Income from a job assignment in Indonesia cannot be deemed a global income for the purposes of Indian taxation

Fact and issue of the case

The appeal has been preferred by the Assessee against the order dated 27.02.2019 of Ld. Commissioner of Income Tax (Appeals), Faridabad (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No. 10137/2018-19 arising out of an appeal before it passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ld AO, ACIT, Circle-II, Faridabad (hereinafter referred as the Ld. AO).

Brief facts of the case are that the assessee is an individual employed with Ingersoll Rand Climate Solutions Pvt. Ltd. The assessee was on long term assignment to PT Trane Indonesia (Ingersoll Indonesia) in Indonesia effective 9 November 2015 (during Assessment Year (AY) 2016-17) and was working wholly and exclusively for Ingersoll Indonesia, since 09 November 2015. The Appellant was considered a Resident and Ordinarily Resident in India during AY 2016-17 as per the domestic tax laws of India as he was present in India for more than 181 days and more than 729 days in the last 7 years. While on assignment to Indonesia, the Appellant continued to receive his salary through India payroll by credit to his bank account in India for administrative convenience. As the payroll of the Appellant continued in India, Ingersoll Rand Climate Solutions Private Limited (Ingersoll India) had deducted and deposited the taxes section 192 of the Income Tax Act, 1961 (the ‘Act’) and had issued a Form 16 to the Appellant for the AY 2016-17. The Appellant filed his return of income in India offering total income of INR 51,50,320 on 22 July 2016. Appellant had claimed that as he was rendering services for PT Trane Indonesia, the Appellant was subject to tax in Indonesia on his employment income for the year 2016 and accordingly the Appellant has duly filed his tax return in Indonesia for Calendar Year 2016. It was claimed before Ld. AO that the Appellant qualified as a Resident of Indonesia for the Year 2016 (relevant for the period 1 January 2016 to 31 March 2016) as per domestic tax laws of Indonesia and as per Article 4(2) of India- Indonesia Double Tax Avoidance Agreement ( hereinafter referred as ‘relevant DTAA’) given that for the above period he had a permanent home available only in Indonesia and his family accompanied him to Indonesia. As the Appellant was tie breaking to Indonesia for the Year 2016 (relevant to the period 1 January 2016 to 31 March 2016) as per the Treaty, the salary for the overseas assignment duration for the period January 2016 to 31 March 2016 was not to considered by the assessee as taxable in India. Hence, in the India tax return filed by the Appellant for AY 2016-17 on 22 July 2016, he had availed the benefit of the Article 15(1) of the Treaty and claimed a refund of INR 24,92,190/ and received the refund on 14 November 2016. The Appellant’s return of income was selected for scrutiny and the assessment was completed under Section 143(3) vide order dated 16 November 2018 issued by the Income Tax Officer. The assessment was completed and order was passed assessing the income at INR 1,18,32,680/- making an addition of INR 66,82,358 (salary income earned in Indonesia for the period January 2016 to March 2016) and accordingly, demand of INR 28,79 430/- was raised.

Aggrieved by the said assessment order dated 16 November 2018, the Appellant proceeded with an appeal before the Learned Commissioner of Income Tax, Appeals. The Appellant’s appeal was disallowed by the Learned Commissioner of Income Tax(Appeals). Aggrieved the Appellant has filed present appeal on following grounds;

“1. That on facts and in the circumstances of the case and in law, the Assessing Officer (AO) erred in completing assessment of the Appellant at an income of INR 1,18.32.678 as against the returned income of INR 51,50,320. The CIT(A) has further erred in arbitrarily confirming the addition made in the assessment order passed by the id AO.

2. That on facts and in the circumstances of the case and in law, the CIT(A) has grossly erred in concluding that the Appellant has a permanent home available in India for the period January 01, 2016 to March 31, 2016 and that he is Resident of India for the above period as per Article 4(2) of the Treaty.

3. That on facts and in the circumstances of the case and in law, the CIT(A) has erred in not considering personal and economic relationship, habitual abode for concluding on the residential status as per Article 4(2) of Treaty That on facts and in the circumstances of the case and in law, the CIT(A) erred by ignoring the fact that the Appellant had applied the provisions of Article 4(2) of the Treaty dated February 04, 1988 and has erred in concluding that Treaty dated February 04,1988 need to be applied.

5. That on facts and in the circumstances of the case and in law, the CIT(A) has erred in concluding that the Appellant is not eligible for exemption of his salary income for the period January 01, 2016 to March 31, 2016 in terms of the Article 15(1) of the Treaty.

Observation of the court

Further, it can be appreciated from the findings of the ld CIT(A) in para 6.2 that he has also considered the fact that the assessee is owing a house in India and considered it to be conclusive to determine the residential status and taxed the global income.

The ld CIT(A) further observes that “the fact of the case have not been examined on the other criteria of personal and economic relations, habitual abode, as the appellant has been found resident of India on the basis of permanent home”.

Thus the point for determination is whether for the purpose of determining the residential status as per Article 4 of the relevant DTAA, the ‘permanent home available’ is mere availability of residential property in India or the phrase ‘permanent home available’ has a wider connotation.

At the outset the bench is of considered opinion that Ld. CIT(A) seems to have decided the matter with restricted approach to determine tax residency only on the basis of fact that assessee owned a residential property in India and if it is possessed by assessee or vacant or rented is immaterial. It seems the ld CIT(A) has fallen an error in not taking into consideration the evidence produced by the assessee in the form of copy of passport of all the family members of the appellant relocated to Indonesia with appellant, copy of tax residency certificate issued by Indonesia in Calendar Year 2016, bank account of Indonesia, international medical insurance plan, job assignment letter, school fee receipts for children of the appellant studying in Indonesia and lease agreement of the property occupied by the appellant in Indonesia during the Financial year 2015-16 to 2017-18. Same should have been commutatively taken into consideration to determine the question of permanent home available to the assessee.

On the part of the revenue there is nothing before the bench to show that if ‘permanent home available’ has been defined in a manner that if an individual holds of a residential property in India it has to be considered to be ‘permanent home available’ for the purpose of Article 4 of the relevant DTAA. If that be the case then the benefit of the Article 4 for the purpose of ‘permanent home available’ can be given to assessee only if he does not own a residential house in India or if he has his own residential house in the contracting state. Such seems to be not the intention of law.

So the Bench is of firm opinion that the concept of ‘permanent home available’ has been wrongly interpreted by the Ld. Tax Authorities. Ld CIT(A) has further fallen in error to not consider the applicability of other parameters of Article 4 (2)(b), which Ld. AO had infect taken note of and determined against the assessee. The findings of the Tax Authorities below in regard to taxing the income of assessee earned from foreign assignment are liable to be reversed. The grounds are sustained and the appeal is allowed.

Order pronounced in the open court on 07/03/2023.