Facts of the case:
During the assessment year 2020-21, an employee of Nokia Solutions and Networks India Private Limited (Nokia India) worked overseas in Australia from 23 August 2017 to 10 March 2020, providing services to Nokia Australia and being stationed there. Throughout the financial year 2019-20, the employee was based in and physically present in Australia.
The employee spent less than 60 days in India during the financial year 2019-20, meeting the criteria of a Non-Resident in India as per Section 6(1) of the Act. For the tax years 2018-19 and 2019-20, the employee qualified as a tax resident of Australia. Consequently, they were considered a Non-Resident of India (NRI).
Despite being in Australia, the NRI received salary income in India for their services to Nokia Australia. This was due to administrative convenience, with the payroll being managed in India. Given their status as a resident of Australia under the India-Australia Double Taxation Avoidance Agreement (DTAA) for the financial year 2019-20 and their employment in Australia during this period, the NRI was eligible for an exemption on their salary income received in India under Article 15(1) ‘Dependent Personal Services’ of the India-Australia DTAA, in conjunction with Section 90 of the Act.
The NRI initially filed their Return of Income (ROI) on 30 December 2020, reporting a net taxable income of Rs.66,19,857/-. After filing their tax return in Australia, they revised their India ROI on 27 March 2021 for the assessment year 2020-21, citing Section 139(5) of the Act. They claimed exemption as per Article 15(1) of the India-Australia DTAA for the salary earned in India while providing services in Australia.
During the entire financial year 2019-20, the NRI was not present in India but was providing services to Nokia Australia in Australia. The salary income of Rs.55,37,591/- earned in India for these services was claimed as tax-exempt in India under Article 15(1) ‘Dependent Personal Services’ of the India-Australia Double Taxation Avoidance Agreement (DTAA), in conjunction with Section 90 of the Act.
The Assessing Officer (AO) initiated scrutiny assessment proceedings on 29 June 2021, issuing a notice under Section 143(2) of the Act to examine the income reduction and refund claim in the NRI’s revised Income Tax Return (ITR) for the financial year 2019-20. Subsequent notices were issued by the AO on 25 October 2021 and 3 January 2022 under Section 142(1) of the Act, followed by a show-cause notice on 28 February 2022, requesting additional details and information regarding the revised ITR.
In response to these notices, the NRI submitted responses on 13 July 2021, 8 November 2021, and 7 January 2022, providing documentation and evidence supporting the claimed exemption under Article 15(1) of the India-Australia DTAA.
Upon receiving the show-cause notice dated 28 February 2022, the NRI requested an adjournment on 3 March 2022 to provide the requested information. The NRI submitted the following documents in support of the exemption claimed under Article 15(1) of the India-Australia DTAA on 8 and 7 January 2022:
- Passport
- Australian Tax returns for 2018 and 2019, demonstrating residency in Australia and payment of taxes there.
However, in the Draft Assessment Order under Section 144C of the Act, the AO disallowed the claimed exemption of Rs.55,37,591/-, citing the absence of a Tax Residency Certificate (TRC) issued by the Australian tax authorities. Consequently, the assessed income was determined at Rs.66,19,861/-, compared to the returned income of Rs.10,82,270/-.
On 7 April 2022, the NRI filed objections against the Draft Assessment Order under Section 144C(2)(b) of the Act, challenging the denial of the exemption claimed under Article 15(1) of the India-Australia DTAA for services provided to Nokia Australia.
Given the NRI’s inability to provide the TRC during the assessment proceedings and the denial of additional time to do so, the Assessee submitted an application on 29 April 2022 to admit a copy of the TRC issued by the Australian Tax Authorities for the financial year 2019-20 as additional evidence before the ld. Dispute Resolution Panel (DRP) for consideration based on the case’s merits and facts under Rule 9 of the Rules. The TRC copy submitted to the ld. DRP can be found on Pages 156 to 159 of the Paper-book.
DRP’s decision:
- The DRP held that the NRI had an employer-employee relationship with Nokia India even while working in Australia.
