Foreign income of visiting NRI is not taxable: ITAT

In a recent decision, Income-Tax Appellate Tribunal (ITAT) has upheld that the benefit of “extended stay” for determining the tax residential..

In a recent decision, Income-Tax Appellate Tribunal (ITAT) has upheld that the benefit of “extended stay” for determining the tax residential status is available to a citizen of India or a Person of Indian Origin (PIO) who visits the country during a particular year.

The number of days of stay determines the tax residential status of an individual in the country. The residential status, in turn, determines which income can be taxed in India. To illustrate, typically non-residents do not have to pay tax in the country on foreign income.

The ITAT dealt with the case of a businessman who was visiting to manage his investments and business interests. The tax tribunal bench took into cognizance the extended number of days of stay available in this case, which determined the businessman as a non-resident. Accordingly, in its September 7 order, the ITAT held that foreign income of Rs 5.6 crore, which was repatriated by the businessman to his Indian bank account, would not be taxable in the country.

Bindo Kumar Singh, a director and major shareholder in a pharma and biotech company with global operations, had made several trips to India during financial year 2009-10.

According to the I-T officer, Singh had spent 148 days in India this year. The officer pointed out that this stay had exceeded the prescribed limit of 60 days. Thus, he held the businessman to be a “resident and ordinarily resident” (ROR). (See box). Individuals who are “resident and ordinarily resident” are taxed in India on their global income. Accordingly, the I-T official had sought to treat the foreign income of Rs 5.6 crore as unexplained cash credit and tax it in India.

As Singh was visiting India, the commissioner of income-tax (appeals) held that the benefit of extended stay would be available to him and the limit of 60 days would be substituted with 182 days.

Based on this, the appellate commissioner held him to be a non-resident and passed an order in his favour.

Unhappy with this order, the I-T department filed an appeal with the ITAT, which dismissed it. “Based on the facts of the case and relying on its own decisions in earlier years, the ITAT rightly held that the businessman would be eligible for the benefit of extended stay and should qualify as a non-resident. However, it is vital to note that the benefit of extended stay is granted only in case of ‘visits’ to India and not when the individual is back in India for good,” says Amarpal Singh-Chadha, tax partner and mobility leader at EY-India. “Once it is established that the taxpayer qualifies as a non-resident, he would be taxed only on income accrued or received in India, such as income from house property in India, capital gains from sale of assets in India (such as shares and house property),” adds Singh-Chadha.