Salary earned abroad is taxable, either there or in India

Oct 31 2007, 22:57 IST
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SummaryRecently, the Authority for Advance Rulings (AAR), in the case of S Mohan, an employee of Infosys Technologies Limited, has held that a non-resident employee would be taxable in India on his income even though the employment is exercised outside India.

Recently, the Authority for Advance Rulings (AAR), in the case of S Mohan, an employee of Infosys Technologies Limited, has held that a non-resident employee would be taxable in India on his income even though the employment is exercised outside India.

It was held that such employee would not be entitled to relief under the provisions of the Tax Treaty as he had not paid income-tax in the foreign country, either voluntarily or otherwise. The ruling is summarised below.

The taxpayer was a non-resident in India for the assessment year (AY) 2006-07. He had filed a return of income with the ADIT (International Taxation), Chennai, disclosing income from salaries received from his earlier employer and his current employer (Infosys Technologies Limited), during the relevant financial year. During the course of his employment with Infosys, the applicant was deputed on official duty to Norway where he worked for more than 182 days.

Will the taxpayer, being a non-resident in India, be eligible to claim an exemption under the Tax Treaty of income earned for services rendered outside India?

The taxpayer placed reliance on the decision of the AAR in British Gas (I) Pvt. Ltd (British Gas India (P) Ltd. v CIT [2006] 157 Taxman 225 (AAR)), and contended that as he was rendering services outside India i.e. exercising employment outside India, he was not liable to tax in India. The taxpayer also relied on the decision of the Supreme Court in the case of PVAL Kulandagan Chettiar (CIT v. PVAL Kulandagan Chettiar [2004] 267 ITR 654 (SC)), to claim relief under the India-Norway Tax Treaty (Tax Treaty).

The tax authorities contended that in the present case, Article 16(1) (As per Article 16 (1) of the Tax Treaty, 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 contracting 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 of the Tax Treaty is applicable. Further, relief from taxation, in India can be granted only if sufficient proof for payment of taxes in the other country is produced before them.

The AAR held that Article 16(1) of the Tax Treaty states that unless an employment is exercised in the other contracting state, the remuneration derived shall be taxable only in the

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