Exemption of Long term Capital Gain Tax on Transfer of Residential Property (House or Plot of land) if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company [Section 54GB]

Section 54GB of the Act, provides for exemption of capital gain which arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company.

Text of Section 54GB

^[1][54GB. Capital gain on transfer of residential property not to be charged in certain cases

 (1) Where,-

(i)  the capital gain arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee (herein referred to as the assessee); and

(ii)  the assessee, before the due date of furnishing of return of income under sub-section (1) of section 139, utilises the net consideration for subscription in the equity shares of an eligible company (herein referred to as the company); and

(iii) the company has, within one year from the date of subscription in equity shares by the assessee, utilised this amount for purchase of new asset,

then, instead of the capital gain being charged to income-tax as the income of the previous year in which the transfer takes place, it shall be dealt with in accordance with the following provisions of this section, that is to say,-

(a) if the amount of the net consideration is greater than the cost of the new asset, then, so much of the capital gain as it bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45 as the income of the previous year; or

(b) if the amount of the net consideration is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 as the income of the previous year.

(2) The amount of the net consideration, which has been received by the company for issue of shares to the assessee, to the extent it is not utilised by the company for the purchase of the new asset before the due date of furnishing of the return of income by the assessee under section 139, shall be deposited by the company, before the said due date in an account in any such bank or institution as may be specified and shall be utilised in accordance with any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and the return furnished by the assessee shall be accompanied by proof of such deposit having been made.

(3) For the purposes of sub-section (1), the amount, if any, already utilised by the company for the purchase of the new asset together with the amount deposited under sub-section (2) shall be deemed to be the cost of the new asset:

PROVIDED that if the amount so deposited is not utilised, wholly or partly, for the purchase of the new asset within the period specified in sub-section (1), then,-

(i) the amount by which -

(a) the amount of capital gain arising from the transfer of the residential property not charged under section 45 on the basis of the cost of the new asset as provided in sub-section (I) , exceeds—

(b) the amount that would not have been so charged had the amount actually utilised for the purchase of the new asset within the period specified in sub-section (1) been the cost of the new asset,

shall be charged under section 45 as income of the assessee for the previous year in which the period of one year from the date of the subscription in equity shares by the assessee expires; and

(ii) the company shall be entitled to withdraw such amount in accordance with the scheme.

(4) If the equity shares of the company or the new asset acquired by the company are sold or otherwise transferred within a period of five years from the date of their acquisition, the amount of capital gain arising from the transfer of the residential property not charged under section 45 as provided in sub-section (1) shall be deemed to be the income of the assessee chargeable under the head”Capita1 gains” of the previous year in which such equity shares or such new asset are sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of shares or of the new asset, in the hands of the assessee or the company, as the case may be:

^[2][PROVIDED that in case of a new asset, being computer or computer software, acquired by an eligible start-up referred to in the proviso to clause (d) of sub-section (6), the provisions of this sub-section shall have effect as if for the words “five years”, the words “three years” had been substituted].

(5) The provisions of this section shall not apply to any transfer of residential property made after the 31st day of March, 2017:

^[3][PROVIDED that in case of an investment in eligible start-up, the provisions of this sub-section shall have the effect as if for the figures, letters and words “31st day of March, 2017”, the figures, letters and words “31st day of March, ^[4][2022]had been substituted];

(6) For the purposes of this section,—

(a) “eligible assessee” means an individual or a Hindu undivided family;

(b) “eligible company” means a company which fulfils the following conditions, namely:-

 (i) it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to the assessment year in which the capital gain arises to the due date of furnishing of return of income under sub-section (1) of section 139 by the assessee;

(ii) it is engaged in the business of manufacture of an article or a thing ^[3][or in an eligible business];

(iii) it is a company in which the assessee has more than ^[5][twenty-five] per cent share capital or more than ^[5][twenty-five] per cent voting rights after the subscription in shares by the assessee; and

(iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 (27 of 2006) ^[3][or in an eligible business;]

^[3][(ba) “eligible start-up” and “eligible business” shall have the meanings respectively assigned to them in Explanation below sub-section (4) of section 80-IAC];

(c) “net consideration” shall have the meaning assigned to it in the Explanation to section 54F;

(d) “new asset” means new plant and machinery but does not Include -  

(i)   any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;

(ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;

(iii) any office appliances including computers or computer software;

(iv) any vehicle; or

(v)  any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year:

^[3][PROVIDED that in the case of an eligible start-up, being a technology driven start-up so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette, the new asset shall include computers or computer software.]

