ARUMUGAM RAJASEKAR,CHENNAI V. INTERNATIONAL TAX WARD 2(1), CHENNAI

ITITA 1/CHNY/2025

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Arumugam Rajasekar, a non-resident individual employed by Tata Consultancy Services Malaysia Sdn Bhd, received a portion of his salary in India, which was subjected to tax deduction at source by Tata Consultancy Services Private Limited, India. Rajasekar claimed exemption for this income under Article 16 of the DTAA between India and Malaysia, declaring his income as NIL in his tax return. The Income Tax Officer rejected his claim, leading to an appeal to the CIT(A), which was also dismissed. Rajasekar then appealed to the Income Tax Appellate Tribunal, which found in his favor, allowing the exemption based on the DTAA provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 713013 (ITAT-CHENNAI)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 31-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Dennis Victor Rozario, Nanthakumar Murugesan, Ramesh Kumar AE, Bholanath Pal, Prahlad Vijendra Rao, Ranjit Kumar Bose, Avtar Singh Wadhwan, Manish Prasad, Rajamani Raman, P.V.A.L Kulandagan Chettiar, Nippon Yusen Kaisha, LW Russel, Utanka Roy, Arvind Singh Chauhan, Texas instruments (India) Pvt Ltd, AP Kalyanakrishnan
• Laws Referred To: Income Tax Act, Double Taxation Avoidance Agreement (DTAA) between India and Malaysia
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: PRAKASH HEGDE; C.A
• Keywords: Salary income; TDS; Deemed to accrue or arise in india; Double taxation relief; Permanent establishment; Services rendered outside India
• Section: 143(3); 90; 15; 5(2)

Judgement Text

"आयकर अपीलीय अधिकरण’ ‘बी’ न्यायपीठ चेन्नई में। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI माननीय श्री मनु क ुमार गिरि, न्यागयक सदस्य एवं माननीय श्री एस.आर.रघुनाथा ,लेखा सदस्य क े समक्ष । BEFORE HON’BLE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND HON’BLE SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(IT)A No.1/Chny/2025 निर्धारण वर्ा/Assessment Year: 2018-19 Arumugam Rajasekar No.Unit 3052, Tower-3, Prestige Downtown 17 Vembuliamman Kovil Street, Kalaignar Karunanidhi Nagar S.O, Kalaignar Karunanidhi Nagar, Chennai-600 078. v. Income Tax Officer, Ward International Tax-2(1), Chennai. [PAN: AIDPR2758P] (अपीलधर्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलधर्थी की ओर से/ Appellant by : Mr.Prakash Hegde, C.A (Virtual) & Mr.Srinath Roa, C.A, प्रत्यर्थी की ओर से /Respondent by : Ms.Gouthami Manivasagam, JCIT सुिवधईकीतधरीख/Date of Hearing : 02.07.2025 घोर्णधकीतधरीख /Date of Pronouncement : 31.07.2025 आदेश / O R D E R PER MANU KUMAR GIRI, JM: 1. The Assessee Arumugam Rajasekar is a Non-Resident individual based in Malaysia on employment visa employed with Tata Consultancy Services Malaysia Sdn Bhd (\"TCS Malaysia\"). 2. The Assessee received a part of his salary for his services in Malaysia paid in India by Tata Consultancy Services Private Limited (\"TCS India\") amounting to Rs. 32,88,548/- for administrative convenience. TCS India, while paying the Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 2 :: Indian component to the Appellant, deducted tax at source amounting to Rs. 7,61,957/- and deposited the same to the Government as a matter of abundant precaution. 3. The Assessee filed his Income Tax Return (\"ITR\") declaring a total Income of Rs. NIL as exemption was claimed for the salary earned in Malaysia under Article 16 of the Double Taxation Avoidance Agreement (\"DTAA\") between India and Malaysia. Tax Deducted at Source (\"TDS\") amounting to Rs.7,76,118/- which included the amount deducted by TCS India. 4. The Learned Assessing Officer (\"the AO\") passed the Assessment Order under Section 143(3) of the Income Tax Act (\"the Act\") on 24 February 2021 rejecting the Assessee 's claim of exemption made under the Article 16 of the Indo-Malaysia DTAA. The AO was of the view that since the Assessee is a Resident of Malaysia and a non-resident of India, he is not eligible to claim exemption under Article 16 of the DTAA. Не relied on the judgment of the co- ordinate Bench (Chennai) of the Tribunal in the case of Dennis Victor Rozario in ITA No. 298/CHNY/2016. 