ITAT Hyderabad had pronounced this judgement on 22.04.2021 in case of Sri Ranjit Kumar Vuppu Vs. Income Tax Officer (International Taxation)-II Hyderabad.
Facts of the case:
Assessee, a Nonresident individual, filed his return of income for the A.Y 2014-15 on 31.07.2014 admitting total income of Rs.10,04,580/-. During the assessment proceedings u/s 143(2) of the Act pursuant to selection of his return of income for scrutiny under CASS, the assessee was required to furnish certain information and the said information was furnished by the assessee.
On verification of Form-16 issued by the assessee’s employer i.e., IBM India (P) Ltd for the A.Y 2014-15, the Assessing Officer found that during the relevant A.Y, the gross salary of the assessee was Rs.31,11,185/-. The Assessing Officer observed that the employer had deducted the tax at source of Rs.7,76,564/-.
Further, on verification of the total income filed by the assessee along with the return of income for the A.Y 2014-15, the Assessing Officer found that the assessee has claimed double taxation relief under section 90 of the I.T. Act and admitted NIL total income but claimed TDS of Rs.7,66,567/- in his return.
Therefore, the assessee was required to furnish the following details:
a) Tax Residency Certificate to claim the relief under section 90 for the salary received outside India with respect to the services rendered outside India,
b) Copy of the Assignment letter between the Employer and employee.
Revenue’s contention:
Assessee has not submitted TRC, despite giving many opportunities.
Further, assessee has not produced any proof of receiving salary outside India or rendering service outside India and also employer has deducted TDS on entire salary as can be seen in Form 16 which shows that salary is taxable in India and employee has not provided any proof which suggest otherwise.
Also, it can be accepted that employer was not aware about residential status in the beginning of the year but even after the end of the year assessee did not request employer to revise the TDS return.
Assessee’s contention:
Assessee in reply submitted that he has been in India for less than 60 days and hence foreign allowance received outside India for rendering services outside India is not taxable in India and thus not offered to tax.
Further he also submitted that orders were passed by the Tribunal in similar cases of other employees of the same company.
Ruling/ Judgement:
Hon’ble ITAT while passing it’s order relied on the judgement of co-ordinate bench in case of Sreenivasa Reddy
Cheemalamarri vs. ITO in ITA No.1463/Hyd/2018 vide order dt. 05.03.2020. The relevant extract of judgement is as under:
“11. I have considered the rival submissions and carefully perused the material on record. From the Orders of the Ld. Revenue Authorities, I find that the Ld. AO has disallowed the exemption claimed by the assessee under Article 15(1) of the India-Austria DTAA only for want of Tax Residence Certificate (TRC) from Austria. The submission of the assessee in this regard was that despite best possible efforts he was not able to procure TRC from country of residence and the situation may be treated as “impossibility of performance”. I find merits in the submission of the assessee. Normally it is a herculean task to obtain certificates from alien countries for compliance of domestic statutory obligations. In such circumstances the taxpayer cannot be obligated to do impossible task and penalized for the same. If the assessee provides sufficient circumstantial evidence in such cases, the requirement of section 90(4) ought to be relaxed. Further, it is obvious that where there is a conflict between the Treaty and the Act, the Treat shall overrule the Act. In the case of the assessee, by virtue of the Treaty, the assessee is liable to tax in Austria for the services rendered in Austria and not in India. Therefore, though the Act mandates Tax Residency Certificate of Austria , non-production of the same before the Ld. Revenue Authorities shall not enable the Ld. Revenue Authorities not to grant the benefit of the Treaty to the assessee. Therefore, the Ld. Revenue Authorities have erred in not granting the benefit of the Treaty to the assessee just for the reason that the assessee has not submitted the Tax Residency Certificate from Austria. The Ahmedabad Bench of the Tribunal in the case of Skaps Industries India (P.) Ltd vs. ITO, International Taxation, Ahmedabad reported in 171 ITD 723 taking cue from the decision of the Hon’ble P & H High Court in the case of Secro BPO (P.) Ltd vs. Authority for Advance Ruling reported in 379 ITR 256 had held that “Whatever may have been the intention of the lawmakers and whatever the words employed in Section 90(4) may prima facie suggest, the ground reality is that as the things stand now, this provision cannot be construed as a limitation to the superiority of treaty over the domestic law. It can only be pressed into service as a provision beneficial to the assessee…..”. Therefore, the stand of the Ld. Revenue Authorities on this issue is devoid of merits.
