Publish Date: May 24, 2024
In a landmark case that has significant implications for non-resident Indians (NRIs) earning income abroad, the dispute between Yogesh Kotiyal and the Assistant Commissioner of Income Tax (ACIT) sheds light on the intricacies of taxation laws concerning overseas earnings.
| Case Law Details |
| Case Name: Yogesh Kotiyal Vs ACIT (ITAT Delhi) |
| Appeal Number: ITA No. 391/Del/2023 |
| Date of Judgement/Order: 12/04/2024 |
| Related Assessment Year: 2020-21 |
| Courts: All ITAT ITAT Delhi |
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi has held that salary and allowances received by a non-resident for services rendered abroad are not taxable in India. This decision was made in the case of Yogesh Kotiyal vs. Assistant Commissioner of Income Tax (ACIT). The ruling provides clarity on the tax obligations of non-residents and the application of the India-Australia Double Taxation Avoidance Agreement (DTAA).
Yogesh Kotiyal, an Indian citizen, was employed an employee of Nokia Solutions and Networks India Private Limited (Nokia India), who was on assignment in Australia from August 23, 2017, to March 10, 2020. During the financial year 2019-20, Kotiyal was physically present in Australia, rendering services to Nokia Australia and qualifying as a non-resident in India as per Section 6(1) of the Income Tax Act. Despite receiving his salary in India, Kotiyal sought exemption from Indian taxation under Article 15(1) of the India-Australia DTAA, which covers ‘Dependent Personal Services.’
The contention arose due to the interpretation of Section 9(1)(ii) of the Income Tax Act, which deals with income deemed to accrue or arise in India. The ACIT argued that Kotiyal’s salary should be taxed in India since the employment contract was signed in India, and the salary was credited to his Indian bank account.
However, Kotiyal maintained that his employment was primarily based abroad, and the services were rendered outside India. He argued that his salary and allowances were for services performed outside the Indian territory and, therefore, not taxable under Indian law.
1. Non-Resident Status: Kotiyal was in India for less than 60 days during the FY 2019-20, making him a non-resident under Indian tax law.
2. Resident of Australia: For the relevant tax years, Kotiyal was a tax resident of Australia, fulfilling the criteria set out in Article 4(1) of the India-Australia DTAA.
3. Claim for Exemption: Kotiyal claimed an exemption for the salary received in India for services rendered in Australia, as stipulated under Article 15(1) of the DTAA. Assessment and Proceedings The Assessing Officer (AO) disallowed the exemption claim on the grounds that Kotiyal had not submitted a Tax Residency Certificate (TRC) from Australian authorities during the assessment proceedings.
However, Kotiyal provided alternative evidence such as Australian tax returns and proof of tax payments in Australia, supporting his claim of tax residency and compliance with the DTAA provisions.
The case was brought before the Income Tax Appellate Tribunal (ITAT), which carefully examined the facts and legal provisions.
The ITAT Delhi meticulously examined the facts and the applicable legal provisions.
The Tribunal noted that Kotiyal:
1. Provided substantial documentation, including his assignment agreement, passport, and Australian tax returns.
2. He was physically present and rendering services in Australia, fulfilling the DTAA conditions for tax exemption.
The ITAT ruled in favor of Kotiyal, stating that income derived from services rendered outside India by a non-resident individual cannot be taxed in India, even if the contract was signed or the salary credited in India.
The ITAT emphasized the principle of territoriality in taxation, highlighting that income earned outside Indian borders falls outside the purview of Indian taxation laws unless specifically provided otherwise. The tribunal also emphasized the importance of substance over form, focusing on where the services were actually performed rather than the technicalities of contract signing or salary crediting.
This judgment reaffirms the precedence set by various judicial pronouncements and clarifies the tax treatment of income earned abroad by NRIs. It provides clarity and assurance to individuals working overseas, ensuring that they are not subjected to double taxation or undue tax liabilities in India for income earned through legitimate means abroad.
1. Vishal Gulati vs. ACIT: This case established that salary received by a non-resident for services rendered outside India is not taxable in India.
2. Anjali Puri vs. ACIT: Reaffirmed that employment exercised entirely outside India exempts the income from Indian taxation under the DTAA.
