*connectedthinking pwc
Background
In a recent ruling in case of Anurag Chaudhary (“the applicant”), the Authority for Advance Rulings (“AAR”)1 held that the applicant would qualify as a non resident (“NR”) of India forthe previous year 2008-09 in which he came back after completing his overseas employment and was physically present for less than 182 days in India. The AAR further held that, as a NR, his income that had accrued outside India by reason of his overseas employment would not be taxable in India.
Facts
The applicant, an individual assessee, left India for USA for employment purposes on 31 March, 2008. After completing his overseas employment he returned to
1 Anurag Chaudhary, In re [2010-TIOL-05-ARA-IT]
India on 29 November, 2008. During the previous year under consideration i.e. 2008-09, the applicant was physically present in India for 122 days.
Issue
The applicant sought an advance ruling from the AAR as to whether he qualified asa NR of India during the previous year 2008-09. The following issue arose out of this application to the AAR:
• Whether the income earned by the applicant, by way of salary from his US employment in the previous year 2008-09 (assessment year 2009-10), is liable to tax under section 5(1)(c) or under any other provision of the Income-tax Act, 1961 (“Act”) on the ground that the applicant’s status was that of a ‘resident’ during that year?
Employee returning back after completing overseas employment, held as “non resident” since he spent less than 182 days in India
Tax & Regulatory Services
News Alert*
22 February, 2010
PricewaterhouseCoopers
Applicant’s and Revenue’s Contentions
Neither the applicant nor the revenue appeared before the AAR.
AAR Ruling
As per sub-section (1) of section 6 of the Act, an individual is considered to be a resident of India if he / she is physically present in India for 182 days or more during the relevant previous year (“182 days condition”) or 60 days or more in the relevant previous year, and 365 days or more in the preceding four financial years (“60 days condition”). Further, explanation (a) to sub-section (1) of section 6 of the Act provides that for a citizen of India who leaves India in any previous year for the purpose of employment outside India, only 182 days condition would apply.
The AAR examined section 5 (scope of total income) and section 6 (residence in India) of the Act and made the following observations:
• The income earned by the applicant during employment in USA would be taxable in India, if the applicant was held to be a resident of India during the financial year 2008-09.
• The explanation (a) to sub-section (1) of section 6 of the Act provides that a citizen of India who leaves India in any previous year for the purpose of employment outside India can be considered as resident of India, if he has been in India for 182 days or more even though he might have been in India for more than 365 days in the four preceding years.
• There is no information regarding the applicant’s stay in India during the four preceding years. If the applicant was not present in India for 365 days or more in the four preceding years, then, to be treated as a resident of India, clause (a) of
sub-section (1) of section 6 would apply which requires a stay in India of 182 days or more during the financial year 2008-09.
• On the other hand, if the applicant was present in India for 365 days or more during the four preceding years, then to be treated as a resident of India, clause (c) of sub- section (1) of section 6, read with explanation (a) would apply, which requires a stay in India of 182 days or more for a person who leaves India for the purpose of employment outside India.
• In light of these observations, the AAR decided the issue in favour of the applicant and held that the income earned by him from his US employment is not taxable under the Act.
Conclusion
It is humbly submitted that the AAR in its ruling has taken a view as to the tax residence of persons leaving for overseas employment which is different from the way the provisions were understood earlier. The beneficial provisions for relaxing the tax residency, namely, use of the 182 days criterion as per the language of the law, applies to that year in which the person has left India. However, in this case, the AAR applied the said criterion in the year of return, even though the person left the country in an earlier year. It appears that the AAR was not assisted during the hearing either by the representative of the assessee or by the Government.
While an advance ruling is binding only in the case of the specific assessee, it may have persuasive value in other cases, especially given the fact that in this case the income tax department also agreed to treat the person as a non-resident in the year under consideration. However, caution should be exercised before applying the ratio of this ruling on a blanket basis.
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