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Facts
The assessee, an employee of an Indian company, was sent to the US for work and earned a salary of Rs. 1,31,04,562. The AO taxed this salary in India, contending it was received in India. The assessee claimed it was earned and taxable in the US and sought relief under the India-US DTAA.
Held
The Tribunal held that the salary was earned for services rendered outside India, and thus, it should be taxed at the place of accrual (US) and not in India, especially if the assessee is a resident of the US. The Tribunal also noted that the assessee qualified as a Malaysian tax resident and had paid tax there.
Key Issues
Whether salary earned for services rendered outside India is taxable in India when received in India, and whether the assessee is eligible for benefits under the India-US DTAA.
Sections Cited
5(2), 9(1)(ii), 15, 90, 234B, 16(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI JAGADISH
आदेश / O R D E R MANU KUMAR GIRI (Judicial Member)
1. This appeal is filed by the assessee against the order of the commissioner of Income Tax (Appeal) [‘CIT(A)’ in short], Chennai-16 dated 10.10.2024 for AY-2019-20.
2. The assessee has raised the following grounds of appeal:
1. Re.: Taxability of salary income earned outside India: 1.1 The CIT(A) erred in confirming the action of the Assessing Officer ("AO") in taxing (AY 2019-20) Prakash Raman in India the salary income to the extent of Rs. 1,31,04,562/- which has accrued outside India on account of the services being rendered in United States of America ['USA']. 1.2 The Appellant submits that considering the facts and circumstances of his case and the law prevailing on the subject, the CIT(A) / AO has erred in not appreciating the fact that the Appellant is admittedly a non-resident for the year under consideration and consequently as per the provisions of section 5 read with sections 9 and 15 of the Act only salary income for services rendered in India should be taxable in India. 1.3 The Appellant submits that the AO be directed to delete the addition so made to the salary income and recompute its total income and tax thereon accordingly. Without prejudice to the above, 2. Re.: Denial of relief u/s. 90 of the Act vis-à-vis non granting the benefit of Article 16(1) of the Double Tax Avoidance Agreement ['DTAA'] between India and USA: 2.1 The CIT(A) has erred in confirming the action of the AO in denying the relief u/s. 90 by not granting the benefit under Article 16(1) of the India - USA DTAA thereby making an addition of Rs. 1,31,04,562/- to the returned income. 2.2 The Appellant submits that considering the facts and circumstances of the case and laws prevailing on the subject, the CIT(A) / AO while denying the benefits under the India - USA DTAA have erred in ignoring the fact that the Appellant was a resident of USA and thus was eligible to claim benefits under the said DTAA. 2.3 The Hon'ble CIT(A) has erred in denying the benefit of the India - USA DTAA merely on the pretext that the Appellant had failed to furnish a tax residency certificate ['TRC'] issued by the Tax Revenue authorities of United States of America; without appreciating the fact that the Appellant has been able to obtain the TRC as issued by the Tax Revenue authorities of the United States of America.
2.4 The Appellant submits that the AO be directed to grant the relief u/s. 90 vis-à-vis the benefit of Article 16 of the India - USA DTAA thereby the addition made to salary income of Rs. 1,31,04,562 be deleted and recompute his total income and tax thereon. 3. Re.: Erroneous levy of interest u/s. 234B of the Act:
(AY 2019-20) Prakash Raman 3.1 The AO has erred in levying interest u/s. 234B of the Income-tax Act, 1961. 3.2 The Appellant submits that consideringthe facts and circumstances of its case and the law prevailing on the subject, interest has been levied u/s. 234B and hence the action of the AO in this regard is incorrect, erroneous and not in accordance with the law. 3.3 The Appellant submits that the AO be directed to delete the interest u/s. 234B so levied and to re-compute its tax liability accordingly. Re.: General 4.1 The Appellant craves leave to add, alter, amend, substitute and / or modify in any manner whatsoever the foregoing grounds of appeal at or before the hearing of the appeal.” The assessee preferred an appeal before the CIT(A) who dismissed the appeal of the assessee and held as under:-
The facts of the case are that the assessee is an employee in the rolls of M/s Solvacy Specialities India Ltd. During AY 2019-20, he was sent by the employer to the US on an assignment of work for a certain period. The AO observed that the company M/s Solvacy Specialities India Ltd., would be reimbursed the salary costs by the foreign company. Further, the assessee would gain international experience which will help the employer in the long run. Thus, the employer-employee relationship was established and the AO rejected the claim of the assessee that the salary income earned by a tax resident of USA would be taxable only in USA. The AO stated that the salary should be understood in terms of section 15 of the Act and that since the salary amount of Rs.1,31,04,562/- was received in India from the Indian employer, the same is taxable in India as per section 5(2)(a) of the Act. The AO also seen that the Indian company had issued form 16 on the said amount and tax has (AY 2019-20) Prakash Raman been deducted at source. The AO observed that since the salary income was received in India, the assessee was not entitled to exemption under the provisions of article 16 of the India-USA treaty.
