The facts to which special rules
with respect to tie breaker test are applicable
need not to be applicable for the whole financial
year
Tie-breaker questionnaire cannot
be exclusively taken not consideration for determination
of residency
The permanence of home can be
determined on qualitative and quantitative basis
Habitual abode does not mean
the place of permanent residence, but in fact it
means the place where one normally resides
Synopsis
Recently, the Delhi Income Tax
Appellate Tribunal (“ITAT”)
in Sameer Malhotra v. ACIT1,
held that Sameer Malhotra’s (“Taxpayer”)
income earned in Singapore in the financial year
(“FY”) 2014-15 cannot
be subject to tax in India in accordance with the
India-Singapore Double Taxation Avoidance Agreement
(“DTAA”), as the Taxpayer
is considered to be a resident of Singapore for
the relevant FY.
Factual Background
The Taxpayer is an individual
who declared a total income of Rs.1,59,36,999/-
from DBOI Global Services Pvt. Ltd. in India between
April 1, 2014 to November 25, 2014 (“Earlier
Period”) and from J.P. Morgan Chase &
Co. (“JPMC”) in Singapore
during December 15, 2014 to March 31, 2015 (“Latter
Period”). The Taxpayer thereafter
field a revised return and declared his total income
to be Rs.47,82,630/-, claiming that he was not an
Indian resident for the relevant FY and accordingly,
the income earned in Singapore via JPMC was not
subject to tax in India.
In the resultant scrutiny assessment,
the assessing officer (“AO”)
rejected the claim of the Taxpayer in the revised
return. The AO held that the Taxpayer is a resident
of India for the purpose of the Income-tax Act,
1961 (“ITA”) as he
was physically present in India for 182 days or
more in the relevant FY. For the purpose of the
DTAA, the AO relied upon the tie breaker questionnaire
and held that the Taxpayer should be considered
as tax resident of India. The Commissioner of Income
Tax (Appeals) (“CIT(A)”)
agreed with the AO’s order, and further observed
that the Taxpayer is an Indian resident in the terms
of Article 4 of the DTAA, as his permanent home
was available to him in India. Additionally, it
was observed that Taxpayer’s centre for vital
interest rested in India in light of his majority
investments and bank accounts being present in India.
Thereby, Taxpayer was held to be an Indian resident
even in the terms of the tie breaker test under
Article 4 of the India-Singapore DTAA.
Aggrieved by the order, the
Taxpayer preferred an appeal before the ITAT.
ITAT Delhi Proceedings
The ITAT had to determine the
sole issue of taxability of Taxpayer’s income
earned in the Latter Period, thereby prompting the
determination of tax residence of Taxpayer for the
relevant FY.
Arguments of Taxpayer
The Taxpayer submitted that
he qualified as a resident of both Singapore and
India as per the respective domestic laws, thereby
evoking the determination of residence on the basis
of ‘tie breaker test’ under Article
4(2) of the DTAA.
In terms of the permanent home
test under Article 4(2), the Taxpayer argued that
he had a home available to him in Singapore in the
Latter Period, while the home in India was rented
out for the duration of the Latter Period making
it not available to him. Thereby, Taxpayer should
qualify as a tax resident of Singapore on the basis
of the permanent home test.
Even otherwise, with regards
to the determination of center for vital interests,
the Taxpayer claimed that he had shifted to Singapore
with his family members, along with having employment
and earnings therein. Hence, his centre of vital
interest should be considered to be in Singapore.
The Taxpayer’s claim for
residency was further buttressed by producing the
tax residency certificate (“TRC”)
issued by the Singapore tax authorities for the
relevant calendar year.
Thereby, the Taxpayer argued
that he should qualify as a tax resident of Singapore
for the relevant FY.
Arguments of Revenue
The revenue department’s
representative (“DR”)
placed reliance on the tie-breaker questionnaire
filled in by the Taxpayer, pointing that with respect
to owning home, personal belongings such as automobiles,
majority of savings, investments and personal bank
accounts, the Taxpayer has said that all of them
were located in India.
Further, as its not in dispute
that the Taxpayer stayed in India for more than
182 days under the relevant FY, hence, the Taxpayer
being a resident of India is liable to tax in India
on his global income i.e. including income earned
by the Taxpayer in Singapore.
Ruling of ITAT
The ITAT held that the Taxpayer
qualified as a tax resident of Singapore for the
relevant FY in terms of Article 4 of the DTAA. In
coming to the decision, the Tribunal observed the
following:
AO and CIT(A) considered the
Taxpayer as a resident of India as he spent more
than 182 days in India in the relevant FY and even
the ‘permanent home’ of the Taxpayer
was in India.
