Dear Readers,
The determination of an individual’s residential status under Indian tax law often becomes a contentious issue, especially in an era where global mobility and cross-border employment are increasingly common. Section 6 of the Income-tax Act, 1961 lays down a clear, quantitative framework for determining residence; yet, disputes frequently arise when individuals occupying senior or managerial roles abroad are perceived by tax authorities as continuing to have strong economic or personal ties with India.
A recent decision by the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has once again underlined the importance of adhering strictly to the statutory tests of residence rather than relying on subjective interpretations. In doing so, the Tribunal reaffirmed that the purpose of travel and contractual nature of employment are pivotal when applying Explanation 1(a) to Section 6(1) — irrespective of the individual’s seniority or control within a foreign organization.
This case serves as a significant reminder that the residential status test is quantitative, not qualitative, and that the non-resident status of an individual working abroad cannot be disturbed on assumptions of control, influence, or family association in India.
Hope you will find this useful.
Warm regards,
Samir Mahajan
Chennai ITAT Upholds Non-Resident Status of Assessee under Section 6(1); Clarifies Scope of “Employment” for Individuals Working Abroad – Paul Dhinakaran [TS-1480-ITAT-2025(CHNY)]
In a recent ruling, the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) reaffirmed that an individual who had left India for employment abroad and continued such employment during the relevant assessment years (AYs) was correctly treated as a Non-Resident under Section 6(1) read with Explanation 1(a) of the Income Tax Act, 1961.
The Tribunal dismissed the Revenue’s appeal and upheld the CIT(A)’s order deleting additions made by the Assessing Officer (AO), who had erroneously treated the assessee as a resident and consequently brought his global income to tax.
Background
The assessee, who had left India in 2011 to take up employment in the United States, filed his returns for four assessment years declaring the status of Non-Resident Indian (NRI). However, the AO treated the assessee as a resident, contending that the individual satisfied the basic conditions of residence under Section 6(1)(a) and (c). On this basis, the AO included the assessee’s global income in the Indian tax net.
CIT(A)’s Findings
On appeal, the CIT(A) undertook a detailed examination of the assessee’s passport entries and travel records, which clearly established that he did not meet the statutory threshold of days required for residential status in India. The CIT(A) noted that the assessee had left India for the purpose of employment and continued such employment in the U.S. during all the relevant years.
Given these facts, the CIT(A) held that the benefit of Explanation 1(a) to Section 6(1) — which relaxes the residency rule for individuals leaving India for employment abroad — squarely applied to the assessee’s case. Consequently, the AO’s treatment of the assessee as a resident was found to be untenable.
Revenue’s Contention and Tribunal’s Observations
Before the ITAT, the Revenue argued that the assessee held a managerial and controlling position as “President” of his U.S. company (JCI, USA), and hence could not be regarded as an “employee” for the purposes of Explanation 1(a).
Rejecting this contention, the Tribunal clarified that the term “employment” used in the statute does not distinguish between senior and junior positions. What is material is the existence of a contractual relationship of service, not the designation or level of authority. The Tribunal noted that the assessee was under a contractual employment, received a fixed compensation, and that such compensation was subjected to U.S. income tax. Accordingly, his senior role did not alter the character of his employment.
The ITAT emphasized that the test of residence is quantitative and objective, depending solely on the number of days of stay in India during the relevant year, and cannot be disturbed based on assumptions regarding control, family ties, or managerial influence abroad.
Tribunal’s Ruling
The Tribunal upheld the CIT(A)’s conclusion that the assessee’s residential status for all four years was that of a Non-Resident, and therefore the additions made by the AO were rightly deleted. It also observed that the Revenue failed to produce any material to rebut the documentary evidence or demonstrate any factual or legal infirmity in the CIT(A)’s findings.
Key Takeaways
- Employment Abroad: Explanation 1(a) to Section 6(1) applies equally to individuals in senior or managerial positions, as long as a bona fide employment relationship exists.
- Objective Test of Residence: Residential status depends strictly on the number of days of stay in India — not on family connections or control over business operations.
- Global Income Taxability: Once an assessee qualifies as a non-resident, foreign income cannot be taxed in India merely on presumptions of control or influence.
Conclusion
The Chennai ITAT’s ruling provides welcome clarity on the application of Section 6(1) and Explanation 1(a), reinforcing that residential status determinations must rest on objective statutory parameters rather than subjective interpretations of control or seniority. It underscores that individuals leaving India for employment abroad, even in senior capacities, continue to be eligible for non-resident treatment as long as they satisfy the conditions laid down under the Act.
