Salary Earned in China by Chinese Tax Resident Not Taxable in India Merely Due to Remittance: ITAT

The assessee, Sivakarthick Raman, is an employee of BMW India Private Limited and was sent on assignment to China to work with BMW Brilliance Automotive Ltd (BMW China) during FY 2021-22 (AY 2022-23), where the assessee was giving services to BMW China in the said period. During this time, he physically worked and lived in China and was present in India for less than 60 days in FY 2021-22 and qualified as A non-resident in India (NRI).

The assessee was qualified as a Tax Resident of China for the Calendar Year 2021 and 2022 as per Article 4(1) of the India-China Double Taxation Avoidance Agreement (DTAA) for the period between 01.04.2021 and 31.03.2022 of FY 2021-22. During this period, the assessee’s payroll was paid by BMW India in India for administrative convenience.

The assessee had also paid taxes in China against the salary and the benefits paid to him in india for the period 01.04.2021 to 31.03.2022 of Rs 1,53,65,359. As he had already paid the taxes, the assessee claimed an exemption of Rs 1,53,65,359 for the salary received in India for the services given in China under Article 15(1) of the India-China DTAA and therefore filed an ITR for A.Y. 2022-23 on 18.07.2022 and claimed a refund of Rs 52,22,590.

However, the Assessing Officer (AO) and DRP rejected the DTAA exemption claim and disallowed the exemption of Rs 1.53 crores in salary. Therefore, the assessee filed an appeal with the Income Tax Appellate Tribunal (ITAT), Chennai.

Assessee’s Argument in Appeal

Some of the arguments submitted by Appellant as as follows:

• “There was an employer-employee relationship between the Appellant and BMW India Private Limited (BMW India) even when he was working in China (Para 14(a), 14(b) and 14(c) of impugned order)
• Salary is chargeable as per Section 15 of the Act [Para 14(d) of impugned order]
• Salary received in India from BMW India is taxable in India under Section 5(2)(a) of the Act (Para 14(e) of impugned order]
• As the Appellant is Resident in China and Non-Resident in India, he is not eligible to claim benefit of Article 15 of the India-China DTAA on combined reading of Article 15 and 23 of DTAA and DTAA provisions have been incorrectly applied [Para 14(f) of impugned order]
• Article 15(2)(b) of the DTAA does not apply as the employer BMW India is Resident in India and hence salary received by the Appellant is taxable in India. [Para 14(g) and 15 of impugned order]
  It has been incorrectly stated that the Appellant has not provided a copy of the Secondment Agreement between BMW China and BMW India and has also not provided a copy of the Employment Contract of the Appellant with BMW China (Para 16 of impugned order)
• The Learned AO has incorrectly held that cases relied upon are distinguishable in ignorance of the pari-materia facts of the case (Para 13 of impugned order)“

3. The DRP wrongly said that the Tax Residency Certificate was not filed by the assessee, but it did not consider that the China Tax Return was enough to prove that the assessee was a resident of China.

4. The AO ignored that the salary received in India by the assessee is not taxable in India under Section 5(2) read with Section 9(1)(ii) and Section 15(1)(a) of the Act because the services were given in China by the appellant.

5. The AO has wrongly levied the interest of Rs 2,07,030 under Section 234B and Section 234D of the Act.

ITAT Decision

The ITAT observed that the assessing officer (AO) has disallowed the exemption claimed by the assessee for salary received in India for the services given in China, as the salary was credited by BMW India Pvt Ltd in the bank account of the assessee.

The ITAT noted that in a similar earlier case of the assessee, Nanthakumar Murugesan and Sivakarthick Raman [2024] 165 taxmann.com 304 (Chennai – Trib., which ruled that the salary taxed in China is not taxable again in India. The assessee correctly paid tax in China on the salary he earned for services rendered in China.

Therefore, the ITAT ruled in favour of the assessee and set aside the order passed by the AO. Additionally, the ITAT gave direction to the AO to allow the benefit of exemption under Article 15(1) of the DTAA between India and China.