Section 5(1), 9(1)(ii) – Stock awards vesting to a person not ordinarily resident in India is taxable in India only to the extent it relates to services rendered in India
Facts:
Taxpayer, a resident but not ordinarily resident (RNOR) in India,, was currently employed by an Indian Co (ICo). Taxpayer had received certain stock awards for services rendered by him to his past employer, an USA company (FCo). The Taxpayer had rendered services to FCo both in USA as well as in India. During the relevant financial year, Taxpayer received transfer proceeds of Stock Options which were granted to him by FCo.
Taxpayer contended that out of the total stock awards vested in him, certain portion was attributable to services rendered in USA and certain portion was attributable to services rendered in India. Accordingly, he offered to tax only that portion of stock awarsds which related to services rendered in India.
Further, Taxpayer had sold the stocks to broker appointed by US Co in the year of grant and he received only the final instalment of stock award sale in the year under consideration. However, Tax Authority contended that the entire income from stock awards is taxable in India as the same was received in India.
On appeal the First Appellate Authority upheld the Tax Authority’s contentions. Aggrieved the Taxpayer appealed before the Tribunal.
Held:
It is not in dispute that u/s. 6(6) of the Act, Taxpayer qualifies as a person who is not ordinarily resident of India. Thus as per section 5(1) of the Act, income which accrues or arises outside India to a person who is not ordinarily resident in India shall not form part of his total income taxable in India, unless it is derived from a business controlled in or profession set up in India. Further, section 9(1)(ii) specifically provides that salaries shall be deemed to accrue or arise in India if it is earned in India towards services rendered in India. Article 16(1) of India-USA DTAA also provides that salary derived by a resident of USA in respect of an employment exercised in USA shall be taxable in USA.
Thus stock awards can be apportioned towards services rendered in India depending on number of days of stay in India and only that portion of stock award can form part of total income of the Taxpayer.
Merely because stock awards were treated as part of salary by I Co, it cannot be concluded that entire stock award is taxable in India.
I Co has clarified that the stock award which was received by Taxpayer in India was allotted to him when he was under employment by FCo and was sold by the Taxpayer in USA. What was received in India was only the last instalment of such sale. Therefore, without ascertaining the portion of stock awards which is attributable to services in India, the entire amount cannot be made taxable only because the money was received in India.
Thus the taxpayer being RNOR, only that portion of stock awards which is attributable to services in India can form part of total income.
As the above facts were not considered by the Tax Authority or by the First Appellate Authority, the matter was remitted to decide the taxability of stock awards in light of the above observations.
