Foreign pension first received in Malaysia was held outside Indian tax chargeability for a resident but not ordinarily resident assessee.

Pension first credited in Malaysia and only later remitted to India was treated as first received outside India, so the income did not fall within Indian chargeability under section 5 of the Income-tax Act, 1961. For a resident but not ordinarily resident assessee, foreign-accruing income is includible only if the statutory conditions for Indian receipt or deemed receipt are met. Article 18(3) of the India-Malaysia treaty was read consistently with that territorial rule, and the contrary reliance on the 1 April 1977 notification was held immaterial on these facts. The pension was therefore not taxable in India.

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Issues: Whether the pension received by a resident but not ordinarily resident assessee from the Government of Malaysia was taxable in India, and whether the notification dated 1 April 1977 had any relevance or application.

Analysis: The decisive fact was that the pension was first credited in Malaysia and only thereafter remitted to India. On that basis, the first receipt and control over the income arose outside India. The agreement between India and Malaysia, particularly Article 18(3), was read consistently with section 5 of the Income-tax Act, 1961, which governs territorial chargeability and inclusion of income received or deemed to be received in India. Since the assessee was resident but not ordinarily resident, income accruing or arising outside India was not includible unless the statutory conditions were met. The Court treated the pension as received abroad in the first instance and therefore outside Indian taxability. The result rendered any contrary reliance on the notification immaterial.

Conclusion: The pension was not taxable in India, and the answer was against the Revenue and in favour of the assessee.

Final Conclusion: The reference was answered for the assessee on the ground that the pension had its first receipt outside India and was not chargeable to Indian tax on the facts found.

Ratio Decidendi: Pension first received and controlled outside India by a resident but not ordinarily resident assessee is not taxable in India where the treaty and section 5 of the Income-tax Act do not bring it within Indian chargeability.

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