The Taxpayer shifted with his
family to Singapore, stayed there for the whole
period remaining in the relevant FY and earned the
income while serving in Singapore itself.
The Taxpayer had an apartment
on rent in Singapore, obtained Singapore Driving
License and Overseas Bank Account, showed Singapore
as his country of residence in various official
forms and even paid taxes in Singapore while working
from there.
With respect to the tie breaker
test:
Permanent Home: Although
the Taxpayer did mention in the tie breaker questionnaire
that he owned a home in India, however, tie breaker
questionnaire cannot be exclusively taken into consideration
as a base for deciding the residency. The permanence
of home can be determined on qualitative and quantitative
basis. Further, the Taxpayer did not have the house
in India available to him during the Latter Period
as it was rented out by him.
Centre of Vital Interest
Test: The CIT(A) held that even the centre
of vital interest of the Taxpayer was in India only
and not in Singapore, as the majority of the savings,
investments and personal bank accounts are in India.
However, the Taxpayer worked in Singapore during
the period under consideration and stayed therein
only along with his family for the purpose of earning
income. Thereby, the ITAT held that Taxpayer’s
personal and economic relations remained in Singapore
only.
Habitual Abode: The
ITAT observed that habitual abode does not mean
the place of permanent residence, but in fact it
means the place where one normally resides. Given
that Taxpayer had an apartment on rent in Singapore
and he resided therein only, he had a habitual abode
in Singapore.
Based on the above, the Taxpayer
was held to be a tax resident of Singapore. Accordingly,
as per Article 15(1) of the India Singapore DTAA,
which states that remuneration derived by a resident
of a contracting state in respect of an employment
shall be taxable only in that State unless the employment
is exercised in the other contracting state, the
Taxpayer’s income earned in Singapore was
not held to be taxable in India.
NDA Views
The issue of dual residency
is becoming common with the increase in frequent
travels and work in cross border locations. The
ITA provides that the global income of a resident
is subject to tax in India. Therefore, from an individuals’
perspective, determination of residency (which is
a factual exercise) is important prior to filing
of income-tax returns.
In cases where an individual
becomes a tax resident of two countries, tax treaties
provide for a tie-breaker test on basis of which
preference of residency of one country is established
over the other. Tie-breaker test is applied in a
hierarchal manner. While determination of tax residency
under the domestic law is purely based on number
of days an individual stays in India, in case of
applicability of tie-breaker test under a tax treaty,
a number of facts are taken into consideration to
determine the tax residency. Hence, it is important
that the taxpayers arrange their affairs as per
sound advice and keep the relevant documentation
in place. The ITAT’s ruling was guided by
following favourable facts for the Taxpayer:
The home in India although continued
to be owned by the Taxpayer, it was rented out by
him making it ‘not available’ to him.
Taxpayer obtained the tax residency
certificate (“TRC”)
from the Singapore authorities for the relevant
period. Further, the ITAT also noted that the AO
and CIT(A) did not doubt the TRC.
The Taxpayer’s family
also moving with him outside India was an important
factor with respect to determination of centre of
vital interest. Additional factors in favour of
Taxpayer in this regards were existence of employment,
having savings, obtaining driving license, and overseas
bank account in Singapore.
The OECD commentary (“Commentary”)
notes that permanent home test under the tax treaty
will frequently be sufficient to solve the tie breaker
test.2 Further, the Commentary also notes
that a house owned by an individual cannot be considered
to be available to him if it has been rented out
to an unrelated party i.e. the individual no longer
has the possession of the house and the possibility
to stay there3. The Tribunal also takes
note of the UN Model Commentary to elaborate the
concept of home. The Tribunal noted that the house
owned by the Taxpayer in India was rented out by
him once he moved outside India. As per the Commentary,
on basis of the aforesaid fact the permanent home
test would have broken in favour of the Taxpayer.
However, the Tribunal has not given a specific finding
with respect to the permanence home test but has
determined the residency on basis of the centre
of vital interest test and habitual abode test.
On basis of the above, it is
amply clear that the Tribunal closely looked at
the facts of the case while holding in favour of
the Taxpayer. Further, the Tribunal also made a
reference to the UN Model Commentary noting that
special rules under the tie-breaker test should
apply to the period where the residence of the
taxpayer affects tax liability, and not
necessarily the entire taxable period. Hence,
even though the favourable facts for the
Taxpayer were applicable for the Latter Period
only, there were sufficient to break tie in his
favour.