KEY NOTE

1. Inserted by the Finance Act, 2012, with effect from 01.04.2013.

2. Inserted by the Finance (No. 2) Act, 2019, with effect from 01.04.2020.

3. Inserted by the Finance Act, 2016, with effect from 01.04.2017.

4. Substituted for “2021” by the Finance Act, 2021, with effect from 01.04.2021.

5. Substituted for “fifty" the Finance (No. 2) Act, 2019, with effect from 01.04.2020.

Who can claim exemption?

Only Individual and Hindu Undivided Family (HUF) can claim exemption Which original asset is qualified for exemption? (i.e., Capital gains arising from transfer of)

The capital gain arises from the transfer of a long-term capital asset, being a residential property (house or a plot of land) owned by the eligible assessee, i.e., individual and HUF.

Assets to be acquired for exemption (i.e. Investment to be made)

The sale consideration shall be invested in the equity shares of a new start-up Small and Medium Enterprises (SME) company in the manufacturing company. In turn the company must utilize the amount for the purchase of new plant and machinery.

NOTE

1. With effect from 01.04.2017, eligible start-up is also included in definition of ‘eligible company’.

2. The eligible company should utilize the amount of subscription for purchase of new assets (i.e., plant and machinery except vehicle, office appliances, computer or computer software etc.). However, In the case of eligible start-up, the new asset shall include computers or computer software.

Conditions to be satisfied for availing tax relief in respect of capital gains by investment in shares of a company which is “Eligible start-up”

The exemption under section 54GB shall be allowed if the following conditions are satisfied :—

(i)     There should be a long-term gain from the transfer of a residential property (i.e., a house or  plot of land) owned by the eligible assessee (i.e., individual or Hindu undivided family).

(ii)    Such long-term capital gain should arise to an individual or HUF.

(iii)   Transfer of such long-term capital asset should be made on or before 31.03.2022

(iv)   The company should be engaged in the business of manufacture of an article or a thing.

(v)    The assessee will not be able to transfer the above shares for a period of 5 years.

(vi)   The above new plant and machinery acquired by the company cannot be sold for a period of 5 years.

(vii)  The amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under section 139(1), for subscription in equity shares in the Small and Medium Enterprises (SME) company in which he holds more than 25% share capital or more than 25% voting rights.

(viii) The amount of subscription as share capital is to be utilized by the Small or Medium Enterprises (SME) company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares by the assessee.     

(ix)   If the amount of net consideration subscribed as equity shares in the Small and Medium Enterprises (SME) company is not utilized by the Small and Medium Enterprises (SME) for the purchase of plant and machinery before the due date of filing of return by the individual or HUF, the utilized amount shall be deposited under the deposit scheme to be prescribed in this behalf.

(x)   Investment in eligible start-up which is LLP will not qualify for section 54GB relief.

 

Period during which exemption available

Residential properties transferred between 01.04.2012 and 31.03.2022 are eligible for exemption under section 54GB.

Time limit for acquiring the new assets

(a) Investment by the assessee - Before due date for furnishing of return under Section 139(1).

(b) Investment by the company - purchase new asset within 1 year from date of subscription in

equity shares by the assessee.

E.g.: In the aforesaid case, Mr. X is required to subscribe in the equity shares of an eligible

company within the due date of furnishing income tax return for the relevant assessment

year (i.e. 31.07.2024 assuming his accounts are not liable for audit). If Mr. X has subscribed

in equity capital of eligible company on 15/12/2023, then company should acquire new

asset within 1 year from 15.12.2023

Amount of exemption available under section 54GB

The amount of exemption available under section 54GB is as under :

 

Particulars	Amount of exemption
If entire net consideration is invested	Entire capital gain would be exempt
If the cost of new asset is less than net sale consideration of the transferred asset	Proportionate capital gain would be exempt in following manner - (investment in new asset * capital gain)/ net consideration.

