S. 9(1)(ii) : Salary relatable to visits outside India in respect of expatriate deputed to India held taxable.

Facts :

The assessee was deputed to India as South East Asia Bureau Chief of The Economist, UK for collection of news and views. He was having his permanent base in India, controlling the operations from India and staying in India with his family. During relevant year, the assessee visited Pakistan for 7 days, Sri Lanka for 14 days and the UK for 38 days, aggregating to a stay of 59 days outside India. Since his residential status during the relevant year was resident but not ordinarily resident, he claimed that the remuneration received for 59 days did not relate to services rendered to India and hence, it was not taxable in India.

To examine the claim, the AO asked the assessee to furnish copy of appointment/deputation letter, which the assessee did not furnish. Since the assessee was responsible for South East Asian countries and the salary was received because of his assignment in India, the AO held that the visits outside India were incidental to the assignment in India and hence the salary for 59 days outside India was also taxable in India.

In appeal before CIT(A), the assessee furnished several documents including the deputation letter and news stories/articles collected from Pakistan, Sri Lanka, discussion with London editors on SEA Region activities. After reviewing the documents, the CIT(A) held that the assessee’s visits to Pakistan and Sri Lanka were for work done in those countries and hence the remuneration relatable to stay in those countries was not taxable in India. In respect of the assessee’s stay of 38 days in the UK at a stretch, the CIT(A) held that entire period of 38 days cannot be considered as towards briefing London editors about developments in SEA Region. The CIT(A) concluded that period of 18 days could be considered for briefing and hence, remuneration relatable to that period was not taxable in India but remuneration of balance days was held taxable in India.

The Tribunal found that: the assessee was appointed as South East Asia Bureau Chief for collection of news, views and information on various aspects pertaining to that region; he was staying in India with his family; he had no establishment in Pakistan and Sri Lanka; there was no material on record to indicate that the terms of his appointment varied when he visited those countries; and during visits to countries outside India he had not shifted his family to those countries. The Tribunal observed that the assignment terms contained provision for gathering news from neighbouring countries and therefore, short visits to Pakistan and Sri Lanka for collection of news and to London Head Quarters to brief the editors were also in connection with the employment in India. The Tribunal, then, observed that the issue in question was squarely covered by the decision in CIT v. Halliburton Offshore Services Inc, (2004) 271 ITR 395 (Uttaranchal), wherein the Court had observed that S. 9(1)(ii) read with the Explanation provides for an artificial place of accrual for income taxable under the head ‘Salaries’ and in such case, the place of receipt or accrual of salary is immaterial. The Tribunal also referred to the decision in the case of Hiromi Hirose in ITA No. 4506/Del./2003 for A.Y. 2003-04 and observed that the facts in that case were identical to those of the assessee’s case.

Held :

Following the precedent in case of Hiromi Hirose, the Tribunal held that the CIT(A) was not justified in treating that the salary relatable to Pakistan, Sri Lanka and UK was for performance of duties outside India and held that such salary was taxable in India.

Editorial Note : The abovementioned decision of the Delhi Tribunal appears to be taking a position different than that taken by the Delhi Tribunal in its two decisions in DCIT v. Mr. Erick Moroux C/o. Air France and Others, (BCAJ July 2008 Page 455) and DCIT v. Vivek Paul, [82 TTJ (Del.) 699], wherein it had held that Salary income of an expatriate who partly rendered services in India and partly outside India would not be chargeable to tax in India in respect of proportionate period for which services are performed outside India.