5. The Assessee preferred an appeal before the ld.CIT(A) who passed an order under section 250 of the Act on 03.10.2024 dismissing the appeal of the Appellant. The ld.CIT(A) was of the view that since the Assessee has received the salary in India, the same is taxable under section 5(2) of the Act. He also relied on the judgment of the Tribunal in the case of Dennis Victor Rozario. Now, assessee is in appeal before us. 6. The ld. AR submitted that the undisputed facts in the Assessee 's matter are as under: (i) He qualified to be a Non-Resident (\"NR\") of India (ii) He qualified to be Resident of Malaysia (iii) He was an employee of TCS Malaysia Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 3 :: (iv) A part of his salary for his services to TCS Malaysia had been paid in India (v) His entire salary has been subjected to tax in Malaysia as per its Income Tax regulations. 7. He further, submitted that as per the provisions of section 5 of the Act, an NR is taxable on the following income: (a) Income received or deemed to be received in India in such FY. (b) Income accrued/arisen or deemed to accrue or arise to him in India during that FY. 8. Furthermore, he submitted that as per Section 90(2) of the Act, where the Central Government has entered into Double Taxation Avoidance Agreement (‘DTAA’ in short) with the Government of any country outside India, then, for assessee to whom the DTAA applies, the provisions of the Act would apply to the extent they are more beneficial. 9. He also referred provisions of Article 16 of the DTAA between India and Malaysia which read as under: ARTICLE 16 DEPENDENT PERSONAL SERVICES 1. Subject to the provisions of Articles 17, 19, 20, 21 and 22, salaries, wages and other similar remuneration derived by resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if: Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 4 :: (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve months period commencing or ending in the fiscal year concerned, and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, by an enterprise of a Contracting State may be taxed in that State. 10. The ld.AR furthermore submitted that the assessee qualified to be a Tax Resident of Malaysia. Therefore, applying the provisions of clause (1) of the above Article, the assessee's salary would be taxable only in Malaysia. Accordingly, the assessee has offered his income to tax in Malaysia and claimed an exemption for salary in India. 11. In this regard, the ld.AR relied on the order of the co-ordinate Bench of the Tribunal in the case Nanthakumar Murugesan IT(TP)A No. 12/Chny/2023 dated 10.06.2024 wherein the Bench has considered the earlier order in the case of Dennis Victor Rozario in ITA No. 298/CHNY/2016 (referred supra) that was relied upon by the AO and overruling the principle laid down earlier in Dennis Victor Rozario. Thus, the Bench allowed relief under the DTAA to the assessee in an identical situation. 12. The assessee also relied on the order of the co-ordinate Chennai Bench of the Tribunal in the case of Ramesh Kumar AE IT(TP)A No. 51/Chny/2018 dated 11.08.2023 wherein the Bench had overruled the earlier order in the Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 5 :: case of Dennis Victor Rozario in ITA No. 298/CHNY/2016 that was relied upon by the AO and allowed relief to the assessee under the DTAA. 13. Also, the ld.AR for the assessee relied on the judgment of the Bangalore Bench of the Tribunal in the case of Bholanath Pal in ITA No. 10 of 2011 wherein the ITAT held that: 12.8 In terms of section 9(1)(ii) income chargeable under the head \"salaries\" under section 15 shall be deemed to accrue or arise in India if it is earned in India, ie., if the services under the agreement of employment are or were rendered in India. In the instant case, the employment services were entirely rendered outside India. Hence, the salary is not earned for rendering services in India. Therefore, salary for the entire year is not taxable. In this connection, reliance is placed on the following decisions:-  DIT (International Taxation) v. PrahladVijendra Rao [2011] 198 Taxman 551/10 taxmann.com 238 (Kar.)  Ranjit Kumar Bose v. ITO [1986] 18 ITD 230 (Cal.):  CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260/115 Taxman 536 (Bom.):  Sreenivas Kumar Sistla (AAR No.514 of 2000) 14. The assessee in a gist referred the following case laws: CASE LAW COMPILATION S.No. Party Citation Page No. 1. NanthakumarMurugesan Vs. The Income Tax Officer, IT(TP)A No. 12/Chny/2018 1-12 2. Shri Ramesh Kumar AE, Vs. ITO IT (TP) A No. 51/Chny/2018 13-20 Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 6 :: 3. Bholanath Pal v. Income Tax Officer, Ward 1(1), International Taxation, Bangalore [2012] 23 taxmann.com 177 (Bangalore) 21-30 4. DIT (International Taxation) v.PrahladVijendra Rao [2011] 198 Taxman 551/10 taxmann.com 238 (Kar.) 31-34 5. Ranjit Kumar Bose v. ITO [1986] 18 ITD 230 (Cal.) 35-38 6. CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260/115 Taxman 536 (Bom.) 39-44 7. The Commissioner of Income Tax, Appeal - Ranchi in the matter of Manish Prasad AY 2014-15 45-58 15. Per contra, the ld.DR relied upon the impugned order of the ld.CIT(A) and pleaded for the dismissal of the appeal of the assessee. 