Understanding the Taxation of Global Income for Residents and Non-Residents

Overview of Section 5(1) of the Income-tax Act

Section 5(1) of the Income-tax Act stipulates that the global income of an individual who qualifies as a resident and ordinarily resident in India is subject to taxation in India. This includes income earned both within and outside the country.

Income Earned from Employment Outside India under DTAAs

The Double Taxation Avoidance Agreements (DTAAs) provide specific guidelines for income earned from employment outside India. Typically, income derived from employment exercised in another state is taxable in that state. However, an exception allows for taxation in the employee's country of residence if the following three conditions are met:

1. The recipient is present in the other state for less than 183 days during the relevant taxable year or during a 12-month period starting or ending within the relevant year.
2. The remuneration is paid by an employer who is not a resident of the other state.
3. The remuneration is not borne by a permanent establishment (PE) or fixed base of the employer in the other state.

Interpretation and Judicial Decisions

Upon analyzing these provisions, it appears that if the conditions for the exception are not satisfied, the income should not be exclusively taxable in the other state. Rather, it implies that the salary income of an Indian resident could be subject to taxation in India as well.

However, the Hon’ble Kolkata Tribunal has consistently ruled that if the conditions mentioned in the exception are not satisfied, the income earned by an Indian resident is taxable solely in the other state. This view is reflected in the following decisions:

• Rajat Dhara v. DCIT (I.T.A. No.1914/Kol/2019 Assessment Year: 2016-17), decided on 19.02.2024
• Somnath Duttagupta v. ACIT (I.T.A. No.627/Kol/2023 Assessment Year: 2019-20), decided on 01.03.2024

Supreme Court's Perspective

The Hon’ble Supreme Court, in the case of Eli Lily & Co., addressed the issue of tax deduction at source (TDS) under Section 192. The Court held that whether home salary payments made by a foreign company in foreign currency abroad can be deemed to accrue or arise in India depends on an in-depth examination of the facts of each case.

Conclusion

The interpretation of the taxation of global income and the exceptions under the DTAAs remains a complex issue, subject to judicial scrutiny and interpretation. The differing views of the Kolkata Tribunal and the Supreme Court underscore the importance of examining the specific facts and circumstances of each case to determine the correct tax treatment.