Sanjay Kumar. v. ACIT (IT) (2024)

🌍 Sanjay Kumar vs. ACIT (IT) – ITAT Delhi on Taxability of Salary Earned Outside India by a Non-Resident under India–UAE and India–Ireland DTAAs (2024)

📌 Background

The determination of taxability of salary income earned abroad by non-resident Indians (NRIs) continues to be a key issue in international taxation, especially for individuals working across multiple jurisdictions.

In Sanjay Kumar v. ACIT (IT) [(2024) 206 ITD 14 (Delhi)(Trib.)], the Delhi Bench of the ITAT analyzed whether salary received from foreign employers for services rendered in the UAE and Ireland could be taxed in India under Section 9(1)(ii) of the Income-tax Act, 1961.

The Tribunal ruled in favor of the assessee, holding that since the services were rendered outside India and the assessee was a non-resident, the salary could not be deemed to accrue or arise in India.

📂 Facts of the Case

• Assessee: Sanjay Kumar, an individual and a non-resident Indian (NRI) for the relevant year.
• Assessment Year: 2019–20.
• Employment Details:
  • Worked for foreign employers based in the United Arab Emirates (UAE) and Ireland.
  • Received salary income directly from those foreign employers for services rendered abroad.
• Tax Return:
  • Declared his residential status as non-resident under Section 6 of the Income-tax Act.
  • Claimed that the salary earned abroad was not taxable in India.
• Assessing Officer’s (AO) Stand:
  • The AO included the foreign salary income in the assessee’s total income, holding that it was “received” in India or “deemed to accrue” under Sections 5 and 9(1)(ii).
• CIT(A)’s View:
  • Confirmed the addition made by the AO without appreciating the nature of services rendered outside India.
• Assessee’s Appeal:
  • Argued that since the entire employment and services were outside India, and no salary was credited or received in India, the income should not be taxed in India.

❓ Point of Dispute

Whether salary income earned abroad by a non-resident individual for services rendered outside India is taxable in India under Section 9(1)(ii), and whether the same is protected under India–UAE and India–Ireland DTAAs.

📑 Submissions by the Assessee

• Non-Resident Status:
  The assessee qualified as a non-resident under Section 6(1) of the Income-tax Act.
• Services Rendered Outside India:
  • All employment activities were performed in UAE and Ireland, outside Indian territory.
  • The assessee did not render any services in India during the relevant financial year.
• No Receipt in India:
  • Salary was credited and received in foreign bank accounts outside India.
  • Hence, the income neither accrued nor was received in India under Section 5(2).
• No Rest or Leave Period in India:
  • The assessee did not have any rest period or leave in India preceded or succeeded by services rendered outside India.
  • Therefore, the salary cannot be linked to India for tax purposes.
• DTAA Protection:
  • Under Article 15 (Dependent Personal Services) of the India–UAE DTAA and India–Ireland DTAA, employment income is taxable only in the country where services are performed.
  • Since the services were rendered abroad, India had no right to tax.
• Judicial Precedents Cited:
  • ITO v. Prahlad Vijendra Rao (2011) 12 ITR (Trib) 1 (Bang)
  • DCIT v. Sudhir Kumar Sharma (ITA No. 187/JP/2017, ITAT Jaipur)
  • Arun Kumar Bhatia v. ITO (2019) 177 ITD 255 (Mum)

📑 Submissions by the Revenue

• The Revenue contended that the salary was income accruing to a resident Indian citizen, and hence taxable under Section 5(2)(b) read with Section 9(1)(ii).
• Claimed that even though services were performed abroad, the source of employment was connected to India, attracting the deeming provisions.
• Further argued that the foreign remittance or repatriation of income constituted receipt in India.

⚖️ Legal Principles & Tribunal’s Findings

1. Scope of Income under Section 5

The Tribunal clarified that under Section 5(2), income of a non-resident is taxable in India only if it is:

• Received in India, or
• Deemed to accrue or arise in India.

Since the salary was paid and received outside India, the first condition failed.

2. Application of Section 9(1)(ii) – “Services Rendered in India”

Section 9(1)(ii) provides that income by way of salary shall be deemed to accrue or arise in India if it is earned for services rendered in India.
The Tribunal noted that:

• The assessee’s services were performed entirely outside India in the UAE and Ireland.
• The AO did not establish that any part of the employment related to duties performed in India.

Thus, the deeming fiction under Section 9(1)(ii) could not be invoked.

3. No Rest or Leave Period in India

The Tribunal highlighted that the assessee neither had any rest period nor any leave period connected with employment outside India.
Following earlier decisions, such periods are relevant only if employment continues in India during rest/leave time — which was not the case here.

4. DTAA Provisions – Articles 15 (UAE) & 16 (Ireland)

The Tribunal relied on Article 15 (Dependent Personal Services) of both DTAAs:

“Salaries and other similar remuneration derived by a resident of a contracting state in respect of employment shall be taxable only in that state unless the employment is exercised in the other contracting state.”

Since employment was exercised entirely abroad, taxation was limited to the country of employment (UAE and Ireland).

5. Tribunal’s Conclusion

The Tribunal held that:

• The assessee’s salary income did not accrue or arise in India.
• The non-resident status and offshore employment were undisputed.
• Therefore, salary was exempt from Indian taxation.

🏁 Held

✅ The assessee was a non-resident under Section 6.
✅ Salary was earned for services rendered outside India in the UAE and Ireland.
✅ There was no rest/leave period connecting the salary to India.
✅ Salary did not accrue or arise in India under Section 9(1)(ii).
✅ Under the India–UAE and India–Ireland DTAAs, salary was taxable only abroad.
✅ The addition made by the AO was deleted.

✅ Practical Impact for Taxpayers

• Clarity for NRIs: Non-residents earning salary abroad for services rendered outside India are not taxable in India, even if remitted later.
• DTAA Relief Reinforced: Employment income is taxable only in the country of actual service under DTAAs.
• Leave/Rest Rule: Absence of rest or leave linked to Indian duties strengthens the claim of foreign-sourced income.
• Important for Global Professionals: This case provides guidance for Indians working overseas, especially in aviation, shipping, oil & gas, and consulting sectors.

🔑 Key Takeaways

1. Services Rendered Outside India ≠ Taxable in India: Section 9(1)(ii) applies only if duties are performed in India.
2. Non-Resident Protection: NRIs are taxed only on income received or accruing in India.
3. Rest/Leave Period Test: Relevant only if tied to employment exercised in India.
4. DTAAs Prevail: Articles 15 and 16 restrict India’s taxing rights when employment is wholly outside India.

📢 Why This Case Matters

The Sanjay Kumar (2024) decision strengthens the principle that residential status and location of services determine taxability of salary income.

It safeguards NRIs and expatriate professionals from double taxation, aligning Indian law with international standards of source-based taxation under DTAAs.

This ruling also serves as a practical precedent for employees in multi-jurisdictional roles, ensuring fair application of tax laws when services are rendered exclusively outside India.

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