Earning income abroad, Is the Income taxable in India?

The answer to this question is determined by the residential status of a person during a particular financial year.  Section 6(1) of the Income Tax Act gives a provision to determine the residential status of a person in India. 

Accordingly, section 6 of the IT Act says the days of residents outside India will only be considered in calculation of residential status if the stay in abroad is related to employment. What if you are not working for any higher authority but for your self? Is employer employee relationship a necessity? No, it’s not.

The words “employed or engaged in other avocations outside India” clearly indicate that the test of residence envisaged in Clause (a) of Explanation to Section 6(1) was not limited only to Indian citizens going out on contract of service as salaried employees but also to Indian citizens who go out of India and are engaged in other avocations i.e., other than as salaried employees.

For the purpose of determining the residential status in India under Sec. 6, the term ‘Going abroad for the purpose of employment’ means going abroad to take up any employment or for any business carried outside India. It is not necessary to establish employer-employee relationship to prove travelling abroad; for employment it may be for other avocation including self-employment. 

Facts of the Case-

1. The assessee had earned consultancy income for rendering technical services for setting-up a hospital in Saudi Arabia. He had not offered the same as his income of the year as he claimed that during the year he was not a resident within the meaning of section 6(1);
2. The A.O. found that assessee was not regularly employed abroad, but worked as a consultant for a foreign company. He opined that the term ‘for the purposes of employment’ used in the section 6 was to be interpreted in the context of employer–employee relationship and should be given a restrictive meaning;
3. He, therefore, held that assessee was resident as per section 6(1) and the sum received by him had to be brought to tax as the income of assessee for the year;
4. On appeal, the CIT(A) held that assessee had not left India for any period of time in connection with employment abroad as he was continuously resident in India. Therefore, he could not be considered as having left India and being stationed outside India for the purpose of employment. Accordingly, he had to be considered as resident only.

On appeal, held in favor of the assessee –

• As far as the argument of the learned CIT(A) that assessee did not leave India and was stationed outside the country was not material, as nowhere the section specified that assessee should leave India permanently so as to reside outside the country. Thus, the argument of the CIT(A) had no meaning. Therefore, that contention had to be rejected;
• The Hon’ble Supreme Court in the case of CBDT v. Aditya Birla [1988] 36 Taxman 9 (SC) considered that employment does not mean salaried employment but also includes self-employment/professional work. Therefore, the assessee’s earning from foreign enterprise and visit abroad for rendering consultation could be considered for the purpose of examining whether assessee was resident or not?;
• Thus, going abroad for the purpose of employment only meant that the visit and stay abroad had not be for other purposes such as a tourist or for medical treatment or for studies or the like;
• Going abroad for the purpose of employment, therefore, meant going abroad to take-up employment or any avocation. Unless assessee travelled on business visa or for the purpose of business/consultation, the entire period of travel abroad could not be considered as ‘going abroad for the purpose of employment’;
• The AO was to verify whether the visits were for the purpose of employment or for the purpose of tour or for any other reason. Only to the visits for the purpose of employment could be considered, while determining status of assessee as per the provisions of law;
• The assessee was requested to furnish necessary details of visas obtained and also place onrecord the English version of the stampings done on the passport, so as to support his contention that the travel was for the purpose of employment. For these reasons, the issue was to be restored to the file of the AO for fresh examination.

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