The facts to which special rules
with respect to tie breaker test are applicable
need not to be applicable for the whole financial
year
Tie-breaker questionnaire cannot
be exclusively taken not consideration for determination
of residency
The permanence of home can be
determined on qualitative and quantitative basis
Habitual abode does not mean
the place of permanent residence, but in fact it
means the place where one normally resides
Synopsis
Recently, the Delhi Income Tax
Appellate Tribunal (“ITAT”)
in Sameer Malhotra v. ACIT1,
held that Sameer Malhotra’s (“Taxpayer”)
income earned in Singapore in the financial year
(“FY”) 2014-15 cannot
be subject to tax in India in accordance with the
India-Singapore Double Taxation Avoidance Agreement
(“DTAA”), as the Taxpayer
is considered to be a resident of Singapore for
the relevant FY.
Factual Background
The Taxpayer is an individual
who declared a total income of Rs.1,59,36,999/-
from DBOI Global Services Pvt. Ltd. in India between
April 1, 2014 to November 25, 2014 (“Earlier
Period”) and from J.P. Morgan Chase &
Co. (“JPMC”) in Singapore
during December 15, 2014 to March 31, 2015 (“Latter
Period”). The Taxpayer thereafter
field a revised return and declared his total income
to be Rs.47,82,630/-, claiming that he was not an
Indian resident for the relevant FY and accordingly,
the income earned in Singapore via JPMC was not
subject to tax in India.
In the resultant scrutiny assessment,
the assessing officer (“AO”)
rejected the claim of the Taxpayer in the revised
return. The AO held that the Taxpayer is a resident
of India for the purpose of the Income-tax Act,
1961 (“ITA”) as he
was physically present in India for 182 days or
more in the relevant FY. For the purpose of the
DTAA, the AO relied upon the tie breaker questionnaire
and held that the Taxpayer should be considered
as tax resident of India. The Commissioner of Income
Tax (Appeals) (“CIT(A)”)
agreed with the AO’s order, and further observed
that the Taxpayer is an Indian resident in the terms
of Article 4 of the DTAA, as his permanent home
was available to him in India. Additionally, it
was observed that Taxpayer’s centre for vital
interest rested in India in light of his majority
investments and bank accounts being present in India.
Thereby, Taxpayer was held to be an Indian resident
even in the terms of the tie breaker test under
Article 4 of the India-Singapore DTAA.
Aggrieved by the order, the
Taxpayer preferred an appeal before the ITAT.
ITAT Delhi Proceedings
The ITAT had to determine the
sole issue of taxability of Taxpayer’s income
earned in the Latter Period, thereby prompting the
determination of tax residence of Taxpayer for the
relevant FY.
Arguments of Taxpayer
The Taxpayer submitted that
he qualified as a resident of both Singapore and
India as per the respective domestic laws, thereby
evoking the determination of residence on the basis
of ‘tie breaker test’ under Article
4(2) of the DTAA.
In terms of the permanent home
test under Article 4(2), the Taxpayer argued that
he had a home available to him in Singapore in the
Latter Period, while the home in India was rented
out for the duration of the Latter Period making
it not available to him. Thereby, Taxpayer should
qualify as a tax resident of Singapore on the basis
of the permanent home test.
Even otherwise, with regards
to the determination of center for vital interests,
the Taxpayer claimed that he had shifted to Singapore
with his family members, along with having employment
and earnings therein. Hence, his centre of vital
interest should be considered to be in Singapore.
The Taxpayer’s claim for
residency was further buttressed by producing the
tax residency certificate (“TRC”)
issued by the Singapore tax authorities for the
relevant calendar year.
Thereby, the Taxpayer argued
that he should qualify as a tax resident of Singapore
for the relevant FY.
Arguments of Revenue
The revenue department’s
representative (“DR”)
placed reliance on the tie-breaker questionnaire
filled in by the Taxpayer, pointing that with respect
to owning home, personal belongings such as automobiles,
majority of savings, investments and personal bank
accounts, the Taxpayer has said that all of them
were located in India.
Further, as its not in dispute
that the Taxpayer stayed in India for more than
182 days under the relevant FY, hence, the Taxpayer
being a resident of India is liable to tax in India
on his global income i.e. including income earned
by the Taxpayer in Singapore.
Ruling of ITAT
The ITAT held that the Taxpayer
qualified as a tax resident of Singapore for the
relevant FY in terms of Article 4 of the DTAA. In
coming to the decision, the Tribunal observed the
following:
AO and CIT(A) considered the
Taxpayer as a resident of India as he spent more
than 182 days in India in the relevant FY and even
the ‘permanent home’ of the Taxpayer
was in India.
The Taxpayer shifted with his
family to Singapore, stayed there for the whole
period remaining in the relevant FY and earned the
income while serving in Singapore itself.
