Income Tax Appellate Tribunal - Bangalore
Ram Sagar Chaudhari vs Third Income-Tax Officer on 31 May, 1989
Equivalent citations: [1989]31ITD21(BANG)
ORDER
R.N. Puri, Accountant Member
1. The appeal filed by the assessee is directed against the order dated 13-7-1985 of the Appellate Asstt. Commissioner in ITA. 98/Sal/84-85, pertaining to assessment year 1983-84. The previous year relevant to this assessment year was the year ended 31-3-1983. The question to be decided is whether the assessee was during this year "not ordinarily resident".
2. This appeal was fixed up for hearing on 4-4-1989. Even though the notice for the hearing of the appeal was received by the assessee on 21-3-1989, as is apparent from the acknowledgement slip placed on records, the assessee did not appear for the hearing of the appeal. Under the circumstances, we are disposing of the appeal after hearing the departmental representative and after consulting the records.
3. The assessee had claimed that during the year under consideration he was "not ordinarily resident". This claim of the assessee had been negatived both by the ITO and the AAC and now the assessee has brought the matter before us. For resolving the dispute whether the assessee was or was not "not ordinarily resident" we have to decide two questions. The first issue is as to what is the meaning of the expression "who has not been resident in India in nine out of the ten previous years" appearing in Sub-clause (a) of Clause (6) of Section 6. The AAC is of the view that the meaning of this expression is that the assessee should have been non-resident for nine out of the ten previous years. According to the assessee, the meaning of the expression is that the assessee should be resident in India for less than nine out of the ten years. For deciding whether in a given year a person was or was not "ordinarily resident", we have to take into consideration ten preceding previous years. The question to be decided is whether in order to claim the status of "not ordinarily resident", the assesses is required to be non-resident in nine out of the ten years, as held by the AAC, or whether the requirement of law is that the assessee should have been resident in India for less than nine years, as contended by the assessee.
4. The second question to be decided is as to what is the law that is to be taken into consideration for finding out whether in a given previous year the person was resident or not. As stated above, for deciding as to whether in a given year the assessee was "not ordinarily resident", we have to find out as to what the status of the assessee was in each of the preceding ten years, whether he was a resident or not. The question that has arisen is as to what is the law that is to be applied for finding out whether in a given previous year the person was resident or not. Is it the law prevailing in that previous year, that is to be applied, or is it the law prevailing in the assessment year for which the issue whether the assessee was "not ordinarily resident" is under determination, which is to be applied ? To elaborate, in the case under consideration, it is for the assessment year 1983-84 that we have to determine whether the assessee was "not ordinarily resident". For the determination of this issue, we have to take into consideration ten preceding previous years and we have to find out for each of those years whether the assessee was a resident or not. The question that has arisen is whether, for finding out whether the assessee was a resident or not, say, in respect of the previous year ended 31st March, 1981, we have to take into consideration the law prevailing in that previous year or the law obtaining for the assessment year 1983-34 for which we have to decide whether the assessee was or was not "not ordinarily resident".
5. The assessee is an employee of M/s. Metallurgical & Engineering Consultants (India) Ltd. The assessee had been deputed for service in Nigeria from 29-6-1980 to 24-6-1982, We are concerned with the assessment year 1983-84. The previous year relevant to this assessment year was the financial year ended on 31-3-1983. The assessee had claimed that for the year under consideration he was "not ordinarily resident" and as such the salary received by him in Nigeria from 1-4-1982 to 24-6-1982 could not be subjected to tax,
6. Clause (6) of Section 6 which lays down as to when a person is said to be 'not ordinarily resident' in India in any previous year, is as under :
(6) A person is said to be "not ordinarily resident" in India in any previous year if such person is-
(a) an individual who has not been resident in India in nine out of the ton previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more ; or
(b)...
