TMI Blog2012 (7) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... endering employment services for any Indian entity. There is no employment agreement for having rendered any services for Indian entity. In the instant case, the salary accrues to the assessee in Japan and the accrued salary is partly delivered by Motorola India in India. Hence, there is no accrual of salary in India - as the salary is not earned for rendering services in India. Therefore, salary for the entire year is not taxable - in favour of assessee. As no argument was raised by the assessee with reference to levy of interest under section 234D hence no ground in appeal is dismissed. - ITA No.10/Bang/2011 - - - Dated:- 30-5-2012 - SHRI GEORGE GEORGE K, SHRI JASON P BOAZ, JJ. Appellant by : Shri Prakash Hegde, C.A. Revenue by : Shri Etwa Munda, CIT-III ORDER PER GEORGE GEORGE K : This appeal instituted by the assessee is directed against the order of CIT(A), Bangalore dated 16.09.2010. The relevant assessment year is 2006-07. 2. The grounds of appeal read as follows:- i) The learned CIT(A) erred in upholding the order of the Assessing Officer in denying the exemption claimed by the assessee, in so far as a) 15 days durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted 15,52,254 It was submitted before the Assessing Officer that since the assessee was a resident of Japan for the period relevant to the Indian previous year 2005-06 (concerning assessment year 2006-07), he had paid taxes in Japan in respect of salaries paid in India on behalf of Motorola Japan. 3.2 According to the assessee, as a full time employee of Motorola Japan, the assessee was wholly and exclusively working for Motorola Japan and his entire salary was earned in Japan. Even under the Indian Income Tax Act, 1961, the assessee being governed by the provisions of section 9(1)(ii), was not taxable in India as, having exercised his employment in Motorola Japan, he earned the entire salary outside India and was not taxable in India at all. Therefore, in accordance with the provisions of Article 15(1) of the India-Japan Double Taxation Avoidance Agreement (DTAA) as well as the Indian Income Tax Act, the assessee is entitled to exemption in respect of entire salary. 4. The Assessing Officer, however, disallowed the claim of exemption of salary and (a) brought to tax the salary income for the days he was in India between 1st April, 2005 and 31st December, 2005 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 days being 1/3rd of 22 days is regarded as towards business purposes. Hence 22 days is officially allowed for the employee towards annual leave passage and another 7 days is regarded spent as for business purposes and the balance 15 days (45 22 - 7 ) income is to be regarded as earned in India and the AO is directed to recompute the income accordingly. The appellant gets a relief of Rs.3,44,027/-. In giving this direction OECD Guidelines are kept in mind. As per OECD Glossary of Statistical Terms, earnings include the remuneration received for time not worked such as annual vacation and other paid leave or holidays . 7.1 Similarly, the relevant finding of the CIT(A) in respect of the assessment of income for the period 1/1/2006 to 31/3/2006 at para 6.3 reads as follows:- 6.3 The AO has discussed in detail as to why he was non-resident in India for the period from 01.04.2005 to 31.03.2006, and, in particular, for the period from 01.01.2006 to 31.03.2006. It is also discussed in detail in para 7 of his order that the appellant was in Japan for only 148 days during the calendar year 2006, being the Japanese Tax year. Since the appellant was non resident in Japan f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on perspective it is necessary to consider the Indian financial year as the year . By applying the provision of article 15(1) and 15(2) of the treaty also the appellant is not taxable in India. Considering the assessee s submission, facts of the assessee and applicability of article 15(1) and 15(2) is discussed below:- Article Contents Comments 15.2(a) The recipient is present in that other contracting state for a period or the aggregate 183 days during any taxable year or previous year as the case may be. It is admitted fact that the assessee worked as Managing Director of Motorola Japan during May 2000 to April, 2006. Thus he rendered services for Motorola in Japan in that period, accordingly he has furnished, his return of income in Japan by adopting calendar year as taxable year for 2000 to 2005 hence the assessee s case the previous year is calendar year not the Financial Year (Fiscal Year) as claimed by the assessee. Furthermore, he availed the tax relief all these years under India-Japan DTAA, therefore, his claim for treating the F.Y. as the previous year is not maintainable, deserves rejection. 15.2(b) The remuneration is paid by or on behalf of The assessee is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India. In case of divergence in the taxable years between two countries of a treaty, the taxable year of the country in which assessment is made has to be considered. In other words, while checking the residential status in Japan (for applying India Japan treaty) to tax assessment in India for financial year 2005-06, the stay of the person in Japan in the period 1st April, 2005 to 31st March 2006 needs to be checked and whether such person would be treated as a tax resident of Japan on the basis as if the said period was taxable unit in Japan has to be considered. 3. The learned DR in page no.5 of his submissions has contended that the assessee is an employee of Motorola India Electronics Pvt. Ltd. .. and the employer company is not a resident of Japan. Rebuttal: The above contention is factually incorrect. Kindly refer to the confirmation letter issued by Motorola enclosed at page no.54 of the Paper Book wherein it has been confirmed by Motorola that the appellant worked exclusively for Motorola Japan. Also, the appellant wishes to refer to paragraph no.6.2 (page no.25) of the order of the Commissioner of Income Tax (Appeals)-IV (CIT) where it was upheld by the CIT tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular salary is taxable on accrual basis and not on receipt basis. This principle is squarely applicable in the appellant s situation. 7. The learned DR in page no.7 of his submissions has contended that the issue in the matter of Ranjit Kumar Bose v Income Tax Officer (1986) 18 ITD 230 (Calcutta ITAT) (which is relied by the appellant) relates to assessment year 1983-84 and the DTAA between India and Japan was not in force for that A.Y. Rebuttal: The principle laid down in this judgement is similar to that in DIT v Prahlad Vijendra Rao supra. The above decision of the Calcutta ITAT is based only on the provisions of the Act. The DTAA between India and Japan has no bearing on this decision. Therefore, whether the DTAA between India and Japan was in force at that time or not is of no consequence. The principle of this decision is precisely applicable to the facts of the appellant. 12. We have heard the rival submissions and perused the materials on record. It is an admitted fact that the assessee worked as the Managing Director of Motorola Japan during May, 2000 to April, 2006. It is also an admitted position that for the previous year relevant to the assessment year, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary for services rendered to Motorola Japan. The tax year in Japan is January to December whereas for India, it is April to March. For the purpose of Indian tax, one has to see the corresponding position in Japan for determining tax residency in Japan. It is seen that the assessee was present in India only for 83 days during the period April 1, 2005 to March 31, 2006. Hence, as the assessee was present in Japan for more than 183 days during the said period, the assessee would be regarded as a tax resident of Japan and entitled to claim tax treaty benefits as a tax resident of Japan. In view of the same, and further that the assessee s stay in India was only 83 days during the year under appeal, the assessee is entitled for exemption of tax in respect of his income from salary for the entire year. 12.5 The salary amount that is received by the assessee during his stay in Japan is not taxable as per the provisions of Income Tax Act, 1961 for the following reasons:- The assessee is a non resident is an undisputed fact. A non resident is taxable under section 5(2). The provision reads as follows : Subject to the provisions of this Act, the total income of any previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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