 

“Net Consideration”

Full value of consideration (-) any expenditure exclusively incurred on account of transfer.

“New Asset” means

The term ‘new asset’ means new plant and machinery. However, the term ‘new asset’ does not include the following —

(i) The plant or machinery being installed in any office premises or any residential accommodation (including accommodation in guest house).

(ii) The plant or machinery which has been used prior by any other person within or outside India.

(iii) Any type of vehicle.

(iv) Any type of office appliances (including computer or computer software).

(v) The plant or machinery where whole of the actual cost is allowed as deduction in computing the income chargeable under the head ‘Profit and gains of business or profession’ of any previous year.

 

Eligible company

The company that satisfies the following conditions is termed as ‘eligible company’-

(i)  The company should have been incorporated in India.

(ii) The company should have been incorporated during the previous year in which the capital gain has arisen to the subsequent financial year up to the due date of furnishing of the income-tax return.

E.g.: If Mr. X has transferred his residential property as on 10.08.2023, then company should be incorporated between 01.04.2023 and due date of furnishing return under section 139(1) by Mr. X (i.e. 31.07.2024 assuming his accounts are not liable for audit).

(iii) The company is engaged in the business of manufacturing of an article or a thing or in an eligible business; and

(iv) The company in which the assessee has more than 25% (50% upto 31.03.2019) share capital or more than 25% voting rights after the subscription in equity shares by the assessee.

(v) The company should qualify to be a medium or small enterprise under the Micro, Small and Medium Enterprises Act, 2006 or the same is an eligible start-up.

 

Enterprises	Investment in Plant & Machinery
Micro Enterprises	Does not exceed Rs. 25,00,000
Small Enterprises	More than Rs. 25,00,000 but does not exceed Rs. 5,00,00,000
Medium Enterprises	More than Rs. 5,00,00,000 but does not exceed Rs. 10,00,00,000

 

Points to Remember while Investing in SMEs under Section 54GB

Here are some points that an individual must keep in mind while investing in SMEs under Section 54GB:

(a)          The investment must be made only in equity shares of eligible SMEs.

(b)         The SME must utilize the funds raised from the sale of equity shares for the purpose of expanding its business.

(c)          The investment in eligible SMEs must be made within six months from the date of sale of the residential property.

(d)         The equity shares of the SMEs must be held for a minimum period of five years to be eligible for tax exemption under Section 54GB.

(e)          Investment limit : The maximum amount that can be invested in eligible SMEs is Rs. 50 lakh. Any investment made above this limit will not be eligible for tax exemption under Section 54GB.

 

Eligible Business means [Explanation below section 80-IAC(4)]

“Eligible business” means a business carried out by an eligible start-up engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;

 

What is an eligible start up? [Explanation below section 80-IAC(4)]

A company or a LLP which satisfied the following conditions and is engaged in above mentioned eligible business

(a)         It is incorporated on or after 01.04.2016 but before 01.04.2024

(b)         Total turnover does not exceed 100 crore in the previous year

(c)         It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified by the Central Government.

 Capital Gain Deposit Account Scheme, 1988

In order to claim exemption under section 54GB, the claimant is required to re-invest the amount within a period of one year from the date of transfer. However, if the amount is not invested within the due date of filing of the income-tax return, then, the claimant is required to deposit the amount into the ‘Capital Gain Deposit Account Scheme’, 1988.

The amount so deposited into the account needs to be utilized for subscription in equity shares within the prescribed time. However, if the amount is not utilized within the given period, the unutilized amount would be taxable in the previous year in which the time period expires.

Withdrawal of exemption if equity shares in company or new asset acquired by company is sold or transferred within a period of 5 years (or 3 years for computer and software) from date of acquisition

If the equity shares of the company or the new asset acquired by the company are sold or otherwise transferred within a period of five years (or 3 years for computer and software) from the date of their acquisition, the amount of capital gain arising from the transfer of the residential property not charged as provided under section 45(1) shall be deemed to be the income of the assessee chargeable under the head “capital gains” of the previous year in which such equity shares or such new asset are sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of shares or the new asset, in the hands of the assessee or the company, as the case may be.

