INDIA: Case law on foreign earnings of Indian entertainer

In international tax literature an interesting Indian tax case concerning the taxation of foreign earning by an Indian resident entertainer has been described recently. In the case at hand an Indian celebrity had earned income during the 1994 ? 1995 assessment year by participating in an entertainment show in Canada. The Canadian tax administration had withheld 15% Canadian tax, and now the Indian resident claimed exemption of the income in her home country. The Indian tax authorities did not follow this reasoning and only allowed for tax credit of the Canadian tax paid against the Indian tax due.

The first appellate authority agreed with the Indian tax authorities, however the Tribunal did chose the sight of the entertainer and held that the foreign income had to be exempt. The Tribunal based itself on two earlier decisions of the Supreme Court of India. The first case concerned Chettiar?s case, and concerned the taxation of income from earned income from rubber estates in Malaysia. The Supreme Court held that that income was only taxable in Malaysia. The second case involved the taxation of dividend income from Malaysia and also in that case the Supreme Court held that the dividend was only taxable in Malaysia.

In literature the decision of the Supreme Court have been heavily criticized, but for the time being it would seem that Indian resident entertainers and sportsmen will be able to successfully claim full exemption of their foreign income derived from entertainment and sporting activities in countries with which India has concluded a tax treaty. (RB)