By Geeta Jani | Dhishat B. Mehta
Chartered Accountants
5. (2019) 104 taxmann.com 183 (Bangalore –
Trib) DCIT vs. Shri Kumar Sanjeev Ranjan ITA No.: 1665 (Bang.) of 2017 A.Y.: 2013-14 Dated: 15th March, 2019
Articles 4, 16 of India-USA DTAA; section 6
of the Act – in case of dual residency, residential status shall be determined
by applying tie-breaker test under the DTAA
FACTS
The assessee, a US citizen, was working in the USA since 1986. His spouse
and two children were all US citizens. The assessee was deputed to India by his
employer from June, 2006 to August, 2012. Upon completion of his assignment in
India, the assessee left India on 10.08.2012 and resumed his employment in the
USA. Since then he was residing with his family in the USA.
Prior to 1986, the assessee had lived in
India for 21 years. He relocated to the USA in 1986 and became a permanent
resident in 1992. After marriage, his spouse was also residing in the USA.
Their two children were born there. When he was on assignment to India, the
assessee was taking his vacations in the USA.
The assessee had a house in India as well as
in the USA. He had let out his house in the USA while he was on assignment to
India.
On the basis of his physical presence in
India, the assessee was a tax resident of India for FY 2012-13. The assessee
also qualified as a tax resident of the USA for FY 2012-13. During the period
11.08.2012 to 31.03.2013 the assessee earned a salary in the USA. According to
the AO, since the assessee was a tax resident in India during the relevant AY,
his entire global income, including salary earned in the USA, was liable to tax
in India. Hence, the AO sought to tax his salary in the USA for the period
11.08.2012 to 31.03 2013.
The assessee
contended before the AO that he should be considered a tax resident of the USA
under the tie-breaker rule of the India-USA DTAA on the basis that the assessee
furnished detailed particulars on different aspects to establish that his ‘centre of vital
interests’ was closer to the USA than to India. And to establish that his
habitual abode was in the USA, the assessee highlighted two aspects, namely,
time spent and intent of settling down in the USA on completion of the
assignment.
The AO, however, noted that:
- personal and economic
relations refer to a long and continuous relation that an individual nurtures
with a State;
- it could not be broken so
casually into bits and pieces by claiming that on one day the assessee has an
economic and personal relationship with State A and after a few days with State
B;
- the concept of economic and
personal relationship is a qualitative one which has to be analysed in a
holistic manner rather than being compartmentalised;
- merely by moving to the USA
for an assignment from 11.08.2012 to 31.03 2013, the assessee could not claim
that his economic and personal relationships were suddenly closer to the USA
than to India, particularly when during the preceding entire AY the assessee
was present in India.
The AO, accordingly, did not accept the
contention of the assessee that his ‘centre of vital interests’ was in the USA.
He further rejected the concept of dual (or split) residency on the ground that
the Act or the India-USA DTAA did not recognise it. The assessee had claimed
exemption under Article 16 of the India-USA DTAA. The AO also rejected this
claim since the assessee had not furnished tax residency certificate.
On appeal before CIT(A), the assessee
furnished the tax residency certificate. The CIT(A) noted that the tax
residency certificate furnished by the assessee showed that he was also a tax
resident of the USA. Further, since the assessee had a permanent home in India
as well as in the USA, the CIT(A) applied the test of closer personal and
economic relations (‘centre of vital interests’) and concluded that the ‘centre
of vital interests’ of the assessee was closer to the USA than to India.
Accordingly, the CIT(A) held that the Assessee qualified for exemption under
Article 16 of the India-USA DTAA. Therefore, the AO could not tax the salary
income of the assessee earned in the USA in India.
HELD
- Article 4 of the India-USA
DTAA determines the tax residential status of a person. Where a person is a tax
resident of both the States, Article 4 provides certain tie-breaker tests:
- The first test pertains to
the availability of a permanent home: The assessee had a house in India as well
as in the USA. However, since he had let out his house in the USA, it was
deemed to be ‘unavailable for use’. Hence, he did not satisfy the first test.
- The second test is about
‘centre of vital interests’. After examining various aspects, the CIT(A) had
found that the ‘centre of vital interests’ of the assessee was closer to the
USA than to India. The conclusion of the CIT(A) arrived at based on facts
cannot be faulted.
