Non-resident's foreign assignment salary for services abroad u/s5(2)(b), held not accruing in India; tax demand overturned.

Salary received by a non-resident for services rendered outside India was examined for taxability under s.5(2)(b) as "income accruing or arising in India." Applying the settled rule that salary accrues at the place where services are actually rendered, and noting the absence of any material showing that services were performed in India (the assessee having worked abroad and stayed in India only briefly), the Tribunal held that the employer's Indian status or payment/disbursement from India does not shift the situs of accrual to India. Consequently, foreign assignment salary for services rendered abroad was held not taxable in India, and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, on the facts found, the individual qualified as a non-resident under Section 6(1) for the relevant year based on the number of days stayed in India.

(ii) Whether salary attributable to services rendered outside India during a short-term foreign assignment, earned by a non-resident, constitutes income "accruing or arising in India" under Section 5(2)(b) merely because the employer is an Indian company and the salary is paid/disbursed from India.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Residential status under Section 6(1)

Legal framework: The Tribunal applied Section 6(1) and treated an individual staying in India for less than 182 days during the relevant year as a non-resident.

Interpretation and reasoning: It was undisputed on record that the individual stayed in India only for 29 days during the relevant previous year. On this admitted factual position, the statutory day-count test was satisfied.

Conclusion: The Tribunal conclusively held that the individual was a non-resident for the relevant assessment year.

Issue (ii): Taxability in India of foreign-assignment salary of a non-resident under Section 5(2)

Legal framework: The Tribunal applied Section 5(2), under which a non-resident is taxable only on income received in India or income accruing or arising (or deemed to accrue or arise) in India, and examined the meaning of "accrual" for salary in the context of services rendered outside India.

Interpretation and reasoning: The Tribunal treated it as a settled legal position that salary accrues at the place where services are rendered. It found that no material was brought by the assessing authority to show that the services corresponding to the disputed salary component were rendered in India; instead, it was an admitted fact that the services were rendered in the Philippines. The Tribunal rejected the view that accrual shifts to India merely because the employer is an Indian company or because the payment was disbursed from India, holding that the situs of employment and actual rendering of services determines accrual.

Conclusion: Salary relating to services rendered in the Philippines by a non-resident could not be treated as income "accruing or arising in India" under Section 5(2)(b). The addition on account of such foreign-assignment salary was held unsustainable and was directed to be deleted, with consequential direction to allow the claimed refund.

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