In the instant case, the assessee has filed the tax residency certificate from the Republic of Korea for the year 2018. This has been reiterated in the assessee's submissions dated 8/10/2024. Thus, the claim of the appellant that he is tax resident of USA does not appear to be correct. No TRC has been filed to prove the tax resident status of USA till date. In the submissions dated 8/10/2024, it is further claimed that he is a tax resident of USA under Article 4(1) of the India_US treaty. As no evidence in the form of US TRC has been furnished, whereas the TRC for Korea is available on record, it is not possible to entertain the appellant's contentions in this regard. Further, I have perused the secondment agreement in respect of the appellant and find that the appellant is attached to the home company,ie, the Indian company for the duration of the secondment for all purposes including annual performance reviews and social security measures. Thus, salary for the year has been received from the Indian company and has been rightly taxed by the AO under the provisions of section 5(2)(a). As the TRC produced is with respect to Korea, it is not possible to claim the benefits of Article-16 of the India US treaty.
The AO noted that a similar set of facts arose before the jurisdictional tribunal in the case of Sri Dennis Victor Rozaria Vs DDIT in ITA No.298/MDS/2016.
(AY 2019-20) Prakash Raman 4. Now the assessee is in further appeal before us. The Ld.Counsel for the assessee, at the outset, submitted that the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of Arumugam Rajasekar Vs. ITO in IT(TP)A No.1/Chny/2015, Nathakumar Murugesan Vs. ITO in IT(TP)A No.12/Chny / 2023, Ramesh Kumar AE Vs. ITO in IT(TP)A No.51/Chny/2018 and Antony Samy Vs ITO reported in (2020) 115 taxman.com 143(Chennai-Trib).
The Ld. Counsel for the assessee also filed Tax Residency Certificate (TRC) provided by the US authorities as additional evidence (Page-3 to 6 of paper book filed on 15.07.2025). The assessee also filed a copy of USA tax receipt for the Calendar Year 2018-19 along W2. The assessee also filed paper book compilation, a copy of DTAA between India and USA.
5. Per contra, the Ld. DR argued that the Tax Residency Certificate was not filed before the lower authorities therefore it should be verified by the AO.
We have heard the rival submissions and perused the record of the appeal and the case laws. We find that the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal which held as under.
“…12. The assessee also relied on the order of the co-ordinate Chennai Bench of the Tribunal in the case of Ramesh Kumar AE IT(TP)A No. 51/Chny/2018 dated 11.08.2023 wherein the Bench had overruled the earlier order in the case of Dennis Victor Rozario in that was relied upon by the AO and allowed relief to the assessee under the DTAA. (AY 2019-20) Prakash Raman 13. Also, the ld.AR for the assessee relied on the judgment of the Bangalore Bench of the Tribunal in the case of Bholanath Pal in of 2011 wherein the ITAT held that: 12.8 In terms of section 9(1)(ii) income chargeable under the head "salaries" under section 15 shall be deemed to accrue or arise in India if it is earned in India, ie., if the services under the agreement of employment are or were rendered in India. In the instant case, the employment services were entirely rendered outside India. Hence, the salary is not earned for rendering services in India. Therefore, salary for the entire year is not taxable. In this connection, reliance is placed on the following decisions:- DIT (International Taxation) v. PrahladVijendra Rao [2011] 198 Taxman 551/10 taxmann.com 238 (Kar.) Ranjit Kumar Bose v. ITO [1986] 18 ITD 230 (Cal.): CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260/115 Taxman 536 (Bom.): Sreenivas Kumar Sistla (AAR No.514 of 2000) 14. The assessee in a gist referred to the following case laws: CASE LAW COMPILATION S.No. Party Citation Page
NanthakumarMurugesan Vs. The IT(TP)A No. No. 12/Chny/2018 1-12 Income Tax Officer, 2. Shri Ramesh Kumar AE, Vs. ITO IT (TP) A No. 51/Chny/2018 13-20 3. Bholanath Pal v. Income Tax Officer, [2012] 23 taxmann.com 177 21-30 Ward 1(1), International Taxation, (Bangalore) Bangalore
DIT (International Taxation) [2011] 198 Taxman 551/ 31-34 v.PrahladVijendra Rao taxmann.com 10 238 (Kar.)
