India-Singapore DTAA Residency Rules: Tie-breaker Questionnaire plays a crucial role but not the only factor in determining residency

The Delhi ITAT has ruled on the issue of residency under the India-Singapore Double Taxation Avoidance Agreement (DTAA) in the case of Sameer Malhotra v. ACIT. The case involved a dispute over the taxation of the Assessee’s income from employment in India and Singapore for the Assessment Year 2015-16. The Assessee initially offered to pay tax on the total income of 1.59 crores, but later revised their return to only include the income earned from employment in India, which was 47.82 Lacs.

The Revenue, relying on the tie-breaker questionnaire provided in Article 4 of the India-Singapore DTAA, held that the Assessee was actually a resident of India for the purpose of taxing their global income and rejected the revised return. The Revenue concluded the assessment based on the original return, at 1.59 crores. The CIT(A) upheld this assessment order.

The ITAT allowed the Assessee’s appeal by stating that the tie-breaker questionnaire is important in determining the residency of an individual, but it cannot be considered the exclusive basis for deciding residency. The ITAT noted that the permanence of a home can be determined on both qualitative and quantitative basis, referencing the UN Model Commentary, which states that any form of home, whether owned or rented, may be taken into account, as long as the permanence of the home is established.

The ITAT considered various factors in the Assessee’s case, including that the Assessee held a Singapore driving license and overseas bank account, held a tax residency certificate issued by Singapore authorities, and showed both India and Singapore as countries of residence on various official forms and documents for the period of their employment in Singapore. The Assessee also paid taxes in Singapore while working there and submitted that all future income from work in Singapore would be taxable in Singapore.

However, the ITAT also observed that the Assessee had a house in India, which was let out, and therefore not available during their employment in Singapore. The ITAT decided the permanent home test in the Assessee’s favor based on this fact. The ITAT also held that the center of vital interests lay in Singapore, as the Assessee had shifted there with their wife and daughters for employment purposes, earned and saved in Singapore. The ITAT noted that “habitual abode” does not necessarily mean permanent residence, but rather the place where an individual normally resides.

The ITAT, therefore, directed the Revenue to accept the revised return and held that the Assessee was not a resident of India for the purpose of taxation.

This case is similar to Raman Chopra v. DCIT (2016) 69 452 (ITAT Delhi), where the Hon’ble coordinate bench of the ITAT dealt with an identical issue. In that case, the Appellant claimed exclusion of income earned outside India and was considered a resident of both India and the USA for the period of 01.04.2010 to 30.06.2010. The ITAT determined the Appellant’s residential status as per the India-USA DTAA based on the tie-breaker analysis provided in Article 4(2) of the treaty.

In conclusion, the ITAT’s ruling in the case of Sameer Malhotra v. ACIT highlights the importance of considering all relevant factors when determining residency under a DTAA, and that the tie-breaker questionnaire should not be taken into consideration exclusively. The permanence of a home, along with other factors such as country of employment, payment of taxes, and center of vital interests, should all be taken into account to accurately determine an individual’s residency for tax purposes.

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