Arijit Ranjan Sarker v. ACIT [ITA Nos. 8085 & 8086/Del/2022
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently ruled on a key cross-border salary taxation issue in the case of Arijit Ranjan Sarker v. ACIT [ITA Nos. 8085 & 8086/Del/2022], concerning the application of Article 15(2) of the India–Singapore Double Taxation Avoidance Agreement (DTAA). The case addresses the conditions under which salary earned during a short work stay in India is exempt from Indian taxation — a common situation for expatriates and seconded employees.
Background
Mr. Arijit Ranjan Sarker, an employee of Mastercard India, was seconded to Mastercard Asia Pacific Pte. Ltd. in Singapore. During Assessment Years 2018–19 and 2019–20, he spent 35 days and 43 days, respectively, working from India. He received salary for the full year from Mastercard India, which was cross-charged to Mastercard Singapore, the overseas economic employer.
He claimed that the salary attributable to his workdays in India was exempt from Indian taxation under Article 15(2) of the DTAA between India and Singapore.
Key Legal Provision: Article 15(2) of the India–Singapore DTAA
As per Article 15(2), salary income of a resident of one country is exempt in the other country (i.e., not taxable in India) if:
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The individual is present in India for less than 183 days during the fiscal year,
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The remuneration is paid by or on behalf of a non-resident employer, and
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The remuneration is not borne by a PE (Permanent Establishment) or fixed base in India.
Assessing Officer’s Findings
The Assessing Officer (AO):
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Denied exemption, citing that salary was paid by Mastercard India, not a foreign employer.
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Cited an AAR ruling that Mastercard Singapore had a PE in India, thus disqualifying the DTAA relief.
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Did not conduct detailed verification of the employee’s economic relationship with the Singapore entity.
Assessee’s Argument
The assessee contended that:
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Mastercard Singapore was the economic employer, even though salary was paid by Mastercard India.
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Salary costs were cross-charged, and control/supervision was exercised by Singapore.
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The Delhi High Court had stayed the AAR ruling, hence the PE finding could not be relied upon.
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Therefore, Article 15(2) conditions were met, and salary for workdays in India should be exempt.
ITAT’s Analysis & Ruling
The Tribunal observed:
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The AO did not verify key aspects like economic employer relationship, control, supervision, and cost bearing.
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The AAR’s PE finding was stayed by the Delhi High Court; hence reliance on it was premature.
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Determination of economic employer must follow OECD guidelines, including:
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Who has the right to instruct the employee?
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Who bears the risks and benefits of the employee’s work?
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Who exercises supervision and control?
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ITAT Verdict:
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The case was remanded to the AO for fresh adjudication.
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AO is directed to verify if Mastercard Singapore is the economic employer.
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AO must also determine whether a PE existed in India, independently of the AAR’s stayed ruling.
Why This Case Matters
This ruling is crucial for globally mobile employees and Indian MNCs with outbound secondees. It clarifies that:
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DTAA benefits like those in Article 15(2) cannot be denied without thorough factual analysis.
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The economic employer concept is central to determining taxation rights in cross-border employment.
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Relying on a judicially stayed PE ruling (like that of the AAR) is insufficient.
Takeaway
To claim DTAA relief on salary for short-term work in India, taxpayers must:
✅ Prove economic employer status of the foreign entity
✅ Ensure salary is not borne by a PE in India
✅ Maintain robust documentation — employment contracts, cost recharge agreements, email correspondences, etc.
✅ Monitor judicial status of relevant rulings (like AAR decisions)
This ITAT judgment reaffirms the importance of substance over form in international tax matters.