Page 31 - Jignyasa-June 2020

This gives rise to various doubts in residential status will be changed to
understanding the context of the terms Resident in India thereby affecting their
- not liable to tax, non-payment of tax, scope of total income in India.
exempt from tax or not subject to tax
and its application while reading section IV. Amendment 3 – New clauses
6. The term “liable to tax” is used in inserted in Section 6(6)
various DTAA’s (Double Tax Avoidance
Agreements). There are various Indian A. Concerns arising from the
judicial pronouncements which have dealt Finance Bill 2020 leading to the
with such issues including landmark amendment
Supreme Court judgement in the case of The amendments in Section 6(1) and
Union of India v. Azadi Bachao Andolan Section 6(1A) raised concerns amongst
[2003] 263 ITR 706 (SC). The concept NRIs that their foreign income earned
of “not liable to tax” does not necessarily outside India would also now become
mean payment of tax. One can find taxable in India. Hence, for individuals
guidance from UK’s HMRC International getting covered under section 6(1A),
Manual which states that “It should be Government had to clarify through Press
noted that the term “subject to tax” is Release immediately after Budget was
2
different from being “liable to tax”. “Liable announced, that intention is not to tax
to tax” means that the customer only global income but only income from an
needs to be within the general scope Indian business or profession.
of tax in the UK….. On the other hand,
“subject to tax” means that the relevant
income has to be actually taxable and the B. Actual Amendment
customer cannot be exempt from tax on Finance Act 2020 has given effect to the
that income.” relaxation of Press Release by inserting
new clause (c) and clause (d) to Section
It may be worthwhile to note decisions 6(6) which provides that such Indian
in the context of “liable to tax” under Residents shall be treated as Resident but
India UAE DTAA (as it stood prior to Not Ordinary Resident (RNOR).
01-04-2008). In case of Green Emirate
Shipping & Travels [2006] 100 ITD 203 The amended Section 6(6) reads as under
(MUM), it was held that ‘liable to tax’ in (highlighted in bold):
Contracting State does not necessarily “A person is said to be “not ordinarily
imply that person should actually be resident” in India in any previous year if
liable to tax in that Contracting State
by virtue of an existing legal provision such person is—
but would also cover cases where other (a) an individual who has been a non-
Contracting State has right to tax such resident in India in nine out of
persons irrespective of whether or not the ten previous years preceding
such a right is exercised by Contracting that year, or has during the seven
State. Such decisions although in context previous years preceding that year
of DTAA may be relevant in interpreting been in India for a period of, or
the term liable to tax. periods amounting in all to, seven
hundred and twenty-nine days or
Thus these amendments impact certain
individuals since their erstwhile non- less; or

2. Press release dated 2nd February, 2020

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