In case of Somnath Duttagupta[1] (Taxpayer) the issue before Kolkata Tribunal was whether salary received in USA for the employment exercised in USA by tax resident of India is taxable in India.
The Taxpayer was employed with an Indian company. During tax year (AY) 2018-19, the Taxpayer was on an international assignment to USA. His stay in India during that tax year was only 16 days. However, salary for US assignment was received by the Taxpayer in his Indian bank account. The taxpayer filed tax returns and paid tax in USA on salary from employment exercised in USA. The Taxpayer did not report US salary income while filing his Income Tax Return in India on the ground that it was not taxable in India under India-US Double Tax Avoidance Agreement (treaty). The Tax Authority denied exemption under the treaty on the ground that the Taxpayer had not furnished the Tax Residency Certificate (TRC) of US.
On appeal to the First Appellate Authority (FAA), the Taxpayer furnished TRC and details of his stay in India during the tax year as well as past 10 years from his passport copy. The FAA accepted taxpayer’s status to be non-resident but held that since the employment exercised in US was an integral part of his employment with Indian company and salary was received in Indian bank account, the US salary was taxable in India.
On further appeal before the Kolkata Tribunal, it was noted that Taxpayer was claiming non-resident status on the basis that his stay in India was only 16 days during the relevant tax year. One of the conditions to attract tax residency in India is that the individual’s stay in India during preceding four years is 365 days or more and stay in India during the relevant tax year is 60 days or more. The Tribunal held that while Taxpayer’s stay in India during relevant tax year being less than 60 days was accepted, he has not furnished any proof to substantiate that his cumulative stay in preceding four years was less than 365 days and thus failed to establish that he qualified as an NR.
Also, the Tribunal noted the fact the Taxpayer filed tax returns both in US and India and hence held that the Taxpayer was resident of India as well as US. The Tribunal, thereafter, proceeded to examine the residence tie breaker clause under the treaty. Based on address provided in US tax return of a hotel, absence of owned property in US, Indian addresses appearing in Indian income tax returns, employment with Indian company and receipt of salary in Indian bank account, the Tribunal concluded that the taxpayer’s residency broke in favour of India.
Having concluded that the Taxpayer was tax resident of India, the Tribunal examined Article 16(1) of the treaty and held that although being a tax resident of India, since the employment was exercised in US during the relevant tax year, the salary income was not taxable in India even though it was received in Indian bank account.
The Tribunal thereafter examined Article 16(2) of the treaty for short stay exemption in source state[2] and held that this exemption is not available since all the three conditions of short-stay exemption must be fulfilled on cumulative basis. In the present case, since Taxpayer’s stay in US exceeded 183 days, one of the conditions was not fulfilled. Accordingly, the Taxpayer is covered by Article 16(1) and in view of employment exercised in US, the salary is taxable in US and not in India.
[1] [2024] 206 ITD 317 (Kolkata - Trib.)
[2] Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State, 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.