Ranjit Kumar Bose v. ITO [1986] 18 ITD 230 (Cal.) 35-38
6. CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260/115 39-44 Taxman 536 (Bom.)
(AY 2019-20) Prakash Raman
The Commissioner of Income Tax, AY 2014-15 45-58 Appeal - Ranchi in the matter of Manish Prasad 15. Per contra, the ld.DR relied upon the impugned order of the ld.CIT(A) and pleaded for the dismissal of the appeal of the assessee. 16. We have heard the rival submissions and perused the record and case laws cited. The status of the assessee here is a Non-Resident Indian. The computation of total income of a Non-Resident has been stated in Section 5(2) of the Act and reproduced below: “5. Scope of total income: (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.” The other relevant provision in the act involved is Section 9(1) (ii) of the act which deals with income deemed to accrue or arise in India and it reads as follows: “9. (1) The following incomes shall be deemed to accrue or arise in India:— (ii) Income which falls under the head "Salaries", if it is earned in India. Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India;” From (AY 2019-20) Prakash Raman the plain reading of the above quoted sections, it can be concluded that the salary income being received in India is subject to tax only in India.
Explanation 2 to Section 5 clarifies that income will not be treated to be received in India solely on the basis that such income was received or deemed to be received in India. Therefore, it has to be found out where the income to the person concerned had accrued for ascertaining its taxability. There is an alternate and a right view that arises which can be obtained while reading Section 5(2) with Section 9(1) (ii) as Section 5 should be interpreted and effected in reconciliation with other provisions of the act since it starts with an expression ‘subject to the provisions of the act. If Section 5(2), as stated in the act, is read with Section 9(1) (ii), the subsequent conclusion flows to the effect that the salary cannot be taxed in India only for the reason that it was received in India but it is said to be taxed at the place of its accrual which would be India if, and only if, the services are rendered in India otherwise in the place where such services were rendered.
The Calcutta High Court in the case of Commissioner Of Income-Tax v. Nippon Yusen Kaisha [(1998) 233 ITR 158 Cal] placed its view with respect to interpretation of Section 5(2) of the act in as much as if other provisions of the act are contrary to Section 5(2), then such provisions will have an overriding effect over the Section.
The Apex court also held that the location where salary is received is of no consequence with respect to taxability in India in CIT v. LW Russel 1965 AIR 49.
To determine the point of taxability, it is necessary to find where the income to the person concerned has accrued which is equated to the place where services were rendered. This was affirmed by the Calcutta High Court in Utanka Roy v. DIT [390 ITR 109 (Calcutta)].
Section 9(1) (ii) also guides that the situs of accrual of salary income is the situs of service rendered. The Tribunal, Agra Bench in Arvind Singh Chauhan vs. ITO (2014) 147 ITD 409 opined this view thereby affirming the ruling given in Avtar Singh Wadhwan case (2001) 247 ITR 260 (Bom) and further held that mere signing of the contract in India does not mean that the salary accrued in India. Therefore, for the purpose of better understanding, the need for classification between ‘income being received’ and ‘amount being received’ arises which is determined on the basis of character of income received.
The Authority for Advanced Ruling, New Delhi in the case of Texas instruments (India) Pvt Ltd A.A.R. No 1299 of 2012 stated that salary (AY 2019-20) Prakash Raman received in India by a Non-Resident employee in respect of services rendered outside India is said to be accrued outside India and cannot be taxable in India.
