Law:

Section:

Section 90 of the Income-tax Act, 1961, read with article 16(2)(c) of the Double Taxation Avoidance Agreement between India and Italy - Double taxation relief - Where agreement exists - Assessment years 1985-86 and 1986-87 - Assessees-non-residents employed with 'E' of Italy claimed that under article 16(2)(c) their salaries were not taxable in India - Assessing Officer on finding that employer had permanent establishment and fixed base in India, disallowed claim of assessees - It was found that salaries were all paid in Italy by Head Office of company - Whether since expenses on salaries were not borne by permanent establishment of 'E' in India, salaries received by assessees were not liable to tax in India - Held, yes FACTS The assessees-non-residents were working in India for the employer 'E' of Italy. They claimed before the Assessing Officer that all their cases were covered by the Double Taxation Avoidance Agreement between India and Italy and their respective salaries were not taxable with reference to article 16(2)(c) of the DTAA. The Assessing Officer rejected the claim of the assessee holding that employer had both a permanent establishment and fixed base in India. Assessing Officer further held that since condition prescribed in article 16(2)(c) was not fulfilled, the salaries so received along with perquisites of tax paid by the employer, were taxable in their respective hands. Accordingly, the assessments were framed and that was upheld by the Commissioner (Appeals). However, on further appeal, the Tribunal allowed the claim of the assessees holding that the remuneration of the employees in question was not borne by the permanent establishment or fixed place which the employer had in India. On reference: HELD Under article 16, the salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State. [Para 4] From a perusal of article 16, it is seen that all the conditions mentioned in clause 2 of article 16 are to be fulfilled in case the salaries, wages and other remunerations derived by an assessee are to be held not liable to tax in India. It was not in…

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