16. We have heard the rival submissions and perused the record and case laws cited. The status of the assessee here is a Non-Resident Indian. The computation of total income of a Non-Resident has been stated in Section 5(2) of the Act and reproduced below: “5. Scope of total income: (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.” Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 7 :: The other relevant provision in the act involved is Section 9(1) (ii) of the act which deals with income deemed to accrue or arise in India and it reads as follows: “9. (1) The following incomes shall be deemed to accrue or arise in India:— (ii) Income which falls under the head \"Salaries\", if it is earned in India. Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India;” From the plain reading of the above quoted sections, it can be concluded that the salary income being received in India is subject to tax only in India. 17. Explanation 2 to Section 5 clarifies that income will not be treated to be received in India solely on the basis that such income was received or deemed to be received in India. Therefore, it has to be found out where the income to the person concerned had accrued for ascertaining its taxability. There is an alternate and a right view that arises which can be obtained while reading Section 5(2) with Section 9(1) (ii) as Section 5 should be interpreted and effected in reconciliation with other provisions of the act since it starts with an expression ‘subject to the provisions of the act. If Section 5(2), as stated in the act, is read with Section 9(1) (ii), the subsequent conclusion flows to the effect that the salary cannot be taxed in India only for the reason that it was received in India but it is said to be taxed at the place of its accrual which would be India if, and only if, the services are rendered in India otherwise in the place where such services were rendered. 18. The Calcutta High Court in the case of Commissioner Of Income-Tax v. Nippon Yusen Kaisha [(1998) 233 ITR 158 Cal] placed its view with respect to interpretation of Section 5(2) of the act in as much as if other provisions of the act are contrary to Section 5(2), then such provisions will have an overriding effect over the Section. Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 8 :: 19. The Apex court also held that the location where salary is received is of no consequence with respect to taxability in India in CIT v. LW Russel 1965 AIR 49. 20. To determine the point of taxability, it is necessary to find where the income to the person concerned has accrued which is equated to the place where services were rendered. This was affirmed by the Calcutta High Court in Utanka Roy v. DIT [390 ITR 109 (Calcutta)]. 21. Section 9(1) (ii) also guides that the situs of accrual of salary income is the situs of service rendered. The Tribunal, Agra Bench in Arvind Singh Chauhan vs. ITO (2014) 147 ITD 409 opined this view thereby affirming the ruling given in Avtar Singh Wadhwan case (2001) 247 ITR 260 (Bom) and further held that mere signing of the contract in India does not mean that the salary accrued in India. Therefore, for the purpose of better understanding, the need for classification between ‘income being received’ and ‘amount being received’ arises which is determined on the basis of character of income received. 22. The Authority for Advanced Ruling, New Delhi in the case of Texas instruments (India) Pvt Ltd A.A.R. No 1299 of 2012 stated that salary received in India by a Non-Resident employee in respect of services rendered outside India is said to be accrued outside India and cannot be taxable in India. 23. The Hon’ble Madras High Court took a similar view on the matter in the case CIT v. AP Kalyanakrishnan 195 ITR 534 (Mad.) stating that the pension of the assessee (RNOR) which was accrued in Malaysia and remitted to India has suffered tax in Malaysia and hence exempt from being taxable in India. 24. The Hon’ble Karnataka High Court in Prahlad Vijendra Rao [(2011) 198 Taxman 551] asserted that the application of Section 5(2) (b) demands the criteria that the income is earned in India for the services rendered in India Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 9 :: and not otherwise. Salary derived by an assessee for working abroad for 225 days has been held as not accrues nor deemed to have been accrued in India. 