Listen to this article in summarized format
On October 31, 2025, the Income Tax Appellate Tribunal (ITAT) Chennai ruled that just because someone holds the title of managing director, it doesn’t mean they aren’t considered an employee. This judgement came against the backdrop of a case filed by Mr.Dhinakaran, who found his global income taxed in India even though he is an NRI.
Income Tax Guide
Income Tax Slabs FY 2025-26Income Tax Calculator 2025New Income Tax Bill 2025
For those who might not know, only the income earned in India by an NRI can be taxed here, while their global income should be exempt. In Mr. Dhinakaran’s situation, he was taxed as if he were resident of India, missing out on the benefits of Section 6(1) of the Income Tax Act, 1961.
Explanation 1(a) to section 6(1) of the Income Tax Act provides that “an individual who is a citizen of India and who leaves India in any previous year for the purposes of employment outside India shall not be treated as resident unless he stays in India for 182 days or more during that year”. However, the income tax department said that Mr. Dhinakaran held a managerial or controlling position in JCI (USA) and, therefore, should not be considered an “employee” for the purpose of Explanation 1(a).
ITAT Chennai rejected this position taken by the income tax department and said: “The expression “employment” used in the statute does not make any distinction based on designation or seniority. Whether the individual serves in a junior capacity or as a senior executive, what is material is the existence of a contractual relationship of service.”
Summary of the judgement
Chartered Accountant Suresh Surana, said to ET Wealth Online: In the given case (ITAT Nos.1562, 1563, 1591 & 1592/Chny/2025), the taxpayer is an Indian citizen who had left India in 2011 to take up employment with USA based tax-exempt organization incorporated in the United States. For the assessment years (AYs) 2015-16 to 2018-19, he filed his rincome tax returns (ITRs) declaring income in the status of a Non-Resident, disclosing only income accruing or arising in India.
Surana says that following a search under Section 132, the Assessing Officer (AO) treated him as a Resident under Section 6(1)(a) and (c) and consequently taxed his global income, including deposits in foreign bank accounts and credit card expenses incurred abroad.
Surana says that the CIT(A) deleted these additions after verifying detailed documentation such as the taxpayer’s employment contract, Form 990 filings of JCI-USA, U.S. tax returns, and employment (L-1) visa and concluded that the taxpayer had left India for the purpose of employment and remained employed abroad throughout the relevant years. The Revenue appealed to the Chennai ITAT.
Also read: UAE based taxpayer earned Rs 4 crore income in India on which TDS was deducted but didn’t file ITR, got tax notice; wins case in ITAT Delhi
Tribunal’s Findings and Case Rationale
According to Surana, the ITAT upheld the CIT(A)’s order, confirming that the taxpayer was correctly treated as a Non-Resident under Section 6(1) read with Explanation 1(a) of the Income-tax Act, 1961 (hereinafter referred to as ‘the IT Act’). The Tribunal observed that:
- The taxpayer’s employment with JCI-USA was substantiated through multiple evidences such as formal offer letter, payroll records, Form 990 disclosures to the U.S. tax authorities, U.S. income-tax returns reflecting salary from JCI-USA, and the L-1 visa specifying JCI-USA as employer. These documents conclusively proved a contractual relationship of employment.
- The Revenue’s argument that the taxpayer’s senior role as “President” precluded him from being treated as an “employee” was rejected. The Tribunal clarified that the term “employment” in Explanation 1(a) does not distinguish between junior or senior positions; the crucial test is whether a contract of service exists and remuneration is paid for such employment.
- The Tribunal emphasized that the residential status test is quantitative and objective, determined solely by the number of days of stay in India. Passport and travel records examined by the CIT(A) showed that the taxpayer’s stay in India was less than 182 days in each relevant year, satisfying the statutory non-residency requirement.
- The Department produced no contrary material to disprove the taxpayer’s employment or stay pattern. Once the statutory test is satisfied, non-residency cannot be disturbed on presumptions regarding control, family ties, or management influence
Surana says that the taxpayer prevailed because he proved continuous employment abroad and satisfied the quantitative conditions of non-residency under Section 6(1) r.w. Explanation 1(a). The Tribunal held that his senior managerial designation did not alter the character of employment and that the CIT(A)’s findings were fully supported by documentary evidence.
Surana says: “Accordingly, the ITAT affirmed that he was a Non-Resident for all four assessment years, rendering his foreign income exempt from Indian taxation and upholding deletion of the corresponding additions.”
Also read: Dubai-based taxpayer gets I-T notice for unexplained investment in Rs 2 crore Mumbai property; he fights back and gets relief from ITAT Mumbai
ITAT Chennai analysed the facts of the case
ITAT Chennai in its judgement (ITA Nos.1562, 1563, 1591 & 1592/Chny/2025) dated October 31, 2025 said that the issue before us revolves around the determination of the residential status of the assessee under Section 6(1) of the Income-tax Act, 1961, and the consequent taxability of income earned abroad during the relevant assessment years.
