Foreign salary of a non-resident cannot be treated as taxable in India merely because foreign tax returns, TRC or proof of tax payment abroad were not produced when other documents support the claim of foreign employment and non-resident status.
The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) held that salary earned by a non-resident while working in South Korea could not be treated as taxable in India merely because the taxpayer failed to furnish a Tax Residency Certificate (TRC), foreign income tax return or proof of tax paid abroad.
Santhoshkumar Vithal Akka (the assessee) was a non-resident for Assessment Year 2016-17 and had filed his income tax return. His case was later reopened and a notice under Section 148 was issued. During the reassessment proceedings, he submitted bank statements, an ICICI Bank interest certificate, computation of income, passport copy and salary slips.
The Assessing Officer found that the assessee’s salary had been credited in USD to his NRE account and concluded that he was working for a foreign company. The assessee had not produced his foreign tax return, TRC and proof of payment of tax abroad, so the AO added the salary income to his taxable income in India.
The Dispute Resolution Panel also rejected the assessee’s objections and observed that the salary credited by the foreign employer into a bank account in India was deemed to accrue in India. The final assessment was passed.
The assessee’s counsel argued before the ITAT that he was employed outside India and had worked in South Korea. They pointed out that his salary was paid in USD and credited to his NRE account. They also argued that non-production of a foreign return, TRC or foreign tax-payment proof could not by itself make the foreign salary taxable in India.
The revenue counsel argued that the assessee had failed to furnish these foreign tax documents and supported the view taken by the lower authorities.
The two-member Bench comprising Prashant Maharishi (Vice-President) and Soundararajan K. (Judicial Member) observed that the documents showed that the assessee was employed by Ocean Rig UDW Inc., Athens, Greece which had a project with Samsung Heavy Industries Co. Ltd. in South Korea. The assessee was deputed to work as an electrician at the Korean project site and his salary was paid in USD.
The tribunal observed
“Whether the assessee had paid the tax in the foreign country or not is not a ground for treating the income earned by the assessee as taxable in India.”
It further observed that non-filing of the foreign return, TRC and tax payment details could not be grounds for rejecting the claim when the assessee had produced passport and bank records supporting his non-resident status.
The tribunal set aside the assessment and sent the matter back to the AO for fresh adjudication, directing the officer to consider the passport entries and NRE account details without insisting on the foreign tax return, TRC or proof of foreign tax payment. The appeal was allowed for statistical purposes.
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How to cite
2026 TAXSCAN (ITAT) 1449
Before the Court
Income Tax Appellate Tribunal
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