Before the ITO, the assessee had claimed that as he had not been resident in India in nine out of the ten previous years preceding the previous year under consideration, he was "not ordinarily resident" for the previous year under consideration. This contention of the assessee that he had not been resident in India in nine out of the ten previous years preceding the previous year under consideration, was not accepted by the ITO. The assessee had claimed that in respect of the previous year ended on 31-3-1981 and also in respect of the previous year ended on 31-3-1982, he was not resident in India. The ITO accepted the claim of the assessee of not being resident in India in respect of the previous year ended on 31-3-1982, but he did not accept such claim of the assessee in respect of the previous year ended on 31-3-1981. Hence, according to the ITO, the assessee had not been resident in India for less than nine years out of the ten previous years preceding the year under consideration and as such he was not "not ordinarily resident" and under the circumstances, his income earned in Nigeria was to be subjected to tax. Hence, the important question to be determined is whether the assessee could be regarded as being resident in India in the previous year ended on 31-3-1981, or not.
7. As to when an individual is said to be resident in India in any previous year is defined by Clause (1) of Section 6. Clause (1) states :
(1) An individual is said to be resident in India in any previous year, if he-
(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more, or
(b)...
(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amount in all to sixty days or more in that year.
Explanation : In the case of an individual, being a citizen of India,-
(a) who leaves India in any previous year for the purposes of employment outside India, the provisions of Sub-clause (c) shall apply in relation to that year as if for the words 'sixty-days', occurring therein, the words 'one hundred and eighty-two days' had been substituted ;
(b) who being outside India, comes on a visit to India in any previous year, the provisions of Sub-clause (c) shall apply in relation to that year as if for the words 'sixty days', occurring therein, the words 'ninety-days' had been substituted.
8. The Explanation, in its present form, was brought on the Statute by the Finance Act, 1982, with effect from 1-4-1983.
9. The assessee had claimed that the question whether he was a resident for the previous year ended on 31-3-1981 was required to be decided by reference to Explanation which had been brought on the Statute with effect from 1-4-1983. The contention of the asses-see was that since the issue whether the assessee was a resident for the previous year ended on 31-3-1981 was being examined in the context of deciding the status of the assessee for the assessment year 1983-84, it was the law which obtained as on 1-4-1983 which was required to be applied. The ITO did not accept this contention of the assessee. According to the ITO, for deciding whether the assessee was a resident for the previous year ended on 31-3-1981, it was the law obtaining for that year which was required to be applied.
10. The assessee had left India to take up his assignment in Nigeria on 29-6-1980. Admittedly, in the previous year from 1-4-1980 to 31-3-1981, the assessee was in India for less than 182 days. As such, Sub-clause (a) of Clause (1) of Section 6 did not become applicable. Then it was to be seen as to whether as per Sub-clause (c), the assessee could be regarded as being resident in India. Under Sub-clause (c), an individual is said to be resident in India In any previous year if having been in India for at least 365 days during the four preceding years, he is in India for at least 60 days in that year. Clause (a) of the Explanation brought on the Statute with effect from 1-4-1983 provides that where an individual citizen leaves India in any previous year for the purpose of employment outside India, the period of 60 days referred to in Sub-clause (c) will, in the case of such Indian citizen, be extended to 182 days. The assessee was a citizen of India. He had left India in the previous year ended 31-3-1981 for the purpose of employment in Nigeria. Hence, the contention of the assessee was that as a result of the Explanation brought on the Statute with effect from 1-4-1983, which was applicable to his case, he could not be regarded as being a resident within the meaning of Sub-clause (c), because he was not in India during this year for a period or periods amounting in all to 182 days or more. According to the ITO, the question whether the assessee was a resident or not for the previous year ended 31-3-1981, it was the law prevalent for that previous year which was required to be taken into consideration and the Explanation which came on the Statute with effect from 1-4-1983 was not relevant, as, according to the ITO, this Explanation was not applicable for that year. He came to the conclusion that, within the meaning of Sub-clause (c), the assessee was to be considered as being resident in India for the previous year ended on 31-3-1981, since he had stayed in India for a period exceeding 60 days in that year.
11. The ITO, hence, came to the conclusion that the assessee was not "not ordinarily resident" for the assessment year 1983-84. He, hence, brought to tax the salary received by the assessee in Nigeria.