 

 

 

Income falling under the head salaries – If payable by the Government to a citizen of India for service outside India [Section 9(1)(iii)]

Salary paid to an Indian citizen by the Government of India for rendering services outside India shall deemed to accrue/arise in India, irrespective of residency of the person.

Text of Section 9(1)(iii)

Income deemed to accrue or arise in India.

9. (1) The following incomes shall be deemed to accrue or arise in India :—

       (i)  ………..

      (ii) ………..

      (iii) income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India;

Indian citizens, who are employed by the Government abroad, are chargeable to tax in India in respect of their remuneration earned abroad. Though the income is accrued and received outside India, it is, by virtue of the provisions of section 9(1)(iii), deemed to accrue in India, the place of actual accrual of the remuneration being immaterial for this purpose. The residential status of the employee shall not affect the taxability of the remuneration in India. In other words, remuneration for services rendered outside India by an Indian citizen, who is in the employment of Government of India, shall be chargeable to tax in India irrespective of the fact that the employee has attained the status of a non-resident. This is an exception to the general provision that the remuneration received abroad by a non-resident for services rendered out of India is not taxable in India.

Only salary income covered under section 9(1)(iii)

It is pertinent to note that by virtue of section 9(1)(iii) any income received by a Government servant chargeable under the head “Salaries” is deemed to accrue in India. No income other than such income is deemed to accrue in India.

Remuneration received by an Indian citizen, who is ordinarily resident in India or who is a non-resident but is in the employment of Government of India, for services rendered outside India is taxable in India in his hands under the head “Salaries” and the provisions of sections 15, 16 and 17 and other relevant sections of the Act will apply.

Allowances and perquisites of Government servants - Exempt under section 10(7)

Allowances or perquisites paid or allowed as such outside India by the Government to Indian citizens for rendering service outside India are, by virtue of section 10(7), exempt from income of the recipient. The word “allowances” would cover all allowances including dearness allowance. It is pertinent to note that section 10(7) grants exemption to Government servants only. It, therefore, follows that only basic salary will be liable to tax in India and any allowances or perquisites paid or allowed outside India for rendering service outside India will be exempt from tax in India. In other words, any allowance or perquisite paid allowed in India during the period of his service outside India would not fall within the purview of section 10(7) and would not, therefore, be exempt from Indian tax.

For instance, a Government employee serving abroad may retain government residential accommodation in India for the use of his family. The value of perquisite in respect of the residential accommodation occupied by his family in India will be taxable in his hands in India.

Definition of the word “Government” under the General Clauses Act, 1897

It is pertinent to point out that the word “Government” occurring in section 9(1)(iii) is not defined in the Income-tax Act or Rules made thereunder. It is, however, defined in section 3(23) of the General Clauses Act, according to which it includes “both the Central Government and any State Government”. It, therefore, refers to Indian Government and not to the Government of a foreign country.

Thus, if a Government employee, who is an Indian citizen, is sent abroad on deputation to the Government of a foreign country and is paid remuneration by that Government, his remuneration will not be deemed to accrue in India under section 9(1)(iii) since the income chargeable under the head "Salaries" is not paid by the Indian Government. His salary income would, however, be taxable in India, if he remains an ordinarily resident in India by virtue of any clause of section 6.

Similarly, the word “Government” occurring in section 10(7) refers to Indian Government. Any allowances or perquisites paid or allowed as such outside India by the Government of foreign country to a citizen of India for rendering service outside India will not, therefore, qualify for the exemption allowed in that section.

Remuneration due to non-residents directly remitted to India is taxable

If an employee, who is sent abroad by non-Government employer and who renders services outside India, becomes a non-resident, he can be held liable to tax in respect of the remuneration earned by him for services rendered outside India, if the remuneration is paid to him or his family members in India or it is credited to his bank account in India. It is, therefore, advised that any amount, which is earned by such an employee for his services outside India, should be actually received by him outside India so that the amount of such remuneration is not subjected to Indian income-tax. In case such an employee desires to remit the money to his bank account in India, he should first receive the remuneration outside India and then remit the same to India.

Remuneration - Meaning of -

The word “remuneration” is not defined anywhere in the Income-tax Act or in the Rules made thereunder. It has, therefore, to be understood in the general sense. “Remuneration” may cover salary, allowances, bonus and the perquisites as well. It may be allowed in cash or in kind.

