[Opinion] No Tax on Foreign Assignment Allowance

Meenakshi Subramaniam – [2023] 154 taxmann.com 613 (Article)

One astrologer said to a man:

“You will go on a foreign trip, but you would come back poorer.”

The guy said: ‘Unbelievable ! All who go abroad, come home with pots of money.” After some time, the man went on foreign trip and when he came back, he found that the entire foreign assignment allowance was held taxable. “Unbelievable prediction !” the man groaned.

Thankfully, the Hyderabad Tribunal in a recent case has held that foreign assignment allowance topped up by Travel Currency Card (TCC) cannot be taxed.

[2023] 154 taxmann.com 532 (Hyderabad Tribunal)
Durga Prasad Sana
v.
Income Tax Officer

Order

The only question that is central to this appeal is whether the foreign assignment allowance received by the assessee for the services rendered outside India could be taxed in India?

Brief facts are that the assessee is an employee of IBM India Private Limited, which is an Indian company. The said company sent the assessee on long term assignment to Abu Dhabi, UAE. During the year, the assessee received salary which includes the component of the foreign allowance received outside India. The employee transferred the foreign assignment allowance from the bank accounts held in India to the nostro accounts to top it up to the Travel Currency Card (TCC), which the assessee can use only abroad, but not in India, and it is a foreign currency denominated account. The assessee offered such portion of the salary which was received by him in India, but claimed the foreign assignment allowances received outside India as ‘exempt income’.

While processing the returns of income filed by the assessee, the learned Assessing Officer took the view that though the assessee qualifies to be non-resident during the financial year 2018-19 and physically working outside India, he was only loaned to other organizations to work in other countries. The assessee continued to be on the pay rolls of IBM India Private Limited only. Further, the Indian company transferred the sums representing the foreign allowances through the bank which were disbursed outside India. According to the learned Assessing Officer, the very fact that the employer deducted the TDS in India on the entire amounts paid to the assessee itself shows that as per the employer, it was an Indian source income earned by the assessee in India, and, therefore, the situs of employment is in India only, because the contract of employment was in India. Learned Assessing Officer, therefore, concluded that the situs of employment is in India and accordingly, the salary income accrued to the assessee in India and, therefore, the same is liable to be taxed in India.

Aggrieved, the assessee preferred appeals before the learned CIT(A). The learned CIT(A) concurred with the observations of the learned Assessing Officer and held that the place of accrual of salary income is in India and the other country is a host country as per the terms of assignment contract. TDS made by the employer is the primary evidence to show that the situs of employment is in India and the entire salary is accrued to the assessee in India. The Learned CIT(A) accordingly dismissed the appeals preferred by the assessee.

Aggrieved by the order dated 24/06/2022 passed by the learned Commissioner of Income Tax (Appeals)-10, Hyderabad the assessee for the assessment year 2018- 19, preferred this appeal.

The assessee, therefore, filed the appeal contending that it is incorrect to say that the foreign assignment allowance for the services rendered outside India and received outside India to be taxed in India. The assessee being a non-resident would not be liable to tax under the Act as the foreign assignment allowance was not received nor accrued nor deemed to be received/accrued in India during the year for services rendered in India.

The Learned AR submitted that this issue is no longer res integra and on identical facts arose in the cases of Bodhisattva Chattopadhyay v. CIT [2019] 111 taxmann.com 374 (Kol. – Trib.), Ranjit Kumar Vuppu v. ITO (International Taxation) [2021] 127 taxmann.com 105/190 ITD 455 (Hyd. – Trib.) ITA No. 86/Hyd/2021, dated 22-4-2021, Dy. CIT (IT) v. Sudipta Maity [2018] 96 taxmann.com 336/172 ITD 94 (Kol. – Trib.), Srinivas Mahesh Laxman v. ITO [IT Appeal No. 1991/Hyd/2018, dated 28-5-2021] and Venkata Rama Rao v. ITO [IT Appeal No. 1992/Hyd/2018, dated 25-2-2021] wherein the Co-ordinate Benches of this Tribunal while placing reliance on the decisions of the Hon’ble High Courts of Bombay, Karnataka and Calcutta in the cases of CIT v. Avtar Singh Wadhwan [2001] 115 Taxman 536/247 ITR 260, DIT (International Taxation) v. Prahlad Vijendra Rao [2011] 10 taxmann.com 238/198 Taxman 551 and Utanka Roy v. DIT (International Taxation) [2017] 82 taxmann.com 113/390 ITR 109 held that the income derived by a non-resident for performing services outside India, the accrual thereof happens outside India, such income cannot be taxed in India under section 5(2) of the Act. He also placed reliance on the decision of the Co-ordinate Bench of the Tribunal in the case of Tadimarri Prasanth Reddy v. ITO (International Taxation) [2023] 153 taxmann.com 281 (Hyd. – Trib.), for the assessment year 2018-19, dated 28/06/2023 stating that the facts are identical.

Learned DR argued very vehemently in the same lines as that of the authorities below to submit that since the assessee is on the pay rolls of the Indian company even during his assignment abroad, his service conditions are controlled and governed by the parent company in India and also because the parent company deducted TDS on the entire remuneration received by the assessee, this conclusively proves that the situs of employment is in India. According to him, merely because the assessee was directed to perform duties on foreign soil for a temporary period of time, it does not take away the right of the Revenue to collect tax on such amount, which was accrued/received by the assessee in India. According to him, the reasoning given by the learned Assessing Officer to come to the conclusion is that all through this period, the situs of employment is in India is impeccable and does not require any interference.

Further contention of the learned DR is that the income was received by the assessee in India when the employee transferred the foreign assignment allowance from the bank accounts held in India to the nostro accounts to top it up to the Travel Currency Card (TCC) and, therefore, point of receipt is the point of payment, which goes to show that since the employer transferred the amount in India, it automatically means that the receipt also happens in India. According to him, the Bank is the agent of the employee, and therefore, payment to the banker is equivalent to payment to the assessee. Apart from that, Revenue vehemently contended that though the assessee is sent on foreign assignment, the umbilical cord still lies with the Indian company inasmuch as salary is paid by the Indian company and all the service conditions are controlled by the Indian company.

Click Here To Read The Full Article