Salary Earned in Australia for Services Rendered in Australia – Not Taxable in India under Article 15 of India-Australia DTAA

Background of the Dispute

This case concerns Kapil Gupta Vs ITO (ITAT Delhi) and revolves around a single, focused question: Is salary earned in Australia from an Australian employer, for work performed entirely in Australia, taxable in India?

The controversy emerged in the context of Assessment Year 2020-21, following an order passed under Section 154 of the Income Tax Act 1961. The assessee had migrated from India to Australia during the relevant year to take up employment with an Australian entity, M/s. Modis Consulting Private Limited. Despite the income having been taxed in Australia, the salary was also offered to tax in India in the original return, giving rise to the present dispute.

Key Facts of the Case

Migration and Employment in Australia

  • The assessee relocated from India to Australia during the relevant financial year for employment purposes.
  • Employment was taken with M/s. Modis Consulting Private Limited, an Australian employer.
  • All services in respect of which salary was paid were actually performed in Australia.

Income Declared and Tax Deducted

  • The assessee filed the return of income on 29.09.2020 for AY 2020-21.
  • A salary amount of ₹14,16,115 from M/s. Modis Consulting Private Limited was disclosed as income in the Indian return.
  • This salary was already taxed in Australia according to Australian tax laws.
  • Tax of ₹3,40,428 was deducted at source in Australia on this salary.

Double Inclusion and Claim of Relief

Although the income had suffered tax in Australia, the assessee inadvertently included this Australian salary as part of taxable income in India. Later, upon realizing the implications of the India-Australia Double Taxation Avoidance Agreement (DTAA), the assessee invoked Article 15 of the treaty and requested that the salary be excluded from Indian taxation.

In parallel, the assessee:

  • Filed Form 67 on 19.02.2022, claiming foreign tax credit (FTC) in respect of ₹3,40,428 paid in Australia.
  • Subsequently filed a rectification application under Section 154, requesting correction of the mistake by removing the Australian salary from taxable income in India.

Procedural Journey of the Case

Before the CPC, Bangalore

  1. Original Return Processing
    The return for AY 2020-21, including the Australian salary, was processed at the Centralised Processing Centre (CPC), Bangalore.

  2. Rectification Request under Section 154
    The assessee later applied for rectification, contending that in view of Article 15 of the India-Australia DTAA, the salary relating to services rendered in Australia should not have been taxed in India, and that its inclusion in the return was a mistake apparent from the record.