Frequently Asked Questions (FAQ)

Q. - I am an Indian citizen working in an Indian consulate in USA and receive salary from the Indian government, is the amount taxable in India?

Ans. : Yes, as per section 9(1)(iii) of the Income Tax Act, salary payable by Indian government to Indian citizen for services rendered outside India are deemed to accrue or arise in India and hence taxable in India.

However, allowances and perquisites provided to such persons by the government of India for rendering services outside India are exempt under section 10(7)

Letter E/275/118A/77-II(B), Dated 07.11.1978

Subject :   Section 9 of the income - tax act, 1961 - income - deemed to accrue or arise in India - Application of section 9(1)(iii) to Sikkim

Though the Indian Income-tax Act, 1961 has not yet been extended to Sikkim by any notification under Article 371F(n) of the Constitution and for the purpose of Indian Income-tax Act, 1961, Sikkim will have to be treated as outside India under section9(1)(iii) of the Indian Income-tax Act, 1961.

CBDT Circular No. 4 [F. No. 73A/2/69-IT(A-II)], dated 20.02.1969

Subject : Pensions received from abroad by pensioners residing in India - Taxability under clause (iii) of sub-section (1)

1. Under section 9(1)(iii), pension accruing abroad is taxable in India only if it is earned in India.  Pensions received in India from abroad by pensioners residing in this country, for past services rendered in the foreign countries, will be income accruing to the pensioners abroad, and will not, therefore, be liable to tax in India on the basis of accrual. These pensions will also not be liable to tax in India on receipt basis, if they are drawn and received abroad in the first instance, and thereafter remitted or brought to India.

2. It is only in cases where in pursuance of a definite agreement with the employer or former employer, the pension is received directly by the pensioner in India that the pension would become taxable in India on receipt basis.

3. While the pension earned and received abroad will not be chargeable to tax in India if the residential status of the pensioner is either “non-resident” or “resident but not ordinarily resident”, it will be so chargeable if the residential status is “resident and ordinarily resident”. The aforesaid status of "ordinarily resident" cannot, however, be acquired by a person unless he has been resident in India in at least nine out of the preceding ten years.

A resident of Sikkim is non-resident for purpose of Act. Where petitioner was Advocate General of Sikkim and was ‘non resident’ in India for income tax purposes during relevant assessment year, retainer and fees received by him from Government of Sikkim could not be assessed under section 9(1)(iii)

The petitioner was a senior advocate of Calcutta High Court. He was appointed as Advocate-General of Sikkim and joined the post in March 1980. Soon thereafter, he shifted his residence to Gangtok, Sikkim. In the Income-tax returns filed for the assessment years 1981-82 and 1982-83, the petitioner claimed exemption from tax in respect of his income earned in Sikkim and the Income-tax authorities allowed the claim. The petitioner resigned from the post of Advocate-General of Sikkim with effect from 01.04.1983 and came back to Calcutta. For the assessment year 1983-84 also he described his status as ‘resident of Sikkim’ and claimed exemption of tax in respect of income earned by him in Sikkim during the period from 01.04.1982 to 31.03.1983. The ITO disallowed the petitioner’s claim. On writ:

The petitioner's retainer could not be taxed under section 9(1)(iii) for the following reasons.:

(a) The Income-tax Act, 1961, having not been extended to Sikkim, the Government of Sikkim is not governed by the provisions of the said Act and the word ‘Government’ in section 9(1)(iii) cannot include the Government of Sikkim.

(b) Tax was deducted by the Sikkim Government at source from the retainer of the petitioner under the provisions of the Sikkim Income-tax Manual which is a law in force in Sikkim under article 371F(k) of the Constitution and as such is an Indian law on taxation on income. To tax his retainer again under section 9(1)(iii), by another Indian law will result in double taxation of the same income by two Indian laws on taxation on income.

(c) All residents of Sikkim including Government servants pay income-tax under the Sikkim Income-tax Manual and not under the Income-tax Act, 1961. The Sikkim Government servants suffer deduction from their salaries at source at Sikkim Government income-tax rates and they do not pay further tax in addition at Central rates on the same income. That being the position, to tax the petitioner again under section 9(1)(iii) would be discriminatory and violative of article 14 of the Constitution. All Government servants of Sikkim are citizens of India and the position of the petitioner was in no way different.

