By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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S/s.- Explanation (a) to section 6(1) of the Act – ‘leaves India for the purposes of employment’ in Explanation (a) to section 6(1) would include travelling abroad to take up any employment or travelling abroad on business visa for any business carried outside India.
Facts:
The taxpayer was engaged to provide technical services for setting-up a hospital in Saudi Arabia. During the relevant year, he had earned consultancy income for such services. He claimed that during the year he was not a resident within the meaning of section 6(1) and hence, the income was not taxable.
On examination, the AO found that taxpayer was not regularly employed abroad, but worked as a consultant for a foreign company and he continued to render technical services in India and also earned income in India. He held that the amount was taxable as:
• The taxpayer was resident of India and was not entitled to benefit of extended stay of 180 days in terms of Explanation (a) to section 6(1) as he did not leave India ‘for the purposes of employment’. The term ‘for the purposes of employment’ should be interpreted in the context of employeremployee relationship and should be given a restrictive meaning. After considering the terms of the offer letter, the AO concluded that there was no employer-employee relationship between the taxpayer and the foreign company and accordingly, Explanation (a) to section 6(1) was not applicable in case of the taxpayer and therefore, the taxpayer was a resident chargeable to tax in respect of global income.
• In any case, the income was earned in India. While the taxpayer claimed that he travelled abroad to provide services, the taxpayer did not establish the nexus between his travels abroad and the consultancy services rendered by him.
Held:
The Tribunal held as follows.
• Section 6 does not require that taxpayer should leave India permanently. Hence, the argument that taxpayer did not permanently leave and was not stationed outside India is not material. Even if the taxpayer had visit outside India such that he was in India for a period or periods of 181 days or less, the condition specified in section 6(1) is satisfied.
• In CBDT vs. Aditya V. Birla [1988] 170 ITR 137, Supreme Court has held that employment does not mean salaried employment but also includes self-employment/professional work. Therefore, the taxpayer’s earning from foreign enterprise and visit abroad for rendering consultation could be considered for the purpose of examining whether he was resident or not.
• Going abroad for the purpose of employment only means that the visit and stay abroad should not be for purpose other than employment or any vocation. The AO can verify the same by examining the visas as also correlating the foreign exchange drawn by the taxpayer and reimbursed by the foreign company. Accordingly, the matter was remanded to the AO.
