ITAT Deletes ₹17.25 Lakh Tax Addition, Grants India-UK DTAA Relief to Expat Employee

May 29, 2026 : The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favour of an expatriate employee working in the United Kingdom, holding that per-diem payments received during an overseas assignment are not taxable in India when the employee qualifies for protection under Article 16 of the India-UK Double Taxation Avoidance Agreement (DTAA). The Tribunal deleted an addition of ₹17.25 lakh made by the Income Tax Department and allowed the appeal filed by taxpayer Sachin Saxena.

The dispute arose from the assessment for the Assessment Year 2017-18. Sachin Saxena had originally filed his income tax return declaring income from salary and house property. However, he later revised the return and claimed exemption on a substantial portion of his salary income under Article 16(1) of the India-UK DTAA, contending that he was a tax resident of the United Kingdom during the relevant period and that the employment was exercised in the UK.

During scrutiny proceedings, the Assessing Officer questioned the large refund claim and sought details regarding the revised return. The taxpayer explained that he had been deputed by Ernst & Young India to work with Ernst & Young UK from April 1, 2016, to March 31, 2017. According to him, although his payroll remained in India and tax had initially been deducted at source, the salary relating to employment exercised in the UK was exempt from Indian taxation under the India-UK DTAA.

The Assessing Officer was not convinced by the explanation. Relying on Section 5(2)(a) of the Income Tax Act, 1961, which deals with the scope of total income of non-residents, the officer held that income received in India remained taxable. The department further observed discrepancies between the salary disclosed in the taxpayer’s UK tax return and the salary reflected in India. Consequently, an amount of ₹17.25 lakh was added back to the taxpayer’s income.

The taxpayer challenged the assessment before the Commissioner of Income Tax (Appeals). However, the appellate authority upheld the addition. The Commissioner noted that the taxpayer had failed to adequately demonstrate that the entire income earned during the UK assignment had been offered to tax in the United Kingdom. The appellate authority also questioned the treatment of per-diem allowances and observed that no corresponding exemption claim appeared to have been been specifically reflected in the UK tax return.

Aggrieved by the decision, the taxpayer approached the ITAT. Before the Tribunal, the taxpayer produced a detailed reconciliation explaining the salary received in India and the income offered to tax in the UK. It was argued that the entire salary income had effectively been subjected to UK taxation, except for a bonus relating to non-UK working days. The taxpayer also furnished supporting documents including the UK Tax Residency Certificate, assignment agreement, passport records establishing his stay outside India, Form 16, and copies of the UK tax return.

The Tribunal examined the provisions of Article 16 of the India-UK DTAA dealing with dependent personal services. The provision states that salaries, wages and similar remuneration derived by a resident of one contracting state in respect of employment are taxable only in that state unless the employment is exercised in the other contracting state. The Bench observed that the taxpayer had spent less than 60 days in India during the relevant financial year and therefore qualified as a non-resident under the Income Tax Act. The Tribunal also took note of the Tax Residency Certificate issued by the UK tax authorities confirming his UK residency status.

After analysing the facts, the Bench found that the central issue related only to the taxability of ₹16.17 lakh received as per-diem during the overseas assignment. It held that the amount was received solely because of the taxpayer’s employment in the United Kingdom while he was a non-resident in India. Accordingly, the Tribunal concluded that Article 16(1) of the India-UK DTAA read with Section 90 of the Income Tax Act governed the issue.

In a significant observation, the Tribunal held: “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.” The Bench further observed that the taxpayer had claimed exemption only in respect of the per-diem component and had offered the remaining salary income to tax in India wherever applicable.

Rejecting the findings of the lower authorities, the Tribunal held that the addition of ₹17.25 lakh was unsustainable. It consequently deleted the entire addition and allowed all grounds raised by the taxpayer.

The ruling is significant for Indian professionals working abroad on deputation or international assignments. It reiterates that the provisions of a Double Taxation Avoidance Agreement can override domestic tax provisions through Section 90 of the Income Tax Act where treaty benefits are available. The decision also highlights the importance of maintaining documentary evidence such as tax residency certificates, assignment agreements and foreign tax filings to substantiate treaty-based exemption claims.

The case underscores the continuing relevance of treaty protections for cross-border employees and provides guidance on the tax treatment of per-diem allowances and overseas employment income under the India-UK DTAA framework.

Case Reference : Sachin Saxena v. DCIT/ACIT (International Taxation), Noida, ITA No. 4037/Del/2025