Self-Employment like Business or Profession to be included under meaning of “Employment” mentioned under Section 6 of Income Tax Act, 1961.

Background: Nishant Kanodia (Assessee), leaves India and relocated to Mauritius to work as a Strategist at Firstland Holding Limited (company) wherein he was holding 100% shares of the company. The Assessee stayed in India for 176 days only during the relevant previous year. The Assessee mentioned its residential status as non-resident while filing return of income in India and does not include his global income in total income which was offered for taxation in India. He relies on Explanation 1(a) of Section 6(1) of the Act, which extends the 60-day threshold for determining residential status to 182 days for individuals leaving India for the purpose of employment abroad. The Assessing Officer (AO) disputed the Assessee’s non-resident status, arguing that since he entered Mauritius on a Business Visa, not an Employment Visa, it will not constitute leaving India for employment abroad and will not be governed by the provisions of Explanation 1(a) of Section 6(1) of the Act. Furthermore, as the Assessee held 100% shareholding in the company and lacked a work permit in Mauritius, the AO contented that appointment letter and salary slips provided by the Assessee are self-serving documents and hence not relevant for determining the applicability of Explanation 1(a) of Section 6(1) of the Act.

Controversy:The Assessee’s stance is that he is a non-resident under Explanation 1(a) of Section 6(1), contending departure from India for employment outside India. Conversely, the AO argues that since the Assessee left India for business purposes, he is ineligible for the Explanation 1(a) benefit, thus he shall be treated as a resident person of India. The pivotal question is- Whether “leaves India for the purpose of employment outside India” includes “leaves India for the purpose of self-employment like business or profession”?

Court’s Ruling: The court relied on the judgement in the case of Hon’ble Kerala High Court in CIT v/s O. Abdul Razak, [2011] 337 ITR 350 (Ker.) wherein the court by referring to the CBDT Circular no.346 dated 30/06/1982 held that no technical meaning can be assigned to the term “employment” used in the explanation, therefore going abroad for the purpose of employment also includes going abroad to take up self–employment like business or profession. The Hon’ble Kerala High Court, however, held that the term “employment” should not mean going outside India for purposes such as tourists, medical treatment, studies, or the like. Accordingly, the Hon’ble ITAT has decided the matter in the favour of Assessee and dismissed the appeal preferred by the AO.

SW Point of View:The case deals with harmonious interpretation of taxing statute.  The provisions of Income Tax Act uses the word ‘for the purposes of employment’, however, including self-employment in it for the purposes of Section 6 is a welcome interpretation.  There are many instances where in a person is employed as key management person in the company in which he is a shareholder.  Thus, irrespective of nature of holding, employment shall be defined to include self-employment.  This interpretation is in sync with the exchange regulations (FEMA), where in ‘leaving India for the purposes of carrying business outside India’ is also a condition to be held as Non-resident. 

Case: [2024] 158 262 (Mumbai – Trib.), IN THE ITAT, MUMBAI BENCH ‘B’, Assistant Commissioner of Income-tax, Central Circle-5(4) v. Nishant Kanodia

Lakshay Prakash Jonwal, Direct Tax Associate, SW