3. Sunil Chit Ranjan Muncif: Supported the notion that non-residents earning salary for overseas services should not be taxed in India.
In conclusion, the case of Yogesh Kotiyal vs. ACIT underscores the significance of understanding and adhering to the intricacies of taxation laws, especially concerning income earned abroad. It serves as a guiding precedent for NRIs and tax authorities alike, fostering transparency and fairness in the taxation of global income.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order dated 21.12.2022 passed by the AO u/s 143(3) r.w.s. 144C(13).
Following grounds have been raised by the assessee:
Heard the arguments of both the parties and perused the material available on record.
During Assessment year 2020-21, the Assessee an employee of Nokia Solutions and Networks India Private Limited (‘Nokia India’) was on an overseas assignment to Australia and was exercising employment by rendering services in Australia with Nokia Australia from 23 August 2017 to 10 March 2020 and also placed in Australia. While working with Nokia Australia, the Assessee was based in and was physically present in Australia during the F.Y. 2019-20.
The Assessee was in India for less than 60 days during F.Y. 2019-20 and qualified as a Non-Resident in India as per Section 6(1) of the Act. The Assessee qualified as Tax Resident of Australia for the Tax Year (TY) 2018-19 and TY 2019-20. As the Assessee qualified as a Resident of Australia under the domestic tax law of Australia for the TY 2018- 19 and TY 2019-20, and Non-Resident of India.
Accordingly, the Assessee qualified as a Resident of Australia as per Article 4(1) of India- Australia Double Taxation Avoidance Agreement (DTAA) between India and Australia for the F.Y. 2019-20. The relevant extract of Article 4(1) of the India- Australia DTAA is as under:
“For the purposes of this Agreement, a person is a resident of one of the Contracting States if the person is a resident of that Contracting State for the purposes of its tax. However, a person is not a resident of a Contracting State for the purposes of this Agreement if the person is liable to tax in that State in respect only of income from sources in that State; Where, by reason of the provisions of paragraph (I), an individual is a resident of both Contracting States, then the status of that person shall be determined in accordance with the following rules:
(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person; (b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person’s personal and economic relations are closer (centre of vital interests). For the purposes of this paragraph, an individual’s citizenship of a Contracting State as well as that person’s habitual abode shall be factors in determining the degree of the person’s personal and economic relations with that Contracting State. Where, by reason of the provisions of paragraph (I), a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident solely of the Contracting State in which its place of effective management is situated.”
During F.Y. 2019-20, the Assessee continued to receive salary income in India for exercising employment in Australia and services rendered to Nokia Australia. The salary income was paid to the Assessee in India for administrative convenience and the payroll remained in India while the Assessee was on assignment in Australia and exercised his employment in Australia during the F.Y. 2019-20. As the Assessee qualified as a Resident of Australia under the India-Australia DTAA for the FY 2019-20 and was rendering services/ exercised employment in Australia during the concerned period, he was eligible to claim exemption of his salary income received in India, as per Article 15(1) ‘Dependent Personal Services’ of the India-Australia DTAA, read with Section 90 of the Act.
The Assessee filed his original Return of Income (ROI) of income on 30 December 2020, vide acknowledgement number 956112060301220, reporting the net taxable income of Rs.66,19,857/-. Once the Australia tax return of the Assessee was filed, the Assessee revised his India ROI on 27 March 2021 for the AY 2020-21 having acknowledgement number 312379830270321 as per Section 139(5) of the Act and claimed the exemption as per Article 15(1) of the India-Australia DTAA for the salary received in India for services rendered in Australia.
The Assessee was not present in India during the entire F.Y. 2019-20 and was rendering services in Australia to Nokia Australia. The salary income of Rs.55,37,591/- received in India for services rendered in Australia to Nokia Australia was claimed as exempt from tax in India as per Article 15(1) ‘Dependent Personal Services’ of the India-Australia DTAA, read with Section 90 of the Act.
The Assessing Officer initiated scrutiny assessment proceedings vide notice dated 29 June 2021 issued under Section 143(2) of the Act to verify the reduction of income and claim for refund in the Revised ITR filed by the Assessee for F.Y. 2019-20.
The AO issued notices dated 25 October 2021 and 3 January 2022 under Section 142(1) and show cause notice dated 28 February 2022 of the Act to seek further details and information from the Assessee in connection with the revised ROI filed by him.
