The ITAT Chennai verdict underscores that substance prevails over labels, and that senior professionals working overseas should not be denied non-resident status merely because of their designation, provided they meet the legal criteria laid down in the Income Tax Act.
A recent ruling by the Income Tax Appellate Tribunal (ITAT), Chennai, has brought much-needed clarity for Non-Resident Indians (NRIs), especially senior professionals working overseas. In its order dated October 31, 2025, the tribunal held that merely holding a high-ranking designation such as “managing director” does not automatically disqualify an individual from being treated as an employee for income tax purposes.
The judgment arose from a case involving Mr. Dhinakaran, an Indian citizen who had moved to the United States in 2011 to take up employment with a US-based tax-exempt organisation. For several assessment years between 2015-16 and 2018-19, he filed his income tax returns in India as a non-resident, declaring only income that accrued or arose in India, as permitted under the Income Tax Act.
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Under Indian tax law, NRIs are liable to tax in India only on income earned or sourced within the country. Their global income remains outside the Indian tax net, provided they qualify as non-residents under Section 6 of the Income Tax Act, 1961
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Explanation 1(a) to Section 6(1) specifically states that an Indian citizen who leaves India for employment abroad will not be treated as a resident unless they stay in India for 182 days or more during the relevant financial year
However, following a search operation under Section 132, the tax department took a different view. The Assessing Officer treated Mr. Dhinakaran as a resident, citing Sections 6(1)(a) and 6(1)(c), and proceeded to tax his global income. This included foreign bank deposits and overseas credit card expenses. The department argued that since he held a managerial or controlling role in the US entity, he could not be considered an “employee” for the purposes of Explanation 1(a).
The ITAT firmly rejected this interpretation. It observed that the term “employment” in the statute does not draw any distinction based on designation, authority, or seniority. What matters, the tribunal noted, is the existence of a genuine employer–employee relationship governed by a contract of service. Whether an individual works in a junior role or as a senior executive is irrelevant for determining residential status under this provision.
Chartered Accountant Suresh Surana, summarising the ruling, pointed out that the tribunal’s decision reinforces a settled principle: tax residency depends on statutory conditions, not job titles. The ruling offers significant relief to NRIs in leadership or executive positions abroad, who often face scrutiny during assessments.
