The Kolkata Income Tax Appellate Tribunal (ITAT) has ruled in favor of an assessee, who had appealed against the order of the lower authorities, and held that the salary earned from a US employer is not taxable in India in view of Article 16 of the India-US Double Taxation Avoidance Agreement (DTAA). The assessee, an individual, had received Rs. 42.58 lakh in salary from a company in the USA, and claimed it to be exempt under Article 16(1) of the India-USA DTAA, arguing that he qualified as a US resident as per Article 4(1) and 4(2) of the DTAA.

The Revenue, however, had observed that since the assessee’s stay in India was for 200 days in the Financial year 2015-16 and 1044 days in the preceding seven years, he fulfilled the criteria to be qualified as a resident and ordinary resident (R&OR) for the Assessment Year 2016-17 and held that the salary received from the US employer was taxable in India, and also that the assessee could not take the benefit of the DTAA provisions.

On appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) had observed that the assessee’s income from India was Rs. 52 lakh, which was greater than the salary earned from the US employer and held that the assessee was a tax-resident of India from the economic nexus as well as the period of stay, thus, the benefit of DTAA was inapplicable.

However, on perusal of Section 90 of the Income Tax Act, the ITAT observed that the assessee has the option to choose either the DTAA or the domestic provisions, whichever is beneficial to him, and remarked that in this case, “the assessee right from the beginning claimed that since Article 16 of the DTAA is applicable to him, the salary income earned by him during the stay in the USA was chargeable in that country and not in India.”

The ITAT also noted the assessee’s claim that his stay in the USA was for 165 days only and thus, on perusal of Article 16 of the India-US DTAA, held that the salary income earned was taxable in the USA and not in India. The ITAT also observed that without rebutting the assessee’s claim, the lower authorities have simply relied on Sections 5 and 90 to state that since the assessee was an R&OR, DTAA provisions would be inapplicable.

Thus, the ITAT set aside the CIT(A)’s order and ordered for the deletion of the addition made by the Revenue, in favor of the assessee. The related assessment year for this case is 2016-17 and the case is Rajat Dhara v. DCIT, with the date of judgment being 02.03.2022 (ITAT Kolkata)

Double Taxation Avoidance Agreement (DTAA) between India and the United States of America (USA)

The Double Taxation Avoidance Agreement (DTAA) between India and the United States is a tax treaty signed between the two countries to prevent double taxation of income earned in one country by residents of the other country. The DTAA provides for reduced tax rates for certain types of income earned in one country by residents of the other country, as well as provisions for the exchange of tax-related information between the two countries. The agreement is intended to promote economic and trade relations between India and the United States.

The DTAA between India and the United States covers taxes on income and capital gains. The agreement applies to individuals who are residents of one or both countries and to companies that are resident in one or both countries. The DTAA provides for reduced tax rates on certain types of income earned by residents of one country in the other country.

The DTAA also includes provisions to prevent tax evasion and avoidance. The agreement provides for the exchange of information between the tax authorities of the two countries, including bank and financial account information, to assist in the administration and enforcement of the domestic tax laws of both countries. This helps to ensure that taxes are paid on all income earned in one country by residents of the other country, and to prevent tax evasion and avoidance.

In conclusion, the DTAA between India and the United States is an important agreement that helps to promote economic and trade relations between the two countries by preventing double taxation of income earned in one country by residents of the other country. The DTAA also includes provisions to prevent tax evasion and avoidance and provides for the exchange of information and mutual agreement procedure. This DTAA is very beneficial for the citizens of both countries as it reduces the tax burden on them and helps to strengthen the economic ties between the two countries.

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