2014 (2) TMI 901 - AAR - Income Tax

Determination of Residential status u/s 6 of the Act - Taxability of the receipts Held that - When the assessee has come to India after leaving his employment outside India, the Explanation (a) to section 6(1)(c) will not be applicable - The total stay in India of the applicant for the preceding four years is for a period amounting to more than 365 days and total stay in India for the FY 2010-11 is for a period amounting in all to 119 days which is more than 60 days, requirements of sub-section (c) of section 6(1) is met by the applicant to become a resident in India. Taxability of proceeds received in India Conversion of ESOPs and RSUs Held that - Explanation (a) to section 6(1)(c) is applicable only in a particular year when a person leaves India - The activities mentioned need not be necessarily proof of a visit, even a person staying permanently in India also does those activities - If a person returns to India after a long period of absence there is all the more reason he or she will like to go to visit relatives and friends in different places - Those activities are not necessarily indicators of a visit - When the applicant resigns from her employment in China, the reason for return to India does not seem to be only for a visit the contention that the applicant came to India only for a visit cannot be accepted thus, Explanation (b) to section 6(1)(c) of the Act is also not applicable - the applicant s case does not fall under Explanation (a) or (b) to section 6(1)(c) of the Act and having fulfilled the requirements of section 6(1)(c) of the Act her status will be resident in India - the amount of proceeds received in India on conversion of ESOPs and RSUs awarded to her by her employer in China will be taxable in India Decided against Assessee.

Summary

Issues Involved:
1. Determination of the applicant's residential status for the financial year 2010-11.
2. Taxability in India of proceeds received from the exercise of ESOPs and RSUs granted by the applicant's employer in China.

Issue-wise Detailed Analysis:

1. Determination of the Applicant's Residential Status for the Financial Year 2010-11:

The primary issue in this case is the residential status of the applicant, which is crucial for determining the taxability of the proceeds received from ESOPs and RSUs. The applicant argued that her stay in India during the financial year 2010-11 was less than 182 days, and thus, she should be considered a non-resident under Explanation (a) to section 6(1) of the Income-tax Act, 1961. The Revenue, however, contended that the applicant's return to India after resigning from her employment in China does not qualify her for non-resident status under Explanation (b) to section 6(1) of the Act.

The Authority examined the provisions of section 6(1) of the Act, which states that an individual is considered a resident in India if they are in India for 182 days or more in a financial year, or if they have been in India for 365 days or more in the preceding four years and 60 days or more in the current year. The applicant's stay in India during the preceding four years was 407 days, and her stay in the financial year 2010-11 was 119 days, which meets the requirement of section 6(1)(c).

The Authority further analyzed whether the applicant's stay in India could be considered a visit under Explanation (b) to section 6(1). The applicant argued that her activities in India were consistent with a visit, such as meeting family and friends and traveling. However, the Authority concluded that these activities do not necessarily indicate a visit, especially since the applicant had resigned from her employment in China and did not provide evidence of leaving India for employment thereafter. Thus, the Authority held that Explanation (b) to section 6(1) is not applicable, and the applicant's status is resident in India for the financial year 2010-11.

2. Taxability in India of Proceeds from the Exercise of ESOPs and RSUs:

Given the determination of the applicant's residential status as resident in India, the next issue is the taxability of the proceeds from the exercise of ESOPs and RSUs. The applicant received these proceeds in US dollars, which were credited to her account in the USA and then remitted to her Indian savings account after conversion to Indian rupees.

The Authority concluded that since the applicant is a resident in India for the financial year 2010-11, the proceeds from the exercise of ESOPs and RSUs are taxable in India. The ruling emphasized that the residential status of the applicant directly impacts the taxability of the income received, and as a resident, the applicant is liable to pay taxes on the global income received during the relevant financial year.

Conclusion:

The Authority for Advance Rulings held that the applicant's case does not fall under Explanation (a) or (b) to section 6(1)(c) of the Income-tax Act, 1961. Consequently, having fulfilled the requirements of section 6(1)(c), the applicant's status is resident in India for the financial year 2010-11. Therefore, the proceeds received in India on conversion of ESOPs and RSUs awarded by her employer in China are taxable in India.