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
