INCOME TAX OFFICER ( INTERNATIONAL TAXATION ) WARD COIMBATORE, COIMBATORE vs. VIJAYAKUMAR MURTHY, ERODE

The ld. CIT(A) deleted the addition of Rs.23,26,204/- by observing as under:-

The salary continued to be paid in India by the employer ‘M/s Ernst & Young LLP’. The assessee submitted before AO that assessee being tax resident of UK, the salary income was taxable in UK only and the same has been offered to tax in UK. It was further contended before AO that assessee being non-resident, the salary received in India for work performed in UK would be exempt in India as per Article 15(1) of DTAA between India and UK. The assessee submitted before ld. Assessing Officer that salary is taxable in India only if it accrues in India and salary is considered to be accrued where the employment is exercised. However, Ld. AO held that the assessee did not shift his employer and the assessee continued to be on the payroll of its employer. There existed employer-employee relationship. Therefore, the income so received would be chargeable to tax in India under section 15 of the Act which provides that any salary due from an employer would be chargeable to tax under the head salaries. Further, in terms of the provisions of Section 5(2) of the Act, salary received by non-resident in India would be taxable in India. Therefore, the assessee’s submissions were rejected. It was, however, held that the assessee could avail tax credit on the tax payable in UK as per Article 23 of DTAA. The assessee was non-resident and therefore, he was not eligible to claim benefit of DTAA. Accordingly, the income as reflected in Form 16 was brought to tax.

We find substance in the arguments of the Ld.AR that assessee being tax resident of UK, the salary income was taxable in UK only. In fact, salary to the tune of Rs.23,26,204/- received for the employment exercised in UK is taxable in UK and in the light of Article 15(1) of the India-UK DTAA it is exempt income. We have also gone through the Co-ordinate Bench decision cited in the case of Shri Ramesh Kumar AE Vs ITO for AY 2015-16 in IT(TP)A 51/Chny/2018 dated 11.08.2023. The Co-ordinate Bench order held as under:- “4. We find that similar issue, on similar facts, has been decided by us in our decision titled as Shri Kanagaraj Shanmugam vs. ITO (ITA No.2936/Chny/2018 dated 07.09.2022) as under: - “Our findings and Adjudication 5. 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 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 , has been offered to tax in which is evident from Tax Returns filed in . The assessee submit the as per Article 16(1) of DTAA, this income would be taxable in 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 in the present case. 6. We find that an identical issue has been addressed by coordinate bench of Chennai Tribunal in Shri Paul Xavier Antonysamy V/s ITO (ITA No.2233/Chny/2018 dated 28.02.2020). 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 (ITA No.2911/Mds/2016 dated 05.08.2016) 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. In para-7, the bench found the issue to be covered in assessee’s favor by various judicial precedents including the decision of Hon’ble Karnataka High Court in DIT V/s Prahlad Vijendra Rao (198 Taxman 551); decision of Hon’ble Bombay High Court in CIT V/s Avtar Singh Wadhawan (247 ITR 260); decision of Hon’ble Calcutta High Court in Sumanabandyopadhyay V/s DDIT (TS281-HC- 2017) as well as CBDT Circular No.13/2017 dated 11/04/2017.

We find that facts are pari-materia the same before us and the ratio of this decision is squarely applicable to the present case. Therefore, we would hold that salary income as accrued to the assessee for work performed in 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 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 revenue authorities since the employer has undertaken to meet the income tax liability arising from employee’s earnings in . 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 revenue authorities to discharge the tax liability of the assessee in that country.

The assessee has also placed on record Tax Residency Certificate (Page nos. 192-193 of paper book). As per this certificate, the assessee has claimed relief for foreign earning not taxable in for £7952. The same shall be considered by Ld. AO while computing the quantum of income taxable in India as directed by us in preceding para-7. 9.The appeal stands partly allowed in terms of our above order.” In the above decision, we have held that salary income as accrued to the assessee for work performed in a foreign jurisdiction would not be taxable in India whereas the salary received for work performed in India would be taxable in India. The benefit of DTAA would be available to the assessee as per the decision of coordinate bench of Chennai Tribunal in Shri Paul Xavier Antonysamy V/s ITO (ITA No.2233/Chny/2018 dated 28.02.2020) wherein it was held by the bench that the provisions of Sec.5(2) are 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 (ITA No.2911/Mds/2016 dated 05.08.2016) was held to be factually distinguishable.

The Ld. Sr. DR has relied on the decision of SMC bench in the case of Dennis Rozario (ITA No.298/Mds/2016 dated 06.01.2017) as well as another decision of SMC bench in Shri M.Ramesh Kumar (ITA No.1979/Mds/2017 dated 16.11.2017) which has taken a view against the assessee. However, both these decisions have been rendered by SMC bench and therefore, we are inclined to follow our own decision as cited above which has been rendered by coordinate bench. The Ld. AO is directed to re-compute the income of the assessee. The substantiative grounds raised

In the result, the appeal filed by the Revenue stands dismissed. Order pronounced in the open court on 4th day of November, 2024 at Chennai.