The Tax Publishers2020 TaxPub(DT) 3473 (Mum-Trib)

INCOME TAX ACT, 1961

Section 9(1)(ii) Section 40(a)(i)

Where assessee-AOP was formed as a joint venture for executing contract of construction of metro rail in India, reimbursement of salary on actual basis to non -- resident employees of joint venture partners could not be deemed to be accrued or arisen in India in terms of clause (ii) of section 9(1) because salary income earned by non -- resident individuals were for services rendered outside India and not in India.

Income deemed to accrue or arise in India - Reimbursement of salary on actual basis to non -- resident employees - Assessee-AOP was formed as a joint venture for executing contract of construction of metro rail in India - Services, whether rendered in India

Assessee, an AOP was formed as a joint venture by five companies for executing contract of construction of metro-rail awarded by Delhi Metro Rail Corporation. Issue was as to whether reimbursement of salary on actual basis to non -- resident employees of joint venture partners was deemed to have accrued or arisen in India in terms of clause (ii) of section 9(1). Held: Non-resident employees to whom salary was paid were located in respective Head Offices of the partner companies in Japan and south Korea and they were performing their services while located at Head Office. Though, such services were rendered in connection with Metro Rail Project in India. As per clause (ii) of section 9(1), which is a deeming provision, income falling under head Salary is deemed to accrue or arise in India if it is earned in India. Explanation to this provision further clarifies that salary income referred to must be payable for services rendered in India and will also include rest/leave period which is preceded and succeeded by service rendered in India. In instant case, if facts was placed juxtaposition to conditions enshrined in section 9(ii), it could be seen that salary income earned by non -- resident individuals were for services rendered outside India and not in India. Therefore, such salary income could not be deemed to have accrued or arisen in India as per section 9(ii). AO in his anxiety to bring salary income to tax in India completely overlooked impact of section 9(1)(ii). Attempt on part of AO to rope in reimbursement of salary payment under section 9(1)(i) was completely misconceived.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

Section 9(1)(ii) Section 40(a)(i)

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