In response to the notices issued under Section 143(2), Section 142(1) of the Act, the Assessee had filed the responses vide submission dated 13 July 2021, 8 November 2021 and 7 January 2022 along with documentation/ evidence in support of the exemption claimed under Article 15(1) of the India-Australia DTAA.
In response to the show-cause notice dated 28 February 2022 issued by the AO, the Assessee had filed Adjournment letter on 3 March 2022 requesting for additional time to provide the information requested by the AO.
The Assessee filed the following documents in support of the exemption claimed under Article 15(1) of the India-Australia DTAA as per submission dated 8 and 7 January 2022: Passport Australia Tax returns for 2018 and 2019 evidencing residency in the Australia and proof of payment of taxes in Australia
The AO has in the Draft Assessment Order under Section 144C of the Act, disallowed the exemption of Rs.55,37,591/-claimed under Article 15(1) of the India-Australia DTAA read with Section 90 of the Act on the premise that the Assessee had not submitted the Tax Residency Certificate (TRC) issued by Australia tax authorities. Subsequently, the AO has determined the assessed income at Rs.66,19,861/- as against returned income of Rs.10,82,270/-.
The Assessee filed Objections before the ld. DRP against the Draft Assessment Order on 7 April 2022 under Section 144C(2)(b) of the Act challenging the denial of the exemption of INR 55,37,591 claimed under Article 15(1) of the India-Australia DTAA read with Section 90 of the Act in respect of employment exercised/services rendered in Australia with Nokia Australia.
Since the Assessee was unable to furnish the Tax Residency Certificate (TRC) during assessment proceedings and was not granted additional time sought to furnish the same, therefore the Assessee had duly filed the application for admission of copy of the TRC issued by Australian Tax Authorities for the FY 2019-20 as additional evidence before ld. DRP on 29 April 2022 to enable adjudication of the appeal based on the facts and merits of the case as per Rule 9 of Rules. The copy of the TRC issued by Australian Tax Authorities filed before the ld. DRP is enclosed at Pages 156 to 159 of Paper-book.
The ld. DRP has issued directions on 4 November 2022 under Section 144C (5) of the Act and rejected the Objections raised by the Assessee on the following premises:
a) The Assessee had an employer-employee relationship with Nokia Solutions and Networks India Private Limited (Nokia India) even while working in Australia.
b) The Assessee has not demonstrated that taxes have been paid in Australia for services rendered outside India i.e., in Australia and hence not eligible for the treaty exemption under Article 15(1) of the India- Australia DTAA. The Australia tax return has been ignored and incorrectly interpreted by the ld. DRP.
c) The contract of employment was executed in India and employment was based in India throughout his Australia assignment.
The Assessing Officer has thereafter issued final assessment order under Section 144C(13) read with Section 143(3) of the Act on 21 December 2022 and disallowed the claim for relief on ground that Tax Residency Certificate and Australian tax returns reflecting taxes paid in Australia has not been submitted and that the ld. DRP rejected the Objections raised by the Assessee.
Aggrieved by the Final Assessment order issued by the Assessing Officer, the Assessee has filed the present appeal before the Tribunal.
Before us, it was submitted that,
The Assessee qualified as a Non-Resident in India as per Section 6(1) of the Act as he was present in India for less than 60 days during FY 2019-20.
During FY 2019-20, the Assessee, an employee of Nokia Solutions and Networks India Private Limited (Nokia India), was on an overseas assignment to Australia and was exercising employment/rendering services in Australia to Nokia Australia from 23 August 2017 to 10 March 2020, post which he was localized in Australia.
While on his assignment in Australia with Nokia Australia, the Assessee was physically present/exercised employment in Australia during the F.Y. 2019-20.
While on his overseas assignment, the Assessee continued to receive salary and benefits in India as his payroll remained in India for administrative convenience during his assignment to Australia.
The Assessee has claimed exemption of Rs.55,37,591/- on salary income received in India for the F.Y. 2019-20 for services rendered/employment exercised in Australia under Article 15(1) of the India-Australia DTAA, read with Section 90 of the Act as he was Resident of Australia under Article 4(1) of the India-Australia DTAA.
