Per Diem Received By EY Employee During UK Assignment Taxable Only In UK, Not India: ITAT Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹17.25 lakh addition made in the hands of an employee deputed to the United Kingdom, holding that ₹16.17 lakh received as per-diem during the overseas assignment was taxable, if at all, in the UK and not in India.

Per diem is a daily allowance received by the employee during the his UK assignment.

A bench of Judicial Member Vikas Awasthy and Accountant Member Brajesh Kumar Singh allowed the appeal filed by Sachin Saxena for the assessment year 2017-18.

The Tribunal held, “Thus, by virtue of Article 16(1) of India UK DTAA and section 90 of the Act, the amount of Rs. 16,17,724/- being received on account of per-diem if at all will be taxable in UK and not in India.”

Saxena was an employee of Ernst & Young LLP India and was assigned to work with Ernst & Young UK from April 1, 2016 to March 31, 2017.

During the assessment proceedings, the Assessing Officer noted that the assessee had originally filed a return declaring income of ₹23.94 lakh. The assessee subsequently revised the return and claimed exemption of ₹27.10 lakh under the India-UK Double Taxation Avoidance Agreement while offering salary income of ₹35,506 to tax.

The assessee stated that he had been sent on an international assignment to the UK and was exercising employment there. He contended that he was entitled to claim the benefit of the India-UK tax treaty and relied on a Tax Residency Certificate issued by the UK authorities.

The Assessing Officer examined the UK tax return furnished by the assessee and noted that salary income disclosed therein was 12,151 pounds. After comparing the income reflected in the Indian and UK returns, the officer added ₹17.25 lakh to the assessee's income.

The Tribunal noted that the assessee had stayed in India for less than 60 days during financial year 2016-17 and qualified as a non-resident for assessment year 2017-18. It also took note of the passport records placed on record and the Tax Residency Certificate issued by HM Revenue and Customs.

The bench recorded that the only dispute before it concerned the taxability of ₹16.17 lakh received as per-diem.

“In this case, it is undisputed that the amount of Rs. 16,17,724/- has been paid to the assessee by virtue of his assignment with Ernst & Young UK during the period in which the assessee was a non-resident.”, it noted. 

After reproducing Article 16 of the India-UK Double Taxation Avoidance Agreement dealing with dependent personal services, the Tribunal held that the per-diem amount was not taxable in India.

The bench further noted that only the per diem amount of ₹16.17 lakh had been claimed as non-taxable, while salary income of ₹35,506 had been offered to tax in India.

“Therefore, in the given facts of the case the addition of Rs. 17,25,932/- made by the AO is not sustainable and the same is deleted.”

For Assessee: Advocate Preeti Goel

For Revenue: Shri Vikram Singh Sharma, Sr. DR