2004 (5) TMI 63 - AAR - Income Tax

Applicant resigned from Morgan Stanley and left India to take up job in USA - applicant received being payment from Morgan Stanley Staff Superannuation Fund held that amount received from superannuation fund in 2002-2003 for the services rendered in India is taxable in India as per the DTAA with USA - The amount received from superannuation fund on resignation before specified age is not eligible for exemption under section 10(13) of the Income-tax Act 1961.

Summary

Issues:
Taxability of amount received from superannuation fund in 2002-03 under Double Taxation Avoidance Agreement with U.S.A.
Eligibility for exemption under section 10(13) of the Income-tax Act, 1961 for the amount received from superannuation fund.

Analysis:
1. The applicant, an individual who resigned from an Indian company and moved to the USA, received a payment from a superannuation fund in 2002-03. The applicant sought clarification on the taxability of this amount in India under the Double Taxation Avoidance Agreement with the USA and whether it could be exempt under section 10(13) of the Income-tax Act, 1961.

2. The applicant argued that the amount received from the superannuation fund should not be taxable in India as he had not rendered any services in India during that period. He relied on Article 16(1) of the DTAA between India and the USA, claiming that the provisions of this Article should be applied in the year of receipt, which, in this case, was not liable to tax in India.

3. The jurisdictional commissioner contended that since the employment was exercised in India, the amount received was taxable in India as per Article 16 of the DTAA. Additionally, the commissioner highlighted that the applicant's resignation did not qualify for exemption under section 10(13) as it did not meet the conditions specified in the Act.

4. The Authority examined the applicant's eligibility for exemption under section 10(13) of the Act, which allows for exemption for payments from an approved superannuation fund made on retirement at or after a specified age. The Authority noted that the term 'retirement' did not encompass 'resignation' in this context, and the applicant did not resign after the specified age for voluntary retirement.

5. The Authority also clarified that the DTAA with the USA did not exempt the payment received from a former employer in India. The payment was taxable under the head 'salaries' in India in the year of receipt, as per Article 16(1) of the DTAA.

6. Consequently, the Authority ruled that the amount received from the superannuation fund in 2002-03 for services rendered in India was taxable in India as per the DTAA with the USA. Additionally, the amount received on resignation before the specified age was not eligible for exemption under section 10(13) of the Income-tax Act, 1961.

7. The ruling was pronounced by the Authority on May 31, 2004, providing clarity on the taxability of the amount received from the superannuation fund and the applicant's eligibility for exemption under the Income-tax Act, 1961.