12. Being aggrieved by the decision of the ITO, the assessee went up in appeal before the AAC. The AAC was of the view that even if the contention of the assessee that he was not a resident in India for the previous year ended on 31-3-1981 was to be accepted, the claim of the assessee that he was "not ordinarily resident" for the assessment year 1983-84 could not be accepted. According to the AAC, the assessee did not fulfil the conditions laid down in Clause (6) of Section 6 to claim that he was "not ordinarily resident" for the assessment year 1983-84. The AAC has stated as under:
...Thus, the plain reading of this Section 6(6)(a) shows that, to claim the status of not ordinarily resident, a person has to be nonresident in 9 out of 10 previous years. The appellant in the instant case, even conceding the claim of the appellant regarding the applicability of the amended provisions with effect from 1-4-1983, is a non-resident only in two out of 10 previous years. That apart, the appellant has been in India for a period exceeding 730 days during 7 previous years preceding the previous year relevant to the assessment year under appeal. Thus, after careful consideration of the facts of the case and the law relating to the determination of the status of the appellant, I do not find any merits in the ground taken by the appellant and I decline to interfere with the order of the ITO as far as the question of status is concerned.
13. Being aggrieved by the decision of the AAC, the assessee has come up in further appeal before us. The contention of the assessee is that the department was not justified to hold that the assessee was not "not ordinarily resident".
14. The departmental representative relied on the orders of the authorities below. He urged that it was justified to hold that the assessee could not be regarded as being "not ordinarily resident" for the year under consideration.
15. We have considered the matter carefully. As per Sub-clause (a) of Clause (6) of Section 6, an individual will be "not ordinarily resident"' in India in any previous year, if either he has not been resident in India in nine out of the ten previous years preceding that year or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more. An individual will be "not ordinarily resident", if he fulfils either of the two alternative conditions stated above. The Patna High Court had held as under in the case of C.N. Townsend v. CIT [1974] 97 ITR 185 :
...if he comes within the mischief of either of the two conditions mentioned in Section 6(6)(a), he will be treated as 'not ordinarily resident'.
16. In the case under consideration, the second condition is, without dispute, not fulfilled as the assessee was in India during the seven previous years preceding the year under consideration for more than 730 days. Hence, whether the assessee was "not ordinarily resident" during the year under consideration would now depend on whether he fulfilled the first condition. The answer to the question whether he was "not ordinarily resident" would depend upon whether he had been or had not been resident in India in nine out of the ten previous years preceding the previous year under consideration. The AAC is of the view that the meaning of the expression "has not been resident in nine out of the ten previous years" appearing in Sub-clause (a) of Clause (6) is that the assessee should have been non-resident for nine out of the ten previous years. Admittedly, the assessee was a non-resident for the previous year ended on 31-3-1982. The AAC has stated that even if the contention of the assessee that he was not resident for the previous year ended on 31-3-1981 were to be accepted, then also, the assessee would be a non-resident only in two out of the ten years, and as such the assessee could not be regarded as being "not ordinarily resident". We do not agree with the interpretation of the AAC that the requirement of law is that the assessee should be non-resident for nine out of the ten years. The relevant portion of Sub-clause (a) of Clause (6) is as under :
(b) A person is said to be 'not ordinarily resident' in India in any previous year if such person is-
(a) an individual who has not been resident in India in nine out of the ten previous years preceding that year...
According to us, the meaning of the above expression is not that the assessee should be a non-resident in nine out of the ten years. According to us, the meaning of the expression is that, if the assessee had not been resident in India in nine out of the ten previous years, he will be "not ordinarily resident". That is, if he is resident for less than nine out of the ten previous years, he will be "not ordinarily resident". In order to claim the status of being "not ordinarily resident", what is needed is that he should be a resident in India for less than nine years i.e. "he has not been resident in India in nine out of the ten previous years". The expression is "who has not been resident in India in nine out of the ten previous years" ; the expression is not "who has been not resident in India in nine out of the ten previous years". The Travanoore-Cochin High Court had the occasion to consider the meaning of this expression in P.B.I. Bava v. CIT [1955] 27 ITR 463. The High Court held :
A person is 'not ordinarily resident' in any year if he has not been 'resident' in nine out of the ten years preceding that year ; he need not establish that he was 'not resident' in nine out of the ten years.