Section 90(2) of the Act reads as under: “Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (I) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of such Act shall apply to the extent they are more beneficial to that assessee.” As per section 90(2) of the Act, where a DTAA exists between India and the country where the Assessee’s income is doubly taxed, the provisions of the Act would apply to the Assessee to the extent it is more beneficial to the Assessee.
As per Article 15(1) of India-Australia DTAA (Dependent Personal Services)- “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 therefrom may be taxed in that other Contracting State.”
Accordingly, the following conditions are required to be satisfied to claim exemption under Article 15(1) of the India-Australia DTAA:
The salary of Rs.55,37,591/- received in India by the Assessee for employment exercised/services rendered in Australia has been claimed as exempt from tax in India under Article 15(1) of the India-Australia DTAA read with Section 90 of the Act as the Assessee was Resident in Australia and exercised employment in Australia with Nokia Australia during the relevant Financial Year.
The Assessee produced copies of Assignment Agreement, Passport, and Australia tax return evidencing due payment of taxes in Australia in respect of salary paid to him in India for employment exercised in Australia with Nokia Australia. The TRC was also furnished during proceedings before the DRP as additional evidence in support of the claim for exemption of Salary income under India-Australia DTAA.
Further, the following judicial precedents support the contention of the Assessee:
a) The Delhi Tribunal in the case of Vishal Gulati vs. ACIT [2024] 159 com 713. b) The Delhi Tribunal in the case of Anjali Puri vs. ACIT [2024] 159 com 603. c) The Ahmedabad Tribunal’s judgment in the case of Sunil Chit Ranjan Muncif (2013 58 SOT 356).
We also find that the issue in dispute is also covered in favor of the assessee by the Hon’ble Karnataka High Court in the case of DIT (International Taxation) vs. Prahlad Vijendra Rao [2011] 10 com 238/198 Taxman 551 (Kar.), the decision of Hon’ble Bombay High in the case of CIT vs. Avtar Singh Wadhwan [2001] 247 ITR 260/115 Taxman 536 (Bom.), the decision of Hon’ble Calcutta High Court in the case of Sumana Bandyopadhyay vs. Dy. CIT (International Taxation) [2017] 88 taxmann.com 847/395 ITR 406.
Placing reliance on the aforementioned rulings, the exemption of Rs.55,37,591/- claimed by the Assessee under Article 15(1) of the India-Australia DTAA read with Section 90 of the Act in respect of employment exercised/services rendered in Australia to Nokia Australia be allowed.
The AO has denied the exemption claimed under Article 15(1) of the India-Australia DTAA on the premise that the TRC has not been furnished while ignoring that alternate evidence in support of the Tax Residency in Australia has been duly furnished, i.e., Australia tax return is evidence of residency in Australia and also evidences due payment of taxes in Australia. The Assessee had applied for TRC in Australia for the TY 2018 and TY 2019 and it is pertinent to highlight that the Assessee had received the TRC of Australia issued by the Australia Taxation Office for TY 2019-20 and in this regard an application for admission of additional evidence was filed before the ld. DRP.
The undisputed facts are that:
Under these facts, the taxability of the salary paid by the Indian company to a non-resident is examined with reference to the provisions of Section 5, Section 9, Section 15 of the Income Tax Act, 1961.
Section 5 Income Tax Act deals with the scope of total income. The taxable income includes income from all sources received, deemed to be received, accrues, and deemed to have accrued is taxable in India in case of a non-resident.
Section 9 Income Tax Act deals with income deemed to accrue or arise in India. As per the provision of Section 9 (1)(ii), the income earned under head “Salaries” is taxable in India “if it is earned” in India.
In the instant case, the assessee neither had any rest period nor leave period which is preceded and succeeded by the services rendered outside India. Since, the assessee has rendered services outside India, the salary cannot be taxable in India.
From the concurrent reading of Section 5 dealing with the scope of total income, Section 15 dealing with computation of total income under the head salary and chargeability thereof, and Section 9 dealing with income arising or accruing in India with reference to the salaries and the services rendered in India, we hold that no taxability arises on the salary/allowances received by the assessee since the assessee is a non-resident and has rendered services outside India.
Thus, the Assessee is eligible for exemption on his salary for services rendered in Australia employment exercised in Australia during his Australia assignment period.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 12/04/2024.
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