12 Section 5(2), 6(1) of the Act – Salary income earned by a non-resident for services rendered in foreign country while on deputation is not taxable in India

Pramod Kumar
Sapra vs. ITO

A.Y: 2011-12                                                                      
Date of Order: 30^th October, 2017

Section 5(2),
6(1) of the Act – Salary income earned by a non-resident for services rendered
in foreign country while on deputation is not taxable in India

FACTS

The Taxpayer,
an individual was employed by ICo. Taxpayer was deputed to Iraq for the purpose
of employment by ICo. During the year under consideration, total number of days
of his stay outside India was 203 days. Further, his stay in India for the four
FYs preceding the relevant FY was less than 365 days.

The Taxpayer
filed his return of income in India in the capacity of a non-resident (NR). In
his return, Taxpayer claimed that the salary earned outside India for the
period during which he was on deputation in Iraq is not taxable in India.

The return of
income filed by the Taxpayer was accepted by the AO. However, Principal
Commissioner of Income tax (PCIT) set aside the assessment order. PCIT
contended that the salary earned by the Taxpayer for the period of deputation
was received in his bank account in India. Taxes were also deducted on such
income in India. Thus, such income was taxable on receipt basis in India u/s. 5
of the Act. As A.O. had proceeded with the assessment without considering this
fact and without making any enquiry, the assessment made by AO was erroneous
and prejudicial to the interest of the revenue. Thus, the order of AO was
needed to be set aside u/s. 263 of the Act.

Aggrieved by
the order of PCIT, Taxpayer appealed before the Tribunal

 HELD

–   Since
Taxpayer was present in India for less than 182 days and his total stay in
India during the preceding four FYs was less than 365 days, he was NR for the
relevant FY.

–  The fact
that salary income has been received in India, i.e., it has been credited in
the bank account of the taxpayer in India and also that TDS has been deducted
by the employer, cannot be determinative of the taxability under the Act. What
is relevant is, whether the income can be said to be received or deemed to be
received in India u/s. 5 of the Act.

–   Section
5(2) merely provides that if the income of NR has been received or has accrued
in India or is deemed to be received or accrued in India, the same shall be
treated as total income of that person. Section 5 does not envisage that income
received by NR for services rendered outside India can be reckoned as part of
total income.

–   Taxpayer
received salary during his employment outside India for carrying on his
activities outside India. Such income cannot be treated as income received or
deemed to be received by the Taxpayer in India. Hence salary received by the
Taxpayer for services rendered in Iraq was not taxable in India.