates to the view held above. 9.6 Further, since section 5 (2) of the IT Act starts with the words "Subject to the provisions of the Act", section 90 would also have to be considered, so as to allow any benefit arising there under to the Applicant. Article 16 of the India-USA DTAA, reads as under: "......salaries, wages and such other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that state unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State." Similarly, Article 15 of the India-Germany DTAA reads as under: "1.......salaries, wages a....
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.... the assignees are clearly covered by the provisions contained in Articles 25 of the India-USA DTAA and Article 23 of India- Germany DTAA respectively. As such they are entitled to the credit for the foreign taxes deducted. Once they become residents on return to India during the FY 2012-13, and the nature of payments made to them by the Applicant is admittedly in the nature of Salaries, section 192 applies. It follows that when payments are received by these employees from more than one source during a particular year, the provisions of section 192(2) will apply, and the present employer can give credit for the taxes deducted during their deputation outside India. This issue was also considered in the case of British Gas India Private Limited (supra), where this Authority had ruled, on similar facts, that where employees are working simultaneously with more than one employer, they are covered under Section 192(2) of the Act. In the case of Coromandel Fertilisers Ltd. (Supra) also it was held that where a foreign tax credit is available, the tax payable by the employee is lowered to the extent of the foreign tax credit available. 10.1 With regard to the Revenue's concern regardi....