It is an undisputed fact that the assessee (Mr. Dhinakaran) has filed ITRs for all four assessment years under consideration in the status of a Non-Resident (NRI). The Assessing Officer, however, has treated him as a Resident, thereby bringing to tax his global income on the reasoning that he satisfied the basic conditions under Section 6(1)(a) and (c).
The CIT(A), after examining the documentary evidence placed on record, has given a categorical finding that Mr. Dhinakaran had left India in 2011 for employment with M/s. Jesus Calls International, USA (JCI-USA) and continued to work there during all the relevant years. This conclusion is based on multiple pieces of corroborative evidence, namely:
(i) The incorporation documents of JCI (USA), showing it as a registered tax-exempt organization in the United States.
(ii) The employment offer letter dated 01.08.2011 issued by JCI (USA), appointing the assessee as its President with defined remuneration and responsibilities.
(iii) The Form 990 Returns filed by JCI (USA) before the U.S. tax authorities for each year from 2011 to 2019, which mandatorily disclose compensation paid to key managerial personnel.
These returns clearly mention the assessee’s (Mr. Dhinakaran’s) name as “President” and reflects the annual remuneration paid to him, along with confirmation of full-time engagement (30–40 hours per week).
(iv) The individual U.S. tax returns filed by the assessee for the years under appeal, wherein he disclosed wages and salary income received from JCI (USA) and paid taxes thereon.
(v) The L1 employment visa issued by the U.S. Government, categorically naming JCI (USA) as the sponsoring employer.
ITAT Chennai says MDs are also employees if their employment contract says so
ITAT Chennai said that on a cumulative consideration of these materials, the CIT(A) found that the assessee (Mr. Dhinakaran) was employed abroad during the relevant years and is well supported.
ITAT Chennai said: “Consequently, the benefit of Explanation 1(a) to Section 6(1) of the Act, which provides that “an individual who is a citizen of India and who leaves India in any previous year for the purposes of employment outside India shall not be treated as resident unless he stays in India for 182 days or more during that year”, squarely applies to the assessee’s case.”
ITAT Chennai said that the contention of the Income Tax Departmental Representative that the assessee (Mr. Dhinakaran) held a managerial or controlling position in JCI (USA) and, therefore, should not be considered an “employee” for the purpose of Explanation 1(a) is devoid of merit.
ITAT Chennai said: “The expression “employment” used in the statute does not make any distinction based on designation or seniority. Whether the individual serves in a junior capacity or as a senior executive, what is material is the existence of a contractual relationship of service.”
ITAT Chennai said that the documentary evidence establishes that he was under a contract of employment and received fixed compensation, which was duly subjected to U.S. income tax. Therefore, his role as President does not negate the character of employment.
ITAT Chennai upheld’s CIT (A)’s test of residence
ITAT Chennai said that the test of residence is quantitative and objective, depending on the number of days of stay in India. The CIT(A) has examined Mr. Dhinakaran’s passport entries and travel records, which establish that his stay in India during each of the four previous years was for less than 182 days.
ITAT Chennai says: “This factual finding has not been rebutted by the Department. Once the statutory condition of residence is not met, the status of Non-Resident cannot be disturbed merely on assumptions regarding control or family association.”
The ITAT Chennai said that the CIT(A) has meticulously examined all evidence and recorded a reasoned finding. The Department has not placed any new material on record to rebut the findings or demonstrate any factual or legal infirmity in the CIT(A)’s order.
ITAT Chennai judgement
In view of the foregoing discussion, ITAT Chennai held that the assessee was correctly treated as a Non-Resident under Section 6(1) read with Explanation 1(a) of the Act for all the four assessment years in question.
ITAT Chennai said: “Consequently, the additions made by the Assessing Officer towards deposits in foreign bank accounts and foreign credit card expenses, which relate to foreign-sourced income, have been rightly deleted by the CIT(A). Accordingly, the appeals filed by the Revenue are dismissed.”
ITAT Chennai said:
- We have considered the rival submission. The A.O has made the addition of a gift of Rs 3,31,350 in A.Y 2016-17 and Rs 90,012 in A.Y 2018-19 as the gift shown in return of income is less than gift recorded in the seized documents.
- So far as A.Y 2016-17 and A.Y 2018-19 are concerned, we find that there was incriminating material in the form of seized material that gift recorded in seized material was more than gift shown in the IT return, therefore the A.O has jurisdiction to make addition in assessment made u/s 153 as per decision of Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd.
- As regards to other years, the entire addition made on deposits in foreign bank accounts and credit card expenses have been deleted by Ld. CIT(A) and the same has been upheld, therefore the C.Os become academic and infructuous.
- Accordingly, the cross-objections filed by the assessee are dismissed.
aniltikotekar4sme.com 