The Chartered Accountant

TAXATION
In case of foreign expatriate working in India, the remuneration received by
him, assessable under the head ‘Salaries’, is deemed to be earned in India if it
is payable to him for service rendered in India as provided in section 9(1)(ii)
of the Income-tax Act, 1961. The Explanation to the aforesaid law clarifies
that income in the nature of salaries payable for services rendered in India
shall be regarded as income earned in India.
Authority for Advance Rulings, New Delhi
British Gas india (P.) Ltd., in re
Justice Syed Shah Mohammed Quadri, Chairman
And A.S. Narang, Member
AAR No. 725 of 2006
July 31, 2006
Section 6 of the Income-tax Act, 1961 - Residential
status - Whether a careful reading of Explanation (a)
would show that requirement of Explanation is not
leaving India for employment but it is leaving India
for purposes of employment outside India - Held, yes
Whether for purpose of Explanation an individual
need not be an unemployed person who leaves India
for employment outside India - Held, yes - Applicant
an Indian company deputed its employee ‘M’
to UK for two years from 1-7-2005 - In financial year
2005-06, ‘M’ stayed in India for less than 182 days -
Whether in view of Explanation (a) to section 6(1),
‘M’ would be considered as non-resident in India for
financial year 2005-06, and, therefore, salary received
in India for rendering services in UK would not be
taxable in India - Held, yes
facts
The applicant, an Indian company, deputed its one
employee ‘M’ to UK for two years from 1-7-2005.
The applicant sought advance ruling on the question
as to whether salary income received in India by ‘M’
from the company for rendering services outside India
is taxable in India. The Commissioner relying on
section 6(1)(c) commented that in view of the ‘M’s
stay of 88 days in India in the financial year 2005-06,
the status of ‘M’ is that of resident in India. The
applicant’s case is that since ‘M’ is a citizen of India
and left India for the purpose of employment outside
the State, he would be a non-resident if his stay
is less than 182 days in that year under Explanation
(a) to section 6(1) and as ‘M’ stayed in the year in
question for only 88 days, he would be a non-resident.
Held
The word ‘non-resident’ has not been defined in the
Act. There are two requirements of section 6 (1)
which defines residence of an individual in India:
(I) If an individual is in India in any previous
year for a period or periods amounting in all
to 182 days or more; or
(II) If the individual, having within the four years
preceding that year been in India for a period
or periods amounting in all to 365 days
or more, is in India for a period or periods
amounting in all to 60 days or more in that
year.
Now Explanation (a) says, inter alia, in the case of an
individual being a citizen of India, who leaves India
in any previous year for the purpose of employment
outside India, in relation to that year he will be resident
in India if he is in India for a period or periods
amounting in all to 182 days or more.
The contention of the Commissioner that he has been
in India for more than 60 days is supported by subclause
(c) of section 6(1) of the Act but this ignores
Explanation (a) thereof. For the words ‘sixty days’, occurring
in sub-clause (c), the words ‘one hundred and
eighty-two days’ have been substituted by the Explanation.
If sub-clause (c) is read in the light of the Explanation
(a), it is apparent that the stay of ‘M’ is less
than 182 days (his stay is 88 days in India), therefore,
he becomes a non-resident and, thus, the requirement
of the tax liability of non-resident for the purpose of
definition of ‘advance ruling’ in section 245N (a) is
satisfied. The contention of the department that since
he is already in employment and is leaving India on
deputation, he cannot be said to leave India for employment,
cannot be accepted. A careful reading of
Explanation (a) would show that the requirement of
the Explanation is not leaving India for employment
but it is leaving India for the purposes of employment
outside India. For the purpose of the Explanation an
individual need not be an unemployed person who
leaves India for employment outside India. Therefore,
the fact that ‘M’ was already an employee at the time
THE CHARTERED ACCOUNTANT 985 DECEMBER 2008