Income: Deemed to accrue or arise in India: Sections 5, 6 and 9 : A.Y. 2001-02: Assessee was an employee of an American company and non-resident from year 1991 to 1999: On termination of employment in 1999, he received certain amount from previous employer as retirement benefit/severance/ vacation engagement: Assessee not ordinary resident in relevant assessment year: Amount received by assessee had not accrued/ deemed to be accrued/paid in India in terms of section 6 and section 9(1)(ii): Amou<

The assessee was an employee of an American company from 1991 till November, 1999 and during this period he was a non-resident Indian. The employment was terminated in the year 1999. In the relevant year, i.e., A.Y. 2001-02 the assessee was ‘not ordinarily resident’. In the relevant year the assessee received certain amount as leave encashment according to the number of years of service, which was subsequently described as severance and vacation encashment paid by the erstwhile employer of the assessee in the USA for services rendered outside India.

The assessee claimed that this amount was not taxable in India under provisions of section 5(1)(c) read with section 9(1)(ii). The Assessing Officer held that the said amount was received by the assessee as his profit in lieu of salary which was payable by the employer under the employer-employee relationship and, therefore, was taxable u/s.17(3)(ii). The CIT(A) held that the receipt of the impugned amount was on account of the past services rendered by the assessee to his previous foreign employer outside India at a time when he was a non-resident and this could not be deemed to have accrued or arisen in India and would not come under the purview of section 9(1)(ii).

The Tribunal upheld the order of the CIT(A). On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under: “

(i) It is clear from the factual findings recorded by both the Commissioner (Appeals) and the Tribunal, that the payment in question was received towards retirement benefit/severance/vacation encashment from the erstwhile employer on termination of employment in November, 1999. The erstwhile employer was based in the USA and services were rendered to the erstwhile employer in the USA.

(ii) In view of the aforesaid factual position, elucidated and accepted by both, the Commissioner (Appeals) and the Tribunal, the said amount cannot be taxed in India, as the status of the assessee during the year in question was that of ‘not ordinary resident’. The said income did not accrue or arise in India.

(iii) The Tribunal has rightly held that in terms of section 6 and section 9(1)(ii), the amount/income had not accrued/deemed to be accrued/ paid in India.”