- The DRP concluded that the NRI had not demonstrated that taxes were paid in Australia for services rendered outside India, and therefore, was not eligible for the treaty exemption under Article 15(1) of the India-Australia DTAA.
- The DRP also stated that the contract of employment was executed in India and the employment was based in India throughout the Australia assignment.
Subsequently, the Assessing Officer issued the final assessment order under Section 144C(13) in conjunction with Section 143(3) of the Act on 21 December 2022, denying the relief claim. The denial was based on the NRI’s failure to submit the Tax Residency Certificate and Australian tax returns showing taxes paid in Australia. Additionally, the ld. Dispute Resolution Panel (DRP) rejected the objections raised by the NRI.
Displeased with the final assessment order issued by the Assessing Officer, the NRI has appealed to the Tribunal.
ITAT’s conclusion:
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 IndiaAustralia DTAA:
- The person should be a Resident of Australia; and
- The salary and other remuneration should be earned in respect of employment exercised in Australia.
The salary of Rs.55,37,591/- received in India by the NRI 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 NRI was Resident in Australia and exercised employment in Australia with Nokia Australia during the relevant Financial Year.
Further, the following judicial precedents support the contention of the Assessee:
- The Delhi Tribunal in the case of Vishal Gulati vs. ACIT [2024] 159 Taxmann.com 713 where it was held that “Where assessee, a non-resident, had rendered services outside India and assessee neither had any rest period nor leave period which was preceded and succeeded by services rendered outside India, salary received by assessee from an Indian company could not be taxed in India.”
- The Delhi Tribunal in the case of Anjali Puri vs. ACIT [2024] 159 Taxmann.com 603 where it was held that “Where assessee was residing and exercising employment in Ireland under complete control of BA PLC, Ireland for impugned assessment year and services were rendered in Ireland, and salary was also borne by BA PLC, Ireland, salary of assessee though derived from BA PLC, India on behalf of BA PLC, Ireland could not be said to be deemed to accrue or arise in India and was duly exempt from tax in India”
- The Ahmedabad Tribunal’s judgement in the case of Sunil Chit Ranjan Muncif (2013 58 SOT 356) is squarely applicable in the present case. The assessee was employed by M/s Gemini India, and he was sent to deputation to Australia by Indian employer. It was held as under:
“After hearing both the parties and perusing the record, we find that there is no dispute about the fact that assessee is a NR and the salary income received by him in India for employment exercised in Australia has been offered by him for taxation in Australia in pursuance of Article 16 of DTAA with Australia. On these facts Ld. CIT(A) by following the advance ruling in the case of British Gas India (P.) Ltd. In [2006] 287ITR 462/157 Taxman 225 (AAR — New Delhi) has rightly held that the salary received by the assessee was not taxable in India in pursuance of DTAA between India and Australia therefore the order passed by him is hereby upheld.”
Tribunal also find that the issue in dispute is also covered in favour of assessee by the Hon’ble Karnataka High Court in the case of DIT (International Taxation) vs. Prahlad Vijendra Rao [2011] 10 taxmann.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.
The undisputed facts are noted by the ITAT :
- The assessee is a NRI
- The assessee received salary for services rendered outside India
- The assessee has paid taxes in Australia.
- Copy of the tax return filed Australian tax authority are filed before the revenue authorities.
- Assessee had a valid TRC.
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. The explanation issued for removal of doubts declares that ‘salaries if it is earned’ meets services rendered in India.
In the instant case the NRI neither had any rest period nor leave period which is preceded and succeeded by the services rendered outside India. Since, the NRI has rendered services outside India, the salary cannot be taxable in India.
From the concurrent reading of Section 5 dealing with 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 NRI is eligible for exemption on his salary for services rendered in Australia employment exercised in Australia during his Australia assignment period.
(Yogesh Kotiyal, vs ACIT, International Taxation, Circle-2(1)(2), New Delhi, ITA No. 391/Del/2023 : Asstt. Year : 2020-21)
