Employment Tax
Non-availability of tax residency certificate—Not a reason for denial of treaty benefit
Summary
Tax Residency Certificate (‘TRC’) is an evidence which substantiates tax residency of a taxpayer in the country where he/she has rendered services for the claim of relief under the tax treaties. As per the Indian tax provisions, it requires an individual to report in the tax form at the time of filing Indian tax return whether they have obtained a TRC to claim tax relief under the Double Taxation Avoidance Agreement (DTAA) between India and various countries.
Recently, Delhi Income Tax Appellate Tribunal (‘ITAT’) held (1) that TRC is not a prerequisite document if the same is not available at the time of filing tax return. A taxpayer should obtain the TRC while claiming treaty benefit as it may be required later during the assessment proceeding.
(1) Yogesh Kotiyal [TS-254-ITAT-2024(DEL)]
The detail
Background of the case
During the Assessment Year (‘AY’) 2020-21, an assessee went on an overseas assignment to Australia, and he continued to receive salary income in India against the services rendered for the Australian entity. The assessee qualified to be a Non-Resident in India and a Resident in Australia for the relevant AY. He filed a revised India tax return to claim the treaty benefit under the India-Australia DTAA.
Issues in the case
The Assessing Officer (‘AO’) initiated scrutiny assessment proceeding to verify the claim raised by the assessee. The assessee submitted the Australia tax return for the year 2018 and 2019 as an evidence for his Australian residency and proof of payment of the taxes. The AO disallowed the claim on the grounds that the assessee didn’t submit the TRC. The assessee filed an objection before the Dispute Resolution Panel (‘DRP’). However, the objection got rejected on the following grounds:
i. The assessee had an employer-employee relationship with the Indian entity while working for the Australian entity.
ii. The assessee has not shown that taxes have been paid in Australia.
iii. The assessee failed to submit TRC at the time of scrutiny proceeding.
ITAT’s comments
Aggrieved by the assessment order, the assessee filed an appeal before the ITAT. The ITAT noted the following:
i. The assessee provided various supporting’s like assignment agreement, passport, Australia tax return, in support of his claim.
ii. An application for admission of TRC as an additional evidence was filed before the DRP but the same was not considered.
iii. The Tax Authorities denied the exemption as TRC was not furnished but ignored the fact that Australia tax return was submitted as an alternate evidence.
Conclusion
The Assessee did not have any workday in India during the relevant AY. On reading section 5, 9 and 15 of the Income Tax Act, 1961, taxability did not arise in India on the salary/allowances received by the assessee since the assessee was a non-resident and had rendered services outside India. Thus, the salary income earned for rendering services outside India could not be taxed in India. Hence, the assessee was eligible to claim exemption under Article 15(1) of the India- Australia DTAA even though TRC was not available at the time of filing the tax return.
While each individual’s situation should be looked at fact specific, the ruling would have a persuasive value in situation where you do not have the TRC but have sufficient evidence to claim the treaty relief in your tax return.
Contact us:
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Ravi Jain
Partner
Santhosh S
Director
Sanjay Yadav
Manager
Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
©2024 Vialto Partners. All Rights Reserved.