Kachana Raghunatha Reddy Vs DCIT/ACIT (ITAT Bangalore)
Salary for Services Rendered in Korea Not Taxable Merely Because Paid by Indian Employer or Subjected to TDS in India: Bangalore ITAT
The assessee, an employee of Samsung R&D Institute India, was deputed to Samsung Electronics, South Korea, from 14 April 2018 to 13 April 2019. Claiming non-resident status, he offered salary attributable to 25 days of service in India and excluded ₹38.22 lakh relating to services rendered in Korea. The AO added the foreign salary because the assessee had not produced his Korean income-tax return during assessment. The CIT(A) dismissed the appeal without examining the merits due to a delay of 112 days.
The Bangalore ITAT condoned the delay, observing that the assessee’s medical emergency, inability to regularly access the e-filing portal and subsequent collection of foreign employment and tax documents constituted sufficient cause. Substantial issues involving residential status, foreign salary and treaty entitlement should not be rejected merely on technical grounds.
On merits, the Tribunal held that where the assessee is a non-resident, sections 5(2) and 9(1)(ii) tax salary in India only to the extent it relates to services rendered in India. Salary for services performed outside India does not become taxable merely because it is paid by an Indian employer or subjected to TDS in India.
Since the assessee had now produced Korean Tax Residency Certificates, Korean tax returns and proof of taxes paid in Korea, the matter was restored to the AO for limited verification. The AO was directed to allow the benefit of Article 15(1) of the India–Korea DTAA if the documents established Korean tax residence and that the salary related to services rendered in Korea.
The Tribunal also observed that, being a non-resident, the assessee was an “eligible assessee” under section 144C and the AO was mandatorily required to issue a draft assessment order before making a prejudicial variation. Direct completion of assessment under section 143(3), without following section 144C, constituted a jurisdictional and not merely procedural defect. However, the issue was left open since the matter had already been remanded on merits.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals) vide DIN: ITBA/NFAC/S/250/2025-26/1082289472(1) dated 04- Nov-2025 for the Assessment Year 2019-20.
2. At the outset, we note that there is a delay of 125 days in filing the present appeal before the Tribunal. The assessee has filed a petition for condonation of delay supported by a duly sworn affidavit explaining the reasons for the delay. It has been stated that after receipt of the order of the Ld. CIT(A), the assessee was required to collect various documents relating to his foreign employment, tax residency and income earned outside India. The assessee has further submitted that he had also sought professional advice on the legal issues arising from the impugned order, particularly with regard to the taxability of foreign salary income under the provisions of the Income-tax Act, 1961 and the India-Korea DTAA. It has been pleaded that the delay was neither intentional nor deliberate but occurred due to bona fide reasons beyond the control of the assessee. Hence, the ld. DR prayed us to condone the delay and decide the issue on merit of the case.
3. The Ld. DR opposed the petition and submitted that the assessee had failed to file the appeal within the prescribed period. However, he left the issue to the discretion of the Bench.
4. We have carefully considered the rival submissions and perused the petition for condonation of delay along with the affidavit filed by the assessee. We find that the delay of 125 days has been properly explained. The reasons stated by the assessee show that the delay occurred on account of the time taken in collecting documents relating to his foreign employment and tax residency and in obtaining professional advice on the legal issues involved in the appeal. There is nothing on record suggesting that the delay was deliberate, intentional or attributable to negligence.
4.1 It is a settled principle of law that a liberal approach should be adopted while considering an application for condonation of delay where sufficient cause is shown, so that substantial justice prevails over technical considerations. Refusing to condone the delay would deprive the assessee of an opportunity to have the issues decided on merits, whereas no serious prejudice would be caused to the Revenue if the delay is condoned. Considering the facts and circumstances of the case and being satisfied that the assessee has shown sufficient cause for not filing the appeal within the prescribed time, we condone the delay of 125 days in filing the present appeal and admit the appeal for adjudication on merits.
4.2 The interconnected issue raised by the assessee is that the ld. CIT-A dismissed the appeal of the assessee without adjudicating on merit of the case and without giving the benefit of DTAA.
4.3 The facts in brief are that the assessee is an individual and was employed with Samsung R&D Institute India Bangalore Pvt Ltd. From 14th April 2018 to 13th April 2019, the assessee was deputed to Samsung Electronics Korea. However, salary was drawn from the Indian employer for F.Y. 2018-19 for Rs. 41,03,215/-; TDS of Rs. 10,26,517/- was deducted. The assessee filed his return of income wherein salary income of Rs. 92,940/- attributable to 25 days of India stay was offered to tax and thereby a refund of TDS of Rs. 10,26,517 was claimed and the refund was issued to the assessee through intimation order u/s 143(1) of the Act and further through rectification of intimation order under section 154 of the Act.
4.4 Subsequently, notice under section 143(2) of the Act was issued to the assessee for scrutiny assessment on 31-03-2021. In response, the assessee submitted that he is an NRI for the year under consideration and furnished some documents in this regard. However, the AO required the assessee to furnish a copy of the tax return filed in Korea, which the assessee failed to furnish. Therefore, the AO finalised the assessment under section 143(3) of the Act vide order dated 25-09-2021 wherein the salary income claimed to be attributable to Korea for Rs. 38,22,173/- was added to the total income of the assessee.
5. The aggrieved assessee preferred an appeal before the learned CIT(A). However, the appeal filed was delayed by 112 days. It was explained that during the relevant period, the assessee was deputed to Samsung Korea. The assessee had claimed exemption in respect of his foreign salary under the India-Korea DTAA. It was further submitted that although the assessee had responded to the initial notice, he could not respond to the subsequent notices due to a medical emergency and was unable to regularly access his e-filing account. As a result, he became aware of the assessment order only at a later stage. Immediately thereafter, the assessee collected the necessary documents and filed the appeal. It was contended that the delay was neither deliberate nor intentional but occurred due to bona fide reasons beyond his control. The assessee, therefore, requested the Ld. CIT(A) to condone the delay in the interest of substantial justice and admit the appeal for disposal on merits. However, the learned CIT(A) did not condone the delay in filing of the appeal. Accordingly, the learned CIT (A) dismissed the assessee’s appeal in limine on account of limitation.
6. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
7. The Ld. AR before us submitted that the Ld. CIT(A) erred in refusing to condone the delay and in dismissing the appeal without examining the issues on merits. It was submitted that the delay was neither deliberate nor intentional. The assessee was on deputation to Samsung Electronics, Korea during the relevant period and was a tax resident of Korea holding valid Tax Residency Certificates. Due to a bona fide medical emergency and non-receipt of the relevant notices and assessment order, the assessee could not regularly monitor the e-filing portal and, therefore, could not file the appeal within the prescribed time. Immediately on becoming aware of the assessment order, the assessee collected the necessary documents and pursued the appellate remedy.
7.1 On merits, the Ld. AR submitted that the assessee was a non-resident for AY 2019-20 and the salary attributable to the employment exercised in Korea was exempt in India in terms of Article 15(1) of the India-Korea DTAA. The salary for the period of physical presence in India alone was offered to tax. It was further submitted that the exemption was denied by the AO only because the Korea Tax Return was not available during the assessment proceedings. The assessee has now placed on record the Tax Residency Certificates for both years, Korea Tax Return, Korean tax payment documents, Form 16, computation of exemption and other supporting documents, which clearly establish the claim. Therefore, it was prayed that the delay may kindly be condoned, the order of the Ld. CIT(A) be set aside and the matter be restored for adjudication on merits after considering the additional documentary evidence. Alternatively, it was prayed that the exemption claimed under Article 15(1) of the India-Korea DTAA be allowed and the addition be deleted.
8. On the other hand, the learned DR opposed the condonation of delay and submitted that the assessee had failed to establish sufficient and reasonable cause for not filing the appeal within the prescribed period. It was contended that mere non- monitoring of the e-filing portal or non-receipt of notices could not, by itself, justify the prolonged delay. The learned DR further submitted that the documents now relied upon by the assessee, including the Korea Tax Return and tax payment records, were not produced before the AO and, therefore, the claim of exemption under Article 15(1) of the India-Korea DTAA required proper verification. Accordingly, the learned DR supported the order of the Ld. CIT(A) and prayed for dismissal of the appeal.
9. We have heard the rival contentions of both the parties and perused the materials placed before us. We have also examined the additional documents filed in the paper book, including the Tax Residency Certificates issued by the Korean tax authorities, copies of the Korean income-tax returns, proof of taxes paid in Korea and other supporting documents.
9.1 At the outset, we find that the Ld. CIT(A) dismissed the assessee’s appeal solely on the ground that there was a delay of 112 days in filing the appeal and declined to condone the same. The explanation offered by the assessee was that during the relevant period he was under medical emergency and having practical difficulties in regularly accessing the e-filing portal. Hence, he could not file the appeal within the prescribed time. Immediately after becoming aware of the assessment order, he collected the necessary documents and preferred the appeal. In our considered opinion, the explanation furnished by the assessee cannot be said to be fanciful or lacking in bona fides. There is nothing on record to indicate that the delay was deliberate or that the assessee intended to gain any undue advantage by filing the appeal belatedly.
9.2 It is well settled that procedural provisions relating to limitation are meant to advance the cause of justice and not to defeat it. Unless there is gross negligence or deliberate inaction, a litigant should ordinarily be afforded an opportunity to contest the matter on merits. The present case involves substantial questions relating to the residential status of the assessee, taxability of foreign salary and the applicability of the India-Korea Double Taxation Avoidance Agreement. Such issues deserve adjudication on merits rather than being rejected on a technical ground of limitation. We are, therefore, of the considered view that the assessee had shown sufficient cause for not filing the appeal before the Ld. CIT(A) within the prescribed time. Accordingly, the delay of 112 days in filing the appeal before the Ld. CIT(A) deserves to be condoned. Consequently, the order of the Ld. CIT(A) dismissing the appeal in limine cannot be sustained.
9.3 Coming to the merits of the addition, the undisputed facts are that the assessee, an Indian citizen, was deputed by Samsung R&D Institute India Bangalore Pvt. Ltd. to Samsung Electronics, Korea from 14.04.2018 to 13.04.2019. During the previous year relevant to AY 2019-20, the assessee remained outside India except for the initial period and claimed that he became a non-resident under section 6 of the Act. The salary attributable to services rendered in South Korea was claimed as not taxable in India and alternatively exempt under Article 15 of the India-Korea DTAA. The AO also did not dispute the fact that the assessee is a non-resident. However, the claim was denied primarily because the assessee did not furnish the Korean tax return during the assessment proceedings and consequently brought the foreign salary to tax.
9.4 Once the assessee is accepted as a non-resident, the scope of his total income is governed by section 5(2) of the Act. Section 5(2) of the Act provides that, in the case of a non-resident, only such income is chargeable to tax in India as is received or deemed to be received in India, or accrues or arises, or is deemed to accrue or arise, in India. Further, section 9(1)(ii) of the Act provides that salary is deemed to accrue or arise in India only if it is earned for services rendered in India. The Explanation to section 9(1)(ii) makes it clear that salary is regarded as earned in India where the services are rendered in India. Therefore, where a non-resident renders services outside India, the salary relatable to such services ordinarily cannot be regarded as income earned in India merely because the salary is paid by an Indian employer or tax has been deducted at source in India. This legal position has consistently been recognised in several judicial precedents dealing with employees sent on foreign deputation.
9.5 Apart from the provisions of the Act, the assessee has also claimed relief under Article 15(1) of the India-Korea DTAA. The material placed before us shows that the assessee claims to have been a tax resident of Korea and has now produced the Tax Residency Certificate, the Korea Tax Return and documents relating to taxes paid in Korea. Under section 90(2) of the Act, where the provisions of the DTAA are more beneficial, the assessee is entitled to claim the benefit thereof. However, section 90(4) requires the assessee to establish his entitlement to treaty benefits by furnishing a valid Tax Residency Certificate issued by the foreign tax authorities. Therefore, verification of these documents assumes considerable importance before granting the treaty benefit.
9.6 We also find merit in the contention of the assessee that the claim was rejected by the AO only because the relevant documents relating to Korean tax residency and taxation in Korea were not available before him during the assessment proceedings. The assessee has now placed these documents before the Tribunal. Since these documents go to the root of the matter and were not examined by the AO, it would not be appropriate for us to record a final finding on the exemption claimed under the DTAA without proper verification.
9.7 Having regard to the totality of the facts and circumstances, we deem it appropriate to set aside the orders of the lower authorities on this issue and restore the matter to the file of the AO for a limited purpose. The AO shall verify the genuineness and validity of the Tax Residency Certificate issued by the Korean tax authorities, the Korea Tax Return, the evidence relating to taxes paid in Korea and such other supporting documents as may be furnished by the assessee. If, upon such verification, the AO finds that the assessee was entitled to the benefit of Article 15(1) of the India-Korea DTAA and that the salary relates to services rendered in Korea during the period in which the assessee was a non-resident, the exemption claimed shall be allowed in accordance with law. Needless to state, the AO shall afford adequate opportunity of being heard to the assessee and shall decide the issue by passing a speaking order after considering all the documentary evidence placed on record.
9.8 Accordingly, the delay in filing the appeal before the Ld. CIT(A) stands condoned. The impugned order of the Ld. CIT(A) is set aside and the issue relating to the taxability of the foreign salary is restored to the file of the AO for the limited verification indicated above. The assessee shall fully cooperate and furnish all the relevant documents required by the AO for expeditious disposal of the matter. Accordingly, the appeal of the assessee is allowed for statistical purposes.
9.9 Without prejudice to our above findings, we also find it necessary to make our observation with respect to the applicability of the provision of section 144C of the Act in the given facts and circumstances.
9.10 The undisputed facts on record show that the assessee was a non-resident during the relevant assessment year. The AO has also accepted this position in the assessment order. Therefore, the assessee falls within the definition of an “eligible assessee” as provided in section 144C(15)(b) of the Act. Section 144C(15)(b)(ii) of the Act was amended by the Finance Act, 2020 with effect from 01.04.2020. After the amendment, the expression “eligible assessee” includes any non-resident not being a company and any foreign company. In the case of such an eligible assessee, where the AO proposes a variation prejudicial to the interest of the assessee, the AO is required, in the first instance, to forward a draft of the proposed assessment order to the assessee. Once an assessee is covered by the said definition and the AO proposes any variation prejudicial to the interest of such assessee, the procedure prescribed u/s 144C of the Act becomes mandatory.
9.11 The scheme of section 144C requires the AO to first pass a draft assessment order and provide an opportunity to the eligible assessee either to accept the proposed variations or to file objections before the Dispute Resolution Panel. It is only thereafter that the final assessment order can be passed. This procedure is not a mere formality, but a mandatory safeguard provided by the statute. Any assessment completed directly u/s 143(3) of the Act, without first issuing a draft assessment order, deprives the eligible assessee of the valuable statutory right of approaching the Dispute Resolution Panel.
9.12 In the present case, the AO admittedly completed the assessment directly u/s 143(3) of the Act without issuing a draft assessment order u/s 144C(1) of the Act. Thus, the mandatory procedure prescribed by the statute has not been followed. The defect is jurisdictional in nature and is not a curable procedural irregularity.
9.13 However, since we have already restored the matter to the file of the AO on the substantive issue relating to the taxability of the foreign salary income and the verification of the Tax Residency Certificate, Korea Tax Return and taxes paid in Korea, we do not consider it necessary to record any conclusive finding on the legal issue. The said legal ground is left open to be urged by the assessee in appropriate proceedings, if the occasion so arises. Hence, the ground of appeal of the assessee is partly allowed for statistical purposes.
10. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 12th August, 2026
