Salary Income of Indian Resident Taxable in USA if he Didn’t Satisfy Cumulative Conditions of Art. 16(2) of DTAA

Case Details: Somnath Duttagupta vs. ACIT - [2024] 160 taxmann.com 576 (Kolkata-Trib.)

Judiciary and Counsel Details

• • Sanjay Garg, Judicial Member & Dr Manish Borad, Accountant Member
  • Balaji V. for the Appellant.
  • Raja Sengupta for the Respondent.

Facts of the Case

The assessee, an individual, was employed with a private limited company in India. During the relevant assessment year, the assessee was on an international assignment to the USA. The assessee stayed and exercised his employment in the USA and had been in India for 16 days only. Though the salary was received in India in his bank account, paid to the assessee for exercising his employment in the USA, and taxed in the USA, the assessee contended that the salary was not taxable in India.

During the assessment proceedings, the assessee did not submit the documents supporting his stay in India for the last four years. In its absence, the correct residential status of the assessee cannot be determined as per the provisions of section 6 of the Income Tax Act. Relying upon para 2 of Article 4 of Indo-US DTAA, the Assessing Officer (AO) contended the assessee to be resident of India and denied the benefit of Article 16 of the DTAA.

Accordingly, the AO taxed the aforesaid salary income of the assessee in India. Aggrieved by the order, the assessee preferred an appeal to the CIT(A), wherein the appeal was dismissed. The matter then reached before the Kolkata Tribunal.

ITAT Held

The Tribunal held that Article 4 of the Indo-US DTAA which defines ‘residence’ would show that a resident of contracting state means any person who under the laws of that State is liable to be taxed therein. In the case of the assessee, an individual who is a tax resident of both the contracting States shall be deemed to be a resident of the State in which he has a permanent home available to him.

In the instant case, the assessee was a tax resident of both the USA and India. During the year, the assessee did not have a permanent home in the USA, but he had a permanent home in Kolkata. Moreover, the assessee was permanently employed by the Indian Company, and the assessee’s bank account is also in India. Therefore, as per Article 4 of DTAA, the assessee would be treated as a resident of India.

A perusal of article 16 would reveal that at the first instance, the salaries and 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 other contracting State. Since the assessee has exercised his employment in the USA, i.e. “The Other Contracting State”. Therefore, at the first instance, the assessee’s remuneration derived from such employment is liable to be taxed in the USA only.

However, an exception to this provision is mentioned under Article 16(2) if :

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant taxable year ;

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and

(c) the remuneration is not borne by a permanent establishment or a fixed base or a trade or business which the employer has in the other State.

It was held that the exception clause, as mentioned in Article 16(2) of the DTAA, does not apply to the assessee’s case. The condition mentioned in Clause (a) of Article 16(2) is satisfied, but the conditions of Clause (b) and (c) to Article 16(2) of the DTAA have not been satisfied in this case. Since the conditions mentioned in Clause (a), (b) & (c) to Article 16(2) of the Indo-US DTAA have to be applicable together or to say simultaneously.

Since the taxpayer had engaged in employment and received compensation in the USA, in accordance with Article 16(1) of the Indo-US DTAA, the income of the taxpayer was subject to taxation in the USA rather than in India.

List of Cases Reviewed

• • Rajat Dhara v. DCIT ITA No.1914/Kol/2019, dated 19-2-2024 (para 6.13) followed.