NRI Residential Status & Global Income – Courts Speak with One Voice

The core issue: Can designation override residential status?

A recurring dispute in income-tax assessments is whether an NRI holding a senior position in an Indian company—such as Managing Director or Director—can be treated as a resident and taxed on global income. Tax authorities often argue that control, influence, or decision-making power in India indicates residency. Courts have consistently rejected this approach and held that residential status is a statutory concept governed strictly by Section 6 of the Income-tax Act, based only on physical presence in India.

1. Dhinakaran v. Income Tax Department – ITAT Chennai (Dec 2025)

In this recent and important ruling, the ITAT Chennai dealt with an assessee who was residing outside India but also served as Managing Director of an Indian company. The Assessing Officer attempted to tax his global income, arguing that his designation and involvement in Indian business showed effective control from India.The Tribunal categorically held that designation, authority, or business involvement is irrelevant for determining residential status. Since the assessee satisfied the non-resident day-count test under Section 6, he continued to be an NRI. Consequently, his overseas income was not taxable in India. The ruling reaffirmed that residency cannot be inferred—it must be arithmetically proven.

2. CIT v. Morgan Stanley & Co. Inc. – Supreme Court of India

The Supreme Court of India examined whether economic presence or business operations in India could alter tax status. The Court held that business connection, economic interest, or management involvement does not decide residential status. Taxability must flow strictly from statutory provisions. This judgment laid the foundation that legal tests prevail over perceived control, a principle repeatedly relied upon in later NRI cases.

3. DIT v. E-Funds IT Solution Inc. – Delhi High Court

The Delhi High Court ruled that strategic control or participation in management decisions from India does not automatically create residency. Unless the Section 6 stay conditions are met, an assessee cannot be treated as a resident. The Court warned against importing subjective concepts like “management influence” into a statute that provides clear, objective tests.

4. Pradeep J. Mehta v. ACIT – ITAT Mumbai

In this case, the ITAT Mumbai dealt with an individual who was a director in Indian companies and made frequent visits to India. The department sought to tax his foreign income. The Tribunal held that directorship and repeated visits do not matter unless the prescribed number of days is exceeded. The assessee was held to be an NRI, and his global income remained outside Indian taxation.

5. Suresh Nanda v. ACIT – ITAT Delhi

The ITAT Delhi reiterated that business interests, shareholding, or influence in Indian entities do not convert an NRI into a resident. Only income that accrues or arises in India can be taxed. The Tribunal clearly stated that global income of an NRI cannot be taxed merely on suspicion or perception.

Conclusion: Residency is arithmetic, not authority

Across Supreme Court, High Courts, and ITATs, the judicial message is uniform: residential status depends solely on physical presence in India as defined under Section 6. Titles such as Managing Director, control over Indian businesses, or strategic decision-making do not override the law. The Dhinakaran ruling strengthens this settled position and offers strong protection to NRIs involved in Indian businesses, confirming that India’s taxing rights are limited to Indian-source income, while global income remains taxable only in the country of residence, subject to DTAA provisions.