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2024 (3) TMI 249
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.... assessee was selected for limited scrutiny for the following reasons: 1. Salary income shown in ITR is less than the salary income as per 26AS 2. Salary income shown under Part B-TI is less than the salary income as per Annexure II of TDS return filed by the employer 3. Salary income shown under TDS schedule of ITR is higher than the salary income shown under Part B-TI 4. Taxable income shown in revised return is less than the taxable income shown in the original return and large refund has been claimed (Non-business ITR) 5. Substantial difference in total taxable income shown in Annexure II of TDS, return of employer in Form 24Q and that shown in ITR 3.1 On being asked to explain in this respect, the assessee explained that the assessee was employed with PricewaterhouseCoopers Private Limited ('PWC'), India. During the previous year relevant to assessment year under consideration, the assessee was on an international assignment to USA. During the year, the assessee stayed and exercised his employment in USA and had been in India for 16 days only. Though the salary was received in India in his bank account, however, the same was paid....
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....n from taxation of the salary received in India on account of services rendered in US for the relevant period. It was also submitted that the copy of the tax resident certificate as demanded by the Assessing Officer was also filed on 02.11.2021, however, the same was not considered by the Assessing Officer while passing the final assessment order and exemption under Article 16 of the Indo-US DTAA was wrongly denied. 4.1 In respect of the above submissions of the assessee, the ld. CIT(A) called for remand report from the Assessing Officer. 4.2 In the remand report, the Assessing Officer reported that though the assessee has claimed that he had stayed in India only for 16 days, however, the assessee had not submitted the documents in support of the stay in India for last four years, due to which, residential status of the assessee in India could not be established as per the provisions of section 6(1)(c) of the Income Tax Act. He, therefore, reported that in the absence of documents clarifying the stay of the assessee in India in last four years, the correct residential status of the assessee cannot be determined as per the provisions of section 6 of the Income Tax Act. He furt....
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....re did not do so in the US, but accrued/ arose by virtue of his employment in India. 5. Therefore, while it may be argued that the income of the employer accrued/ arose by virtue of its work undertaken in US (even though this would also be taxed in India), in the case of the appellant the kernel of the work that he performed or the income that accrued/ arose to him remained firmly embedded in his employment in India whether this was in the form of regular salary/emoluments, or foreign stay allowances or any other bonuses/options etc." 5.1 The ld. CIT(A) further observed that from the evidences produced by the assessee, it was undisputed that because of assessee's limited stay in India, the assessee qualified for the status of a non-resident. He, however, observed that since the assessee had earned salary income from PWC, India and further the PWC, India had claimed deduction of expenditure in respect of remuneration paid to the assessee while computing profit chargeable to tax in India. That the income of the assessee, thus, was chargeable to tax in India. That the payments that were made to the assessee by his employer for his upkeeping in US, were also controlled by h....
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....erefore, he was not only covered under clause (a) but also under clause (c). As observed above, the stay in India of less than 60 days has to be coupled with total cumulative stay of less than 165 days in preceding four years to that relevant year. However, the assessee is silent about the first part of the clause (c) which provides that the assessee for the purpose of the Act would be a resident in India if his total cumulative stay in four years preceding the year under consideration is 365 days or more. The aforesaid provisions of the Act are to be read and interpreted to check the status of residents of assessee in India and not for the purpose of checking the non-resident status of the assessee. If any of the conditions as mentioned in clause (a) or clause (c) to section 16(1) is attracted then the assessee would be treated as a resident of India. The ld. Counsel for the assessee has not made any submissions relating to the status of the assessee of cumulative stay of less than 365 days in four years preceding the year in question. Therefore, the assessee by virtue of provisions of section 6(1) of the Act has failed to establish his status of non-resident. 6.3 Now, at this ....
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....n agreement (DTAA) with the Government of any other country, then in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are more beneficial to the assessee. So, as per the provisions of section 90 of the Act, the assessee have an option to choose either the DTAA or the provisions of the Income Tax, whichever, is beneficial to him for the purpose of taxation of his income. 6.5 At this stage, it would be relevant to reproduce here Article 4 of the Indo-US DTAA as under: ARTICLE 4 RESIDENCE 1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature, provided, however, that (a) this term does not include any person who is liable to tax in that State in respect only of income from sources in that State; and (b) in the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such pa....
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....e has a permanent home available to him in both the States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests). Then clause 2(b) states that if the centre of vital interest cannot be determined or if the individual does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has a habitual abode. In case of habitual abode in both the States or neither of them, he will be deemed to be resident of the State of which he is a national. 6.7 Now, in the case in hand, the assessee admittedly had filed Income Tax Return in US as well as in India. The assessee in his revised Income Tax Return has also declared an income of Rs.191370/- in India. The assessee also filed on record, the copies of the Income Tax Returns for the year 2018 and for the year 2019 in US. Therefore, the assessee is a tax resident of both the States. Now, to see that the assessee is a resident of which State, the permanent home status of the assessee is to be seen. The assessee has not furnished any specific evidence in this respect. However, a perusal of the Income Tax....
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....ies, wages and other similar 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. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State, if : (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant taxable year ; (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State ; and (c) the remuneration is not borne by a permanent establishment or a fixed base or a trade or business which the employer has in the other State. 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operating in international traffic by an enterprise of a C....
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....therefore, there was no question of attraction of paragraph 2 of Article 16 of the Indo-US DTAA. Paragraph 2 of Article 16 of the Indo-US DTAA is attracted only in a case where the remuneration is derived by a resident of a contracting State in respect of employment exercised in 'the other contracting State'. Though, the ld. CIT(A) has held that the employment was exercised in India, however, we do not agree with the above observation of the ld. CIT(A) as the employment though controlled or on behalf of the Indian employer was exercised by the assessee only in USA and not in India during the year. Therefore, paragraph 2 of the Indo-US DTAA would not be applicable in the case of the assessee. Even if the view of the ld. CIT(A) is to be taken as correct. However, since we have held contrary to the view of the ld. CIT(A) and held the assessee to be a resident of India (contracting State) during the year but the employment has been exercised in US (the other contracting State), therefore, the assessee is not hit by clause (a) as the assessee has stayed more than 183 days in US. However, as per clause (b) and (c), the salary income of the assessee will be liable to be taxed in India as ....