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June 3, 2021

Salary received from Foreign Countries for rendering Services cannot be taxed in India for non-production of TRC

Salary received from Foreign Countries for rendering Services cannot be taxed in India for non-production of TRC

What is Tax Residency Certificate under Income tax?

From 01.4.2013 the India Residents who earns Income from Countries with which India have a DTAA can obtain a Tax Residency Certificate from Income Tax Department. The same may be submitted to the Payer to claim DTAA Benefit. TRC shall contain the following particulars, namely:-

(i)  Name of the assessee;

(ii)  Status (individual, company, firm etc.) of the assessee;

(iii)  Nationality (in case of individual);

(iv)Country or specified territory of incorporation or registration (in case of others);

(v)  Assessee’s tax identification number in the country or specified territory of residence or in case no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory;

(vi)Residential status for the purposes of tax;

(vii)  Period for which the certificate is applicable; and

(viii)  Address of the applicant for the period for which the certificate is applicable;

(2) The above details shall be provided by the non resident assessee in Form 10F

(3) The certificate referred to in sub-rule (1) shall be duly verified by the Government of the country or the specified territory of which the assessee, referred to in sub-rule (1), claims to be a resident for the purposes of tax.

Fact and Issue of the case

The assessee, a Non resident individual, filed his return of income for the A.Y 2014-15 on 31.07.2014 admitting “Nil” income. During the assessment proceedings u/s 143(2) of the Act pursuant to selection of his return of income for scrutiny under CASS, the assessee was required to furnish certain information and the said information was furnished by the assessee. On verification of Form-16 issued by the assessee’s employer i.e., IBM India (P) Ltd for the A.Y 2014-15, the Assessing Officer found that during the relevant A.Y, the gross salary of the assessee was Rs.36,61,667/- and the exempt income u/s 10 of the I.T. Act was Rs.53,676/-. The Assessing Officer observed that the employer had deducted the tax at source of Rs.8,61,345/-. Further, on verification of the total income filed by the assessee along with the return of income for the A.Y 2014-15, the Assessing Officer found that the assessee has claimed double taxation relief under section 90 of the I.T. Act and admitted NIL total income but claimed TDS of Rs.8,61,345/- in his return.

As the assessee has spent less than 60 days in India during the FY 201314, he qualifies as a Non resident under section 6(1) of the Act. Therefore, the foreign allowance of Rs.19, 79, 072/- was not offered to tax in India in the return of income as the same was received by him outside India for the services rendered outside India and shall not form part of total income under section 5(2) of the Income tax Act, 1961. Also, as the assessee qualifies as a tax resident of Austria, exemption under Article 15(1) of the India- Austria Double taxation Avoidance Agreement (‘DTAA’) has been claimed in the return of income for the employment income.

Based on the above, any salary income earned by a tax resident of Austria for services rendered in Austria is taxable only in Austria. In case services have been rendered in India the income for work days spent in India is taxable in India. The Assessee wishes to submit that for the captioned AY, he was a tax resident of Austria and a non- resident in India. Hence, the salary received with respect to the services rendered in Austria is not taxable as per article 15(1) of the India- Austria DTAA.

In view of the above, in the return of income filed, the Assessee has claimed exemption of the salary income of INR 16,28,920 under Article 15(1) of India- Austria DTAA. In view of the above facts, we wish to inform your good self that the salary income as disclosed in Part B of Total Income in income tax return is less than the salary income as disclosed in Annexure 2 of TDS return filed by the employer as the assessee has claimed DT AA relief and exemption under section 5(2) of the Act in the return of income filed by him. We shall not be able to produce Austrian TRC as issuance of the same is dependent on the Austria tax authorities.”

Observation of the Tribunal

From the facts of the case it is apparent that during the previous relevant to AY 2014-15, the assessee qualifies as a non-resident in India and as a tax resident in Austria. The salary and allowances are earned by the assessee in respect of employment rendered in Austria due to his foreign assignment. Hence, the first two conditions enumerated under Article 15(1) of the India-Austria DTAA stands satisfied. Therefore, the assessee ‘s claim of exemption in regard to his salary income as per the provisions of Article 15(1) of the India- Austria DTAA in the return of income filed by him is appropriate. Further in the case of ITO Vs. Sunil Chitranjan Muncif (2013 58 SOT 356 – ITAT, Ahmedabad), on which reliance placed by the assessee, it was held that there was no dispute about the fact that the assessee is a NRI and the salary income received by him in India for employment exercised in UK has been offered by him for taxation in UK in pursuance of Article 16 of DTAA with UK. Hence, the salary received by the assessee was not taxable in India in pursuance of DTAA between India and UK.

In the case of DIT Vs. Prahlad Vijendra Rao (239 CTR 107), on which reliance placed by the assessee, the Hon’ble Karnataka High Court held that under section 15 of the Act even on accrual basis salary income is taxable i.e. it becomes taxable irrespective of the fact whether it is actually received or not; only when services are rendered in India it becomes taxable by implication. However, if services are rendered outside India such income would not be taxable in India. The other objections raised by the Ld. AO that evidence was not produced for receiving the foreign allowance outside India and the bank account of the assessee maintained abroad was not produced is not relevant because the facts of the case establish es that the salary and the foreign allowance was received in India for the services rendered abroad and by virtue of DTAA and the Act, there is no bar in law for receiving the money in India.

For the above-mentioned reasons, the court directed the Learned AO to delete the tax imposed on the assessee with respect to his salary income of Rs. 12,90,846/- and the foreign allowances of Rs. 22,48,501/ – aggregating to Rs. 35,39,347/- earned by him outside India during the relevant assessment year”.

Conclusion

In the result, appeal of the assessee is allowed. The Assessing Officer is directed to allow exemption under DTAA.

Read the full order from below

Salary-received-from-Foreign-Countries-for-rendering-Services-cannot-be-taxed-in-India-for-non-production-of-TRC

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