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Income Tax Appellate Tribunal, DELHI BENCH ‘D’: NEW DELHI
ORDER PER M. BALAGANESH AM: This appeal is preferred by the Assessee against the final assessment order dated 26/06/2022 passed u/s 143(3) r.w.s.144C
(13) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsequent to the direction of the Ld. Dispute Resolution Panel
(DRP) vide direction dated 10/05/2022 for Asst. Year 2018-19.
Amit Jain vs. ACIT 2. Though the assessee has raised several grounds, the only effective issue to be decided in this appeal is as to whether the salary income earned by the assessee is taxable in India in the facts and circumstances of the case.
We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee qualifies as a non-resident during the year under consideration. The assessee, an Indian National was deputed from 01.01.2014 to 31.12.2017 on a long term assignment to Akzo Nobel Decorative Coatings B.V. (hereinafter referred to as Akzo Netherlands) , a company incorporated under the laws of Netherlands. During the year under consideration, the assessee rendered services outside India (i.e Netherlands) and was a tax resident of Netherlands by virtue of domestic laws of Netherlands. The Tax Residency Certificate (TRC) received from Netherlands Tax Authorities was placed before the lower authorities and is forming part of the records. It is not in dispute that the services were rendered by the assessee only in Netherlands during the year under consideration.
However, the assessee was also sent on deputation to India on behalf of Akzo Netherlands. For administrative convenience, the Page 2 of 9 Amit Jain vs. ACIT assessee received salary in India from Akzo Nobel India in respect of the services rendered outside India to Akzo Netherlands. In order to ensure withholding tax compliance laid down u/s 192 of the Act, Akzo Nobel India Ltd deducted tax at source on the salary paid in India and deposited with the Government. Hwoever, Akzo Nobel India was reimbursed in full by Akzo Netherlands for salary paid in India. A certificate dated 24.03.2021 was issued by Akzo Nobel India Ltd to the assessee in this regard was also placed on record.
Since TDS was done, in order to claim refund of the same, the assessee filed his return of income for the Asst Year 2018-19 on 06.08.2018 u/s 139(1) of the Act in the status of Non-Resident , claiming the salary received in India for services rendered outside India to be exempted from tax in India, in accordance with section 90 of the Act read with Article 15(1) of the India-Netherlands Double Taxation Avoidance Agreement (DTAA). The main contention of the revenue as well as the ld. DR before us is that as per section 9, all incomes earned directly or indirectly through any source in India would be taxable in India. The ld. AO issued a draft assessment order u/s 144C(1) of the Act , wherein an addition of Rs 2,30,30,234/- on account of salary received in India was made to Page 3 of 9 Amit Jain vs. ACIT the income of the assessee. The assessee filed his objections before the ld. Dispute Resolution Panel (DRP).
The ld. DRP vide its directions dated 10.05.2022 appreciated that the ld. AO has not considered the documents and submissions of the assessee and hence directed the ld. AO to conduct factual verification of the documents produced by the assessee and pass a speaking order after considering all the documentary evidences.
The ld. AO passed the final assessment order u/s 143(3) r.w.
144C(13) of the Act repeating the same addition on account of salary without considering the documents filed by the assessee which was in complete disconformity to the directions of ld. DRP.
It is not in dispute that the following documents were indeed furnished by the assessee before the ld. AO:- a) Letter of Long Term Assignment of assessee from Akzo Nobel India to Akzo Netherlands. b) Certificate by Akzo Nobel India in relation to salary received by assessee. This certificate clearly states that during the year under consideration, the entire salary of assessee was paid by Akzo Netherlands. However, to meet his commitments in India , a part of Amit Jain vs. ACIT his salary was paid through Akzo Nobel India Ltd to the extent of Rs 2,30,30,234/-, on behalf of Akzo Netherlands. It was further confirmed that Akzo Nobel India Ltd during the relevant period had not claimed the salary paid to assessee as an expense in their income tax returns as the entire amount was reimbursed to Akzo Nobel India Ltd by Akzo Netherlands. It was specifically confirmed that the assessee did not render any services to Akzo Nobel India Ltd as an employee during the relevant period. c) Tax Residency Certificate of assessee from the Inspector of Tax Authorities Administration Office, Netherlands evidencing the fact that the assessee was a tax resident of Netherlands during the relevant period. d) Income tax return filed by the assessee in Netherlands. e) Reconciliation of entries in Form 26AS and income tax return. f) Copy of Passport to prove the point that the assessee had stayed in India during the financial year 2017-18 for a period of 136 days and also to prove that the assessee during the immediately preceding four previous years had stayed only for total of 340 days , which is less than 365 days.
Amit Jain vs. ACIT 6. We find that the ld. AO had mentioned in his order that the assessee remained in the legal employment of Akzo Nobel India Ltd and hence he was responsible to Akzo Nobel India Ltd only eventhough he rendered services outside India. We are unable to comprehend ourselves to accept to this fact as in the Letter of Assignment from Akzo Nobel India Ltd to Akzo Netherlands (enclosed in pages 44 to 53 of the paper book) , it is very clearly stated that the terms and conditions of the employment with Akzo Nobel India Ltd stood suspended for the duration of the assignment in Netherlands. Further the ld. AO had observed that throughout the international assignment, the salary was paid by Akzo Nobel India Ltd. This is also factually incorrect which is evident from the certificate dated 24.03.2021 issued by Akzo Nobel India Ltd to the assessee which clearly stated that – a) during the period of assignment, his entire salary was paid by Akzo Netherlands, however, to meet his commitments in India, Akzo Nobel India would pay a part of the salary; b) thereafter, the salary paid by Akzo Nobel India Ltd was reimbursed in full by Akzo Netherlands; Amit Jain vs. ACIT c) Akzo Nobel India Ltd did not claim the salary expense of assessee as deduction in their income tax returns in India ; and d) assessee did not render any services to Akzo Nobel India during the assignment period.
The ld. AO had held that salary received by the assessee shall be deemed to accrue or arise in India u/s 9(1)(i) of the Act. At the outset, we find the provisions of section 9(1)(i) of the Act per se is not applicable for income from salary. As per section 9(1)(ii) of the Act, income shall be deemed to accrue or arise in India, if income which falls under the head “Salaries” , it is earned in India. This has to be read with Explanation which clearly states that 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.
Hence as per the aforesaid explanation in section 9(1), salary payment can be said to be earned in India only if the corresponding services are rendered in India. Since the services are rendered Amit Jain vs. ACIT outside India which is not in dispute before us, income cannot be said to be deemed to accrue or arise in India.
In any event, the salary income of the assessee was not to be taxed in India under Article 15(1) of India Netherlands DTAA, which clearly states that the employment income earned by the individual is exempt from tax if following conditions are satisfied:- a) If the individual is resident of Netherlands ; and b) If the employment is exercised outside India 8.1. It is not in dispute that both the conditions in the instant case had been satisfied and hence in any event, the salary would not be taxable in India in terms of Article 15(1) of the India Netherlands Treaty.
In view of the aforesaid observations, we hold that the salary income earned in India is not taxable under the Act as well as under the India Netherlands Treaty. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 23rd August, 2023.