25. In Commissioner of Income-tax v. Rajamani Raman [2002] 124 Taxman 4 (Madras) / [2002] 258 ITR 710 (Madras) the jurisdictional High Court Held as under: V.S. Sirpurkar, J. - The question referred for our consideration is: \"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the pension received by the assessee from the Malaysian Government could not be assessed as salary under the Income- tax Act, 1961 ?\" 2. The question is referred at the instance of the revenue. The Tribunal in its order relying on articles 18(3) and 18(5) of the Agreement for Avoidance of Double Taxation of income entered into between the Government of India and Government of Malaysia, has held that the pension received was not taxable in India, since it was liable for tax in Malaysia, which was the contracting State. There will be no question of its inviting the taxation in India, which would amount to double taxation. The Tribunal has pointed out that the University of Malaysia is a statutory authority and as such, would fall within the term ‘Government’ and, therefore, the pension paid by the University of Malaysia, as in the present case, would have to be construed for the purpose of the agreement as a pension received from the Government, which is taxable in terms of article 18(3) in Malaysia by Government of Malaysia. We do not find anything wrong in the order and it is absolutely correct and we confirm the same. The question is, therefore, answered in favour of the assessee and against the revenue. No costs. 26. The decision of the Hon’ble Supreme Court in CIT v. P.V.A.L Kulandagan Chettiar [2004] 267 ITR 6541 in which general principles governing taxation of global income have been stated by the Supreme Court in the following words : \"Where liability to tax arises under the local enactment the provisions of sections 4 and 5 of the Act provide for taxation of global income of an assessee chargeable to tax thereunder. It is subject to the provisions of an agreement entered into between the Central Government and the Government of a foreign country for avoidance of double taxation as envisaged under section 90 to the contrary, if any, and such an agreement will act as an exception to or modification of sections 4 and 5 of the Income- tax Act. The provisions of such agreement cannot fasten a tax liability where the liability is not imposed by a local Act. Where tax liability is imposed by the Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 10 :: Act, the agreement may be resorted to either for reducing the tax liability or altogether avoiding the tax liability. In case of any conflict between the provisions of the agreement and the Act, the provisions of the agreement would prevail over the provisions of the Act, as is clear from the provisions of section 90(2) of the Act. Section 90(2) makes it clear that 'where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or for avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are more beneficial to that assessee' meaning thereby that the Act gets modified in regard to the assessee insofar as the agreement is concerned if it falls within the category stated therein.\" (p. 659) 27. Further, in this present case, we find that the assessee qualified to be a Tax Resident of Malaysia. Therefore, applying the provisions of clause (1) of the above Article, the assessee's salary would be taxable only in Malaysia. According to ld. Counsel for the assessee, the assessee has offered his income to tax in Malaysia and claimed an exemption for salary in India. 28. Therefore, looking into the entire conspectus of matter the assessee is eligible for an exemption of salary that has been earned by him for the employment services provided to TCS Malaysia though the same is received in India since he qualified to be a Resident of Malaysia and it is offered to tax in Malaysia. 29. In result, appeal of the assessee is allowed. Order pronounced on the 31st day of July, 2025, in Chennai. Sd/- (एस.आर.रघुनाथा) (S. R. RAGHUNATHA) लेखध सदस्य/ACCOUNTANT MEMBER Sd/- (मनु क ुमाि गिरि) (MANU KUMAR GIRI) न्यधनयक सदस्य/JUDICIAL MEMBER चेन्िई/Chennai, ददिधंक/Dated: 31st July, 2025. KB/- Printed from counselvise.com IT(IT)A No.1/Chny/2025 (AY 2018-19) Arumugam Rajasekar :: 11 :: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकरआयुक्त/CIT, Chennai / Madurai / Salem / Coimbatore. 4. विभागीयप्रविविवि/DR 5. गार्डफाईल/GF Printed from counselvise.com "