2006 (8) TMI 280 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of salary and bonus received outside India by an assessee with Not Ordinarily Resident (NOR) status.
2. Determination of the residential status of an assessee.
3. Applicability of section 5(1)(c) and section 9(1)(ii) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Salary and Bonus Received Outside India by an Assessee with NOR Status:

In the case of Shri Hiromi Hirose, the revenue contended that the salary and bonus received by the assessee outside India should be taxable in India under section 5(1)(c) of the Income-tax Act. The Assessing Officer held that since the assessee's employment terms obligated him to look after activities from his base in New Delhi, the salary received outside India was taxable in India. However, the CIT(A) concluded that the salary for the period during which the assessee worked outside India was not taxable in India, as the services were rendered outside India and there was no territorial nexus with India. The Tribunal, after considering the arguments and evidence, concluded that the whole of the salary and bonus accrued to the assessee in India. The Tribunal held that the travel abroad was inextricably linked with the assessee's functions as Chief of News Bureau Office, New Delhi, and thus, the entire salary was taxable in India.

2. Determination of the Residential Status of an Assessee:

In the case of Shri Hamada Haryuki, the revenue initially contested the residential status of the assessee. However, the learned DR conceded that the correct residential status of the assessee was Non-Resident (NR). Therefore, the issue of residential status did not survive, and the Tribunal did not need to address this issue further.

3. Applicability of Section 5(1)(c) and Section 9(1)(ii) of the Income-tax Act:

The Tribunal examined whether the provisions of section 9(1)(ii) or section 5(1)(b) were applicable in the case of Shri Hiromi Hirose. The Tribunal referred to various legal precedents and concluded that the salary for services rendered outside India was inextricably linked to the assessee's employment in India. The Tribunal also noted that the salary structure did not change during the periods of travel, and the assessee continued to occupy rent-free accommodation in India throughout the year. Therefore, the entire salary was considered to have accrued in India. In the case of Shri Hamada Haryuki, the Tribunal found the facts to be similar to the case of Shri Hiromi Hirose and applied the same reasoning to conclude that the entire salary and bonus were taxable in India under section 5(2)(b), which is identical to section 5(1)(b) for a NOR.

Conclusion:

In both cases, the Tribunal concluded that the entire salary and bonus received by the assessees were taxable in India, as the services rendered outside India were inextricably linked to their employment in India. The appeals of the revenue were allowed, and the orders of the Assessing Officer were restored.