12. As per Article 15(1) of the India -Austria DTAA, “salaries, wages and other similar remuneration derived by a resident of a contracting state in respect of an employment shall be taxable only in that state unless the employment is exercised in the other contracting state. If the employment is so exercised, such remuneration as is derived therefore may be taxed in that other state.” Further, Article 4(1) the India-Austria DTAA defines the term resident as under:
“For the purposes of this convention, the term ‘resident of a contracting state’ means any person who, under the laws of that state, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that state and any political sub-division or local authority thereof.”
13. Therefore, in the case before me the following conditions are required to be satisfied to claim exemption under Article 15(1) of the India -Austria DTAA:
– The person should be a resident of Austria and
– The salary and other remuneration should be earned in respect of employment exercised in Austria.
14. From the facts of the case it is apparent that during the previous relevant to AY 2014-15, the assessee qualifies as a non-resident in India and as a tax resident in Austria. The salary and allowances are earned by the assessee in respect of employment rendered in Austria due to his foreign assignment. Hence, the first two conditions enumerated under Article 15(1) of the India-Austria DTAA stands satisfied. Therefore, the assessee ‘s claim of exemption in regard to his salary income as per the provisions of Article 15(1) of the India Austria DTAA in the return of income filed by him is appropriate.
15. Further in the case of ITO Vs. Sunil Chitranjan Muncif (2013 58 SOT 356 – ITAT, Ahmedabad), on which reliance placed by the assessee, it was held that there was no dispute about the fact that the assessee is a NRI and the salary income received by him in India for employment exercised in UK has been offered by him for taxation in UK in pursuance of Article 16 of DTAA with UK. Hence, the salary received by the assessee was not taxable in India in pursuance of DTAA between India and UK.
16. In the case of DIT Vs. Prahlad Vijendra Rao (239 CTR 107), on which reliance placed by the assessee, the Hon’ble Karnataka High Court held that under section 15 of the Act even on accrual basis salary income is taxable i.e. it becomes taxable irrespective of the fact whether it is actually received or not; only when services are rendered in India it becomes taxable by implication. However, if services are rendered outside India such income would not be taxable in India.
17. The other objections raised by the Ld. AO that evidence was not produced for receiving the foreign allowance outside India and the bank account of the assessee maintained abroad was not produced is not relevant because the facts of the case establishes that the salary and the foreign allowance was received in India for the services rendered abroad and by virtue of DTAA and the Act, there is no bar in law for receiving the money in India. For the above-mentioned reasons, I hereby direct the Ld.AO to delete the tax imposed on the assessee with respect to his salary income of Rs. 12,90,846/- and the foreign allowances of Rs. 22,48,501/ – aggregating to Rs. 3539347/- earned by him outside India during the relevant assessment year”.”
Thus, based on the judgement it was held by ITAT that assessee will not be liable to tax in India and can take benefit of section 90 and DTAA even if TRC i.e. Tax residency certificate is not available.
Our comments:
Even though DTAA does not requires TRC but the domestic laws does and hence if one does not require to get into litigation it is recommended to have TRC before taking any benefit in DTAA.
Also under DTAA one is required to prove that he is a resident of one of the country and one document which can easily prove the same is TRC and thus, it is always advisable to not look out for any other document and just submit TRC if DTAA benefit is required to be taken.
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