2016 (4) TMI 1323 - AT - Income Tax

Correctness of TDS deducted by the Indian Employer - Taxability of salary income of non-resident - exemption claimed under Section 5(2) - taxability of foreign allowances - it was contended by the assessee that assessee was sent on a foreign assignment and received salary as well as allowances. The salary was to be taxed in India. However the allowances cannot be taxed in India as it is received outside India and the employer deducted TDS wrongly. - Held that - it is an admitted fact that the assessee has remained as an employee of IBM India Pvt. Ltd. and the law of land would remain applicable to the assessee and further salary was continued to be paid under home location salary plan. As the salary was paid to assessee s home location bank TDS was rightly deducted by IBM India Pvt. Ltd. Accordingly Form 16 was issued to the assessee. - Decided against the assessee.

Summary

Issues:
1. Taxability of entire salary income of non-resident in India, including foreign allowances.
2. Disallowance of exemption claimed under Section 5(2) of the Act.
3. Allegations of taxability of foreign allowances received in India.
4. Admissibility of additional evidence filed by the assessee.
5. Interpretation of assignment letter and taxability of salary and allowances.
6. Application of Section 5(2) of the Act in the case.

Analysis:

1. The appeal raised concerns regarding the taxing of the entire salary income of a non-resident in India, including foreign allowances. The Assessing Officer (AO) and Commissioner of Income-tax (Appeals) (CIT(A)) were alleged to have erred in this regard. The AO observed that the salary was credited to the bank account in India, thus deeming it as received in India, which is taxable under Section 5(2) of the Act.

2. The assessee claimed exemption under Section 5(2) of the Act for a specific sum, which was disallowed by the AO and CIT(A). The dispute arose from the location of receipt of foreign allowances, with the assessee contending that they were received outside India. The additional evidence submitted, including bank statements, aimed to support this claim.

3. The contention revolved around the taxability of foreign allowances allegedly received outside India. The assessee provided evidence to demonstrate that the allowances were not received in India, contrary to the assertions of the tax authorities. The issue of taxability hinged on whether the income was deemed to be received or accrued in India.

4. The assessee filed additional evidence, including bank statements and confirmation of remittance accounts, to substantiate the receipt of foreign allowances outside India. The Tribunal found reasonable cause for the delay in submitting these documents earlier and admitted the evidence for adjudication.

5. The interpretation of the assignment letter issued by the employer played a crucial role in determining the taxability of salary and allowances. The employer's deduction of TDS on the entire salary, along with the terms of the assignment letter, influenced the decision on tax liability. The location of receipt and utilization of services were key factors in assessing tax liability.

6. The application of Section 5(2) of the Act was central to the judgment. The Tribunal analyzed the factual circumstances, including the nature of services, location of receipt, and employer-employee relationship, to determine the taxability of the foreign allowances. The decision upheld the lower authorities' view that the allowances were linked to the salary and, therefore, taxable in India under the Act.

In conclusion, the judgment dismissed the appeal, affirming the tax liability on the foreign allowances received by the non-resident assessee in India. The decision was based on the interpretation of relevant provisions of the Act, factual evidence presented, and the employer-employee relationship established through the assignment letter.