In that case, the AAC of Income-tax, Trivandrum, had held as under:
In my opinion, the only direct way of deciding whether the appellant was 'not ordinarily resident' in the relevant years is to formulate and answer the direct question, 'Has the appellant been resident in Travancore in 9 out of such 10 years ?' This question permits of only one answer and that answer is an emphatic 'No'. When such is the answer to the question, how can I help treating the appellant as 'not ordinarily resident ?' The answer which the Income-tax Officer seeks to get can be obtained only if the question could be framed as 'Has the appellant been not resident (or non-resident) in Travancore in 9 out of such 10 years ?' But this is not the direct question but very indirect and roundabout and is, in my opinion, quite appropriate.
When the matter went before the High Court, their Lordships approved of the above stated approach of the AAC.
17. Prom the above discussion, it is obvious that the requirement of law is not that the assessee has got to be a non-resident in nine out of ten years, as had been stated by the AAC. It is held by us that the requirement of law for claiming the status of "not ordinarily resident" is that the assessee should be resident in India for less than nine years out of the preceding ten years.
18. Hence, in this context, it now becomes important to find out whether the assessee was a resident for the previous year ended on 31-3-1981. Admittedly, the assessee was not resident for the previous year ended on 31-3-1982. If the assessee were also to be regarded as being not resident for the previous year ended on 31-3-1981, as has been claimed by the assessee, then, the assessee will be a resident for less than nine years out of the ten preceding years. The claim of the assessee is that the question whether he was a resident for the previous year ended on 31-3-1981 should be decided in accordance with law prevailing on 1-4-1983. The assessment year under consideration is 1983-84. The contention of the assessee is that for this assessment year, it is the law prevalent on 1-4-1983 which is applicable. The department is of the view that, for deciding whether the assessee was resident for the previous year ended on 31-3-1981, it was the law obtaining for that year which was required to be applied, notwithstanding the fact that this matter was being examined in the context of deciding the status of the assessee for the assessment year 1983-84. We are of the view that the contention of the department is not tenable. We are concerned with the assessment year 1983-84. It is well-established that law to be applied is that in force in the assessment year. It is for finding out the status of the assessee for the assessment year 1983-84 that we have been called upon to determine as to whether the assessee was a resident in India in respect of the previous year ended on 31-3-1981. We fail to understand as to how we can accept the contention of the department that for finding out whether the assessee was a resident in the previous year ended on 31-3-1981, it is the law prevalent for that year which is to be applied. If the contention of the department were to be accepted, then the result would be that the status of the assessee for the assessment year 1983-84, which is under our consideration, would not have been determined in accordance with law applicable to this assessment year and, hence, not correctly determined. We are of the view that as the question whether the assessee was a resident in India or not for the previous year ended on 31-3-1981 is being examined for the purposes of finding out the status of the assessee for the assessment year 1983-84, we have to determine this question by applying law applicable to assessment year 1983-84. As to when an individual is said to be resident in India in any previous year is defined by Clause (1) of Section 6. If the Explanation to Clause (1) of Section 6, which was brought on the Statute with effect from 1-4-1983 is taken into consideration, it is obvious that the assessee was not a resident in India for the previous year ended on 31-3-1981. In the previous year from 1-4-1980 to 31-3-1981, the assessee was in India for less than 182 days. As such, Sub-clause (a) of Clause (1) did not become applicable. By virtue of the Explanation which had been on the Statute with effect from 1-4-1983, even as per Sub-clause (c), the assessee cannot be regarded as being resident in India as per Sub-clause (c) the assessee will be a resident if he had an aggregate stay of at least 365 days in India in the course of the four years preceding the year under consideration and was present in India in the year under consideration for a period or periods amounting to in the aggregate at least sixty days. Bat, Clause (a) of the Explanation, which has been on the Statute with effect from 1-4-1983, provides that in the case of an individual, being a citizen of India, who leaves India in any previous year for the purpose of employment outside India, the provisions of Sub-clause (c) shall apply in relation to that year as if for the words "sixty days" occurring therein, the words "one hundred and eighty-two days" had been substituted. The assessee was a citizen of India. He had left India in the previous year ended on 31-3-1981 for the purpose of employment in Nigeria. Hence, as he was not in India during this year for one hundred and eighty-two days, he could not be regarded as being a resident within the meaning of Sub-clause (c) either. The assessee was, hence, not a resident for the previous year ended on 31-3