The Hon’ble Madras High Court took a similar view on the matter in the case CIT v. AP Kalyanakrishnan 195 ITR 534 (Mad.) stating that the pension of the assessee (RNOR) which was accrued in Malaysia and remitted to India has suffered tax in Malaysia and hence exempt from being taxable in India.
The Hon’ble Karnataka High Court in Prahlad Vijendra Rao [(2011) 198 Taxman 551] asserted that the application of Section 5(2) (b) demands the criteria that the income is earned in India for the services rendered in India and not otherwise. Salary derived by an assessee for working abroad for 225 days has been held as not accrues nor deemed to have been accrued in India.
In Commissioner of Income-tax v. Rajamani Raman [2002] 124 Taxman 4 (Madras) / [2002] 258 ITR 710 (Madras) the jurisdictional High Court Held as under: V.S. Sirpurkar, J. - The question referred for our consideration is: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the pension received by the assessee from the Malaysian Government could not be assessed as salary under the Income tax Act, 1961 ?"
The question is referred at the instance of the revenue. The Tribunal in its order relying on articles 18(3) and 18(5) of the Agreement for Avoidance of Double Taxation of income entered into between the Government of India and Government of Malaysia, has held that the pension received was not taxable in India, since it was liable for tax in Malaysia, which was the contracting State. There will be no question of its inviting the taxation in India, which would amount to double taxation. The Tribunal has pointed out that the University of Malaysia is a statutory authority and as such, would fall within the term ‘Government’ and, therefore, the pension paid by the University of Malaysia, as in the present case, would have to be construed for the purpose of the agreement as a pension received from the Government, which is taxable in terms of article 18(3) in Malaysia by Government of Malaysia. We do not find anything wrong in the order and it is absolutely correct and we confirm the same. The question is, therefore, answered in favour of the assessee and against the revenue. No costs.
The decision of the Hon’ble Supreme Court in CIT v. P.V.A.L Kulandagan Chettiar [2004] 267 ITR 6541 in which general principles governing taxation (AY 2019-20) Prakash Raman of global income have been stated by the Supreme Court in the following words : "Where liability to tax arises under the local enactment the provisions of sections 4 and 5 of the Act provide for taxation of global income of an assessee chargeable to tax thereunder. It is subject to the provisions of an agreement entered into between the Central Government and the Government of a foreign country for avoidance of double taxation as envisaged under section 90 to the contrary, if any, and such an agreement will act as an exception to or modification of sections 4 and 5 of the Income tax Act. The provisions of such agreement cannot fasten a tax liability where the liability is not imposed by a local Act. Where tax liability is imposed by the Act, the agreement may be resorted to either for reducing the tax liability or altogether avoiding the tax liability. In case of any conflict between the provisions of the agreement and the Act, the provisions of the agreement would prevail over the provisions of the Act, as is clear from the provisions of section 90(2) of the Act. Section 90(2) makes it clear that 'where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or for avoidance of double taxation, 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 that assessee' meaning thereby that the Act gets modified in regard to the assessee insofar as the agreement is concerned if it falls within the category stated therein." (p. 659) 27. Further, in this present case, we find that the assessee qualified to be a Tax Resident of Malaysia. Therefore, applying the provisions of clause (1) of the above Article, the assessee's salary would be taxable only in Malaysia. According to ld. Counsel for the assessee, the assessee has offered his income to tax in Malaysia and claimed an exemption for salary in India.
Therefore, looking into the entire conspectus of matter the assessee is eligible for an exemption of salary that has been earned by him for the employment services provided to TCS Malaysia though the same is received in India since he qualified to be a Resident of Malaysia and it is offered to tax in Malaysia.
In result, appeal of the assessee is allowed…..”
7. We find that the issue in the present case is in principle covered by the order of the Coordinate Bench of this Tribunal referred supra. However, in this case, the Tax Residency Certificate is filed before us as additional evidence which we have admitted as it decides the substantial issue. However, the AO is (AY 2019-20) Prakash Raman directed to verify the same and on verification if AO find that the TRC is genuine, then allow the relief u/s 90 under Article-16(1) of India US DTAA of Rs.1,31,04,562/-.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 22nd day of September, 2025 at Chennai.