1988 (2) TMI 104 - AT - Income Tax

Appellate Tribunal rules income earned abroad not taxable under Income Tax Act sec. 6(1)

MS Patwardhan. Versus First Income-Tax Officer.

MS Patwardhan. Versus First Income-Tax Officer. - ITD 027, 365, Issues:Interpretation of sec. 6(1) of the Income Tax Act - Whether the assessee's stay in India can be considered as leave or vacation for the purpose of exemption from tax on income earned abroad.Analysis:The case involved an individual assessee who filed a return of income for the assessment year 1980-81, declaring a total income below the taxable limit. The assessee was employed with M/s. Iraqi State Enterprises for Maritime Transport and claimed non-resident status. However, the Income Tax Officer (ITO) held the assessee as a resident due to his stay in India during the relevant period.The Central Income Tax (CIT) Appeals confirmed the ITO's decision, stating that the assessee effectively terminated his employment outside India by not returning to the previous employer. The CIT (Appeals) concluded that the period spent in India was neither leave nor vacation as per the Explanation to sec. 6(1) of the IT Act.The assessee's advocate argued that sec. 6(1) only required the individual to be rendering services outside India, not necessarily employed at the time of leave or vacation in India. The advocate also highlighted the subsequent amendment to sec. 6(1) in 1982, replacing 'leave or vacation' with 'visit' to avoid ambiguity.The Departmental Representative relied on the Finance Minister's speech, interpreting that vacation could only be granted if the individual was in employment. The representative contended that since the assessee changed employment, his stay in India could not be considered as leave or vacation.The Appellate Tribunal analyzed the contract of employment and the nature of the assessee's job, concluding that the period spent in India could be deemed as leave or vacation. The Tribunal emphasized the distinction between 'leave' and 'vacation,' stating that the assessee had earned sufficient leave under the contract. The Tribunal also noted that subsequent legislation supported the assessee's case and that officers like the assessee, who change employment on a contract basis, should not be deprived of the benefits under sec. 6(1).Ultimately, the Appellate Tribunal allowed the appeal, holding that the assessee's income earned abroad would not be subjected to tax under sec. 6(1) of the Income Tax Act.