The result of the above discussion was :

(a)  the finding of respondent No. 1, that the petitioner was a resident during the financial year 01.04.1982, to 31.03.1983, was perverse,

(b)  the petitioner was a non-resident during the said financial year,

(c)   Retainer and fees arose and was earned in Sikkim and the finding that part of the same arose outside Sikkim was perverse,

(d)   the petitioner was entitled to exemption of Rs. 1,00,000 as claimed by him and

(e)   charging of interest under section 217 was illegal.

Therefore, the respondent had no jurisdiction to assess or demand tax on Rs. 1,00,000 earned by the petitioner in Sikkim as he was a resident of Sikkim, i.e., a non-resident, during the relevant period 01.04.1982, to 31.03.1983.

In the result, the instant application succeeded. The impugned order of assessment and notice of demand passed by the ITO, were quashed/set aside. The case was decided in favour of the assessee. [In favour of assessee] (Related Assessment year : 1983-84) – [D.P. Choudhury v. Union of India (1990) 186 ITR 329 (Cal.)]

Assessee a citizen of india was a judge of Sikkim High Court - within four years preceding relevant year, he did not stay outside Sikkim for any period or periods amounting in all to 90 days or more-during relevant year, assessee received salary as a judge of Sikkim High Court - assessee, though a citizen of India, should be taken as non-resident for purposes of act - On facts under head ‘residence’ salary drawn by assessee was chargeable to tax as income deemed to accrue in India within meaning of section 9(1)(iii)

The assessee was the Judge of the Sikkim High Court during the previous year relevant to the assessment year 1980-81. He did not stay outside Sikkim for any period or periods amounting in all to 90 days or more in any year since April 1977. In his return he claimed his status as ‘non resident’ and contended that his income from salary as a Judge of the Sikkim High Court was not taxable. His objection concurrently failed before the ITO and in appeal before the AAC. On second appeal:

Held : Sikkim, no doubt, was admitted into the Indian Union as the 22nd State in the First Schedule of the Constitution but thereby all the laws applicable to the Indian territory were not automatically extended to Sikkim. The word ‘India’ used in the Act cannot be construed to comprise the State of Sikkim therein as there was no such extension of the Act to the State of Sikkim. The inclusion of the whole of the State of Sikkim as backward area in the Eighth Schedule of the Act does not make the Act applicable thereto, since any part of land to which the Act is not applicable can be included as a backward area for the obvious purpose of development of that area. Therefore, the assessee, though a citizen of India, had to be taken to be a non-resident for the purpose of the Act, since he did not stay outside Sikkim for any period or periods amounting in all to 90 days or more in any year since April, 1977.

It cannot be said that the word ‘salary’ appearing in article 221 and in the Second Schedule of the Constitution is used in the popular sense and that the remuneration paid to the Judge of the High Court is not salary. The general tests to be applied for finding out if there is an employer and employee relationship hold good in the case of employment of a Judge of the High Court also. The Constitution mentions qualifications of a person to be appointed as Judge of the High Court and the power to appoint has been invested with the President. The terms and conditions of service, namely, his tenure of appointment, salary, pension and other benefits have also been defined. The Constitution has laid down rules for discharge of his duties and so also a procedure has been laid down for removal from his office. Thus, he is obviously an employee of the State and in no sense of the term he can claim to be self-employed without exercise of any control over his work. Because of the nature of his work he has been made independent and supreme within the sphere of his duties inasmuch as that he is paid out of the consolidated fund without any voting but at the same time he has to take an oath that he shall uphold the Constitution and the laws. A Judge of the High Court is a high dignitary and a constitutional functionary and, therefore, the word ‘servant’ is seldom used for him but thereby the reality cannot be denied.

Thus, the impugned salary drawn by the assessee, in the instant case, was income chargeable under the head ‘Salaries’ payable by the Government to the citizen of India for service outside India and, as such, the said income was deemed to accrue to him in India within the meaning of section9. Therefore, the AAC was justified in taxing the impugned salary. – [Justice Anandamoy Bhattacharjee v. ITO (1986) 18 ITD 181 (Cal.)]