The Hyderabad Income Tax Appellate Tribunal (ITAT) has ruled in favor of employees of IBM India Pvt. Ltd., stating that the foreign assignment allowance topped up to their Travel Currency Card by IBM India is not taxable in India. The ITAT decision was based on the co-ordinate bench ruling in Bodhisattva Chattopadhyay v. CIT (2019) 111 taxmann.com 374 (ITAT Kolkata). The tribunal agreed with the employees’ argument that since they were non-residents for the relevant assessment year and the foreign assignment allowance was received outside India for services rendered outside India, it should not be considered as income received or accrued in India under Section 5(2) of the Income Tax Act.
The employees in question had been sent on long-term assignments to various countries and were non-residents for the assessment year 2018-19. Their salary included a component of the foreign assignment allowance received outside India. The employees offered to tax the portion of their salary received in India but claimed that the foreign assignment allowance received outside India should be treated as exempt income. However, the revenue authorities argued that the employees’ salary income should be taxable in India because they were on the payroll of IBM India during their assignments abroad and their service conditions were controlled and governed by IBM India. The revenue also pointed out that IBM India deducted tax at source on the entire remuneration received by the employees, indicating that the situs of employment was in India.
The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the assessment order, but the employees appealed to the ITAT. The revenue authorities argued before the ITAT that the income was received by the employees in India and transferred by them from their bank accounts held in India to the nostro accounts to top up their Travel Currency Cards. They claimed that since the employer transferred the amount in India, it constituted a taxable receipt in India. Additionally, the revenue authorities argued that the bank acted as the employees’ agent, so the payment to the bank was equivalent to payment to the employees.
The ITAT observed that the issue was not new and relied on previous co-ordinate bench rulings in similar cases, such as Bodhisattva Chattopadhyay, Sri Ranjit Kumar Vuppu v. ITO, ITA No. 86/Hyd/2021, dated 22.04.2021, DCIT v. Sudipta Maity (2018) 96 taxmann.com 336 (ITAT Kolkata), and Shri Venkata Rama Rao v. ITO, ITA No. 1992/Hyd/2018, dated 25.02.2021. These rulings stated that if a non-resident derives income from performing services outside India, and the accrual of such income happens outside India, it cannot be taxed in India under Section 5(2) of the Income Tax Act. The ITAT also noted that the co-ordinate bench in Bodhisattva Chattopadhyay rejected the revenue’s argument regarding double non-taxation, stating that it was irrelevant to the taxability of the foreign assignment allowance in India. Consequently, the ITAT set aside the CIT(A) order and ruled in favor of the employees.
In summary, the ITAT’s decision stated that the foreign assignment allowance topped up to the Travel Currency Card by IBM India is not taxable in India. The employees’ non-resident status and the fact that the allowance was received outside India for services rendered outside India were key factors in this ruling. The ITAT relied on previous rulings to support its decision and disregarded the revenue’s arguments regarding the situs of employment and the payment through bank accounts.