The Taxpayer had an apartment
on rent in Singapore, obtained Singapore Driving
License and Overseas Bank Account, showed Singapore
as his country of residence in various official
forms and even paid taxes in Singapore while working
from there.
With respect to the tie breaker
test:
Permanent Home: Although
the Taxpayer did mention in the tie breaker questionnaire
that he owned a home in India, however, tie breaker
questionnaire cannot be exclusively taken into consideration
as a base for deciding the residency. The permanence
of home can be determined on qualitative and quantitative
basis. Further, the Taxpayer did not have the house
in India available to him during the Latter Period
as it was rented out by him.
Centre of Vital Interest
Test: The CIT(A) held that even the centre
of vital interest of the Taxpayer was in India only
and not in Singapore, as the majority of the savings,
investments and personal bank accounts are in India.
However, the Taxpayer worked in Singapore during
the period under consideration and stayed therein
only along with his family for the purpose of earning
income. Thereby, the ITAT held that Taxpayer’s
personal and economic relations remained in Singapore
only.
Habitual Abode: The
ITAT observed that habitual abode does not mean
the place of permanent residence, but in fact it
means the place where one normally resides. Given
that Taxpayer had an apartment on rent in Singapore
and he resided therein only, he had a habitual abode
in Singapore.
Based on the above, the Taxpayer
was held to be a tax resident of Singapore. Accordingly,
as per Article 15(1) of the India Singapore DTAA,
which states that remuneration derived by a resident
of a contracting state in respect of an employment
shall be taxable only in that State unless the employment
is exercised in the other contracting state, the
Taxpayer’s income earned in Singapore was
not held to be taxable in India.
NDA Views
The issue of dual residency
is becoming common with the increase in frequent
travels and work in cross border locations. The
ITA provides that the global income of a resident
is subject to tax in India. Therefore, from an individuals’
perspective, determination of residency (which is
a factual exercise) is important prior to filing
of income-tax returns.
In cases where an individual
becomes a tax resident of two countries, tax treaties
provide for a tie-breaker test on basis of which
preference of residency of one country is established
over the other. Tie-breaker test is applied in a
hierarchal manner. While determination of tax residency
under the domestic law is purely based on number
of days an individual stays in India, in case of
applicability of tie-breaker test under a tax treaty,
a number of facts are taken into consideration to
determine the tax residency. Hence, it is important
that the taxpayers arrange their affairs as per
sound advice and keep the relevant documentation
in place. The ITAT’s ruling was guided by
following favourable facts for the Taxpayer:
The home in India although continued
to be owned by the Taxpayer, it was rented out by
him making it ‘not available’ to him.
Taxpayer obtained the tax residency
certificate (“TRC”)
from the Singapore authorities for the relevant
period. Further, the ITAT also noted that the AO
and CIT(A) did not doubt the TRC.
The Taxpayer’s family
also moving with him outside India was an important
factor with respect to determination of centre of
vital interest. Additional factors in favour of
Taxpayer in this regards were existence of employment,
having savings, obtaining driving license, and overseas
bank account in Singapore.
The OECD commentary (“Commentary”)
notes that permanent home test under the tax treaty
will frequently be sufficient to solve the tie breaker
test.2 Further, the Commentary also notes
that a house owned by an individual cannot be considered
to be available to him if it has been rented out
to an unrelated party i.e. the individual no longer
has the possession of the house and the possibility
to stay there3. The Tribunal also takes
note of the UN Model Commentary to elaborate the
concept of home. The Tribunal noted that the house
owned by the Taxpayer in India was rented out by
him once he moved outside India. As per the Commentary,
on basis of the aforesaid fact the permanent home
test would have broken in favour of the Taxpayer.
However, the Tribunal has not given a specific finding
with respect to the permanence home test but has
determined the residency on basis of the centre
of vital interest test and habitual abode test.
On basis of the above, it is
amply clear that the Tribunal closely looked at
the facts of the case while holding in favour of
the Taxpayer. Further, the Tribunal also made a
reference to the UN Model Commentary noting that
special rules under the tie-breaker test should
apply to the period where the residence of the
taxpayer affects tax liability, and not
necessarily the entire taxable period. Hence,
even though the favourable facts for the
Taxpayer were applicable for the Latter Period
only, there were sufficient to break tie in his
favour.
(The authors would like to acknowledge and thank Anirudh Srinivasan (student, Nirma University, Ahmedabad) for his
contribution to this hotline.)
You can direct your queries
or comments to the authors
1
ITA No. 4040/Del/2019.
2 Para 11 of Article
4 of the OECD Model Commentary, 2017.
3 Para 13 of Article
4 of the OECD Model Commentary, 2017.
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