ITAT Chennai: Salary Earned in China by Chinese Tax Resident Not Taxable in India Despite Credit to Indian Account
Pranav B Prem
The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has ruled that salary income earned by a Chinese tax resident for employment exercised in China is taxable only in China under Article 15(1) of the India–China Double Taxation Avoidance Agreement (DTAA), even if such salary is credited to an Indian bank account for administrative convenience. The bench of Manu Kumar Giri (Judicial Member) and S. R. Raghunatha (Accountant Member) emphasised that the determining factor for taxability is the place where the employment is exercised, not the place where the remuneration is paid or credited.
Background
The assessee, Sivakarthick Raman, was employed with BMW India Pvt. Ltd. and seconded to BMW Brilliance Automotive Ltd., China (“BMW China”) from 15 April 2021 to 31 March 2022. During this period, he was physically present in China and performed his duties exclusively there. His payroll, however, remained in India and his salary was credited into his Indian bank account.
The secondment agreement and employment records showed that the cost of his salary and related benefits was fully cross-charged to BMW China. He was subject to tax in China on this income and filed his Chinese tax return accordingly. In his return for AY 2022–23, he declared total income of ₹1,53,46,670 as salary, claimed exemption under Article 15(1) of the DTAA, and sought a refund of ₹52,22,410 deducted as TDS in India. He supported the claim with:
Copy of the secondment agreement between BMW India and BMW China
Assignment letters and salary structure documents
Indian Form 16 and Chinese tax return acknowledgements
Reconciliation statement showing the correlation between the Indian payroll entries and cross-charges to BMW China
Assessment and First Appeal
The Assessing Officer (AO) taxed the salary in India on the ground that it was paid by an Indian employer, credited in India, and thus fell within the scope of Section 5(2) of the Income Tax Act, 1961. The AO also referred to Article 23 of the DTAA, arguing that credit for taxes paid in China could be availed, but the income remained taxable in India. The CIT(A) upheld this view, noting that BMW India continued to be the legal employer and that the assessee’s salary was disbursed in India.
Tribunal’s Observations
The ITAT noted that Article 15(1) of the DTAA provides that salaries derived by a resident of a contracting state in respect of employment shall be taxable only in that state unless the employment is exercised in the other contracting state. If the employment is exercised in the other state, the remuneration may be taxed there.
As the assessee was a tax resident of China under Article 4 of the DTAA and had exercised his employment wholly in China during the relevant financial year, India had no taxing rights under Article 15. The Tribunal referred to OECD Commentary on Article 15, clarifying that the place of exercise of employment is determined by the place where the individual is physically present when performing the activities for which the employment income is paid.
It rejected the Revenue’s reliance on Section 5(2), holding that domestic law provisions yield to DTAA provisions under Section 90(2) of the Act. The credit of salary into an Indian bank account was deemed a matter of administrative convenience and did not determine the situs of taxation. The Tribunal also found Article 23 (relating to elimination of double taxation) irrelevant to the issue since the primary question was whether India had taxing rights at all, which was answered in the negative under Article 15.
Holding that the assessee’s salary was taxable only in China, the ITAT directed deletion of the addition and allowed the claim for refund of ₹52.22 lakh with applicable interest under Section 244A of the Income Tax Act.
Appearance
Counsel For Appellant: Preeti Goel, Advocate
Counsel For Respondent: Anitha, Addl. C.I.T.
Cause Title: Sivakarthick Raman V. Assistant Commissioner Income Tax
Case No: ITA No.:281/Chny/2025
Coram: Manu Kumar Giri [Judicial Member], S. R. Raghunatha [Accountant Member]
