Case Law Details
Ramesh Kumar AE Vs ITO (ITAT Chennai)
Introduction: The case of Ramesh Kumar AE Vs ITO (ITAT Chennai) serves as an important legal precedent on the taxation of income accrued in a foreign jurisdiction. In this case, the Income Tax Appellate Tribunal (ITAT) in Chennai examined whether salary earned by an individual for work performed in China could be subject to taxation in India. This analysis unpacks the case, dissecting its various elements, and explains the significance of the judgment.
Facts of the Case: The case revolved around Ramesh Kumar AE, an employee of Ford Motor Private Ltd. in India, who was assigned to work in China. The main question was whether his salary earned in China could be taxable in India, even when he was classified as a non-resident in India and a tax resident in China. The ITAT’s decision was based on the Double Taxation Avoidance Agreement (DTAA) between India and China.
Rejection of the Lower Court’s Interpretation: The Commissioner of Income Tax (Appeals) in Chennai had earlier denied the claim for exemption under Article 15(1) of the DTAA between India and China. The primary ground was that the salary was received in India, hence taxable. The ITAT rejected this view, stating that taxation rights are attached to the state where employment is exercised, which in this case was China.
Implications of Article 15(1) of the DTAA: According to Article 15(1) of the DTAA between India and China, the right to tax income from salary is exclusive to the state where the employment is performed. ITAT clarified that Ramesh Kumar AE was physically present in China and his salary income should thus be taxable only in China.
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