NRI salary income for work performed outside of India is not taxable in India
Facts and Issues of the Case
The grounds raised by the assessee read as under:
1. The learned CIT(A) has erred in law and on facts in not allowing benefit of Treaty exemption amounting to INR3,940,843 claimed by the Appellant under Article 16(1) of India-UK Double Taxation Avoidance Agreement (‘Treaty’) in the revised return of income, based on erroneous and incorrect interpretation that the Appellant is not eligible to claim relief under Article 16(1) of India – UK Treaty, since the Appellant is a resident of UK and non-resident of India.
2. The learned CIT(A) has erred in law and on facts in not appreciating that as per Article 16(1) of India-UK Treaty, salary received by the Appellant being a tax resident of UK, is taxable only in the country where employment is exercised (i.e., UK). The learned CIT(A) has further erred in law and on facts in not appreciating that merely because the Appellant is on the payroll or employment of OFSS India, that by itself will not impact or alter the taxability in India.
3. Without prejudice to the above, that the learned CIT(A) has erred in law and on facts in holding that as per provision of section 5(2) of the Act, salary of the Appellant shall be taxable in India on receipt basis. While holding so, the learned CIT(A) has not appreciated the provisions of section 15 read with section 5(2) and section 9(i)(ii) of the Act, which clearly provides for taxability of salary on accrual basis and not on the basis of receipt of salary income (except in case of salary received in advance or arrears of salary).
4. Without prejudice to the above, that the learned CIT(A) has further erred in law and on facts in holding that salary has accrued in India (and not in UK) based on employer-employee relationship between OFSS India and the Appellant. While holding so, the learned CIT(A) has completely ignored the settled law that place of accrual of salary is the place where employment is actually exercised i.e. the place where services are performed – which in the instant case is UK (and not the place where contract of employment is signed).
5. That the learned CIT(A) has erred in law and on facts in dismissing the ground relating to withdrawal / recovery of interest under section 244A amounting to INR 82,739 and levy of interest under section 234D of the Act amounting to INR 89,749.
6. That the learned CIT(A) has further erred in law and on facts in not adjudicating the ground relating to initiation of penalty proceedings under section 274 of the Act.
7. The Appellant craves leave to alter, amend or withdraw all or any of the grounds of appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing.
The Ld. AR advanced argument assailing the stand of lower authorities and relied on various judicial pronouncements. The same has been controverted by Ld. Sr. DR. Having heard rival submissions and after due consideration of material facts, our adjudication would be as under.
Observation by the court
From the fact it emerges that the assessee has stayed in India for 63 days during this year and his status, as per law, is non-resident. The assessee has worked in India for 21 days and offered proportionate salary to that extent to tax. For remaining period, the work has been performed in UK though the salary has been received in India from existing employer. It is also a fact on record that this salary, for work performed in UK, has been offered to tax in UK which is evident from Tax Returns filed in UK. The assessee submit the as per Article 16(1) of DTAA, this income would be taxable in UK only. Alternatively, the assessee relies on the provisions of Sec.15 read with Sec.5(2) and Sec.9(1)(ii) which provides for taxability of salary on accrual basis and not on receipt basis. However, Ld. CIT(A) has held that the assessee would not be eligible for the benefit of DTAA since DTAA relief is to be given by resident country which is UK in the present case.
The corut find that an identical issue has been addressed by coordinate bench of Chennai Tribunal in Shri Paul Xavier Antonysamy V/s ITO. In this decision, the bench has held that the provisions of Sec.5(2) are subjected to other provisions of the Act. The regular salary accrued to any assessee is chargeable to tax in terms of Sec.15(a). Even as per the provisions of Sec.9(1)(ii), salary income could be deemed to accrue or arise in India only if it is earned in India in respect of services rendered in India. The bench, reading down Article-1 and Article-15 of India-Australia DTAA, held that Treaty benefit shall be applicable to persons who are residents of both India as well as Australia. Therefore, the contention of the revenue that the assessee being a non-resident and hence treaty benefit cannot be extended to assessee, is incorrect. Accordingly, it was held by the bench that the salary so earned for work performed in Australia would be taxable in Australia. The case law of Swaminathan Ravichandran V/s ITO was held to be factually distinguished on the ground that in that case the assessee was claiming foreign tax credit relief for taxes paid on doubly taxed income which was not the case in that appeal.
The court find that facts are pari-materia the same before us and the ratio of this decision is squarely applicable to the present case. Therefore, the court would hold that salary income as accrued to the assessee for work performed in UK would not be taxable in India. However, the salary received for work performed in India would be taxable in India. Accordingly, we direct Ld. AO to re-compute the income of the assessee. The above proposition is also supported by the fact that upon perusal of UK tax return, it could be seen that the assessee has offered earnings from employment for£24184 on net basis which has been tax grossed up for £6046. This is in view of the fact that OFSSL has paid provisional payment of £9062 to UK revenue authorities since the employer has undertaken to meet the UK income tax liability arising from employee’s earnings in UK. Accordingly, the assessee has claimed refund of £3016. On the basis of the above, it could be seen that separate tax payment has been made by OFSSL to UK revenue authorities to discharge the tax liability of the assessee in that country.
The assessee has also placed on record Tax Residency Certificate. As per this certificate, the assessee has claimed relief for foreign earning not taxable in UK for £7952. The same shall be considered by Ld. AO while computing the quantum of income taxable in India as directed by us.
The appeal is partly allowed by the court.Kanagaraj-Shanmugam-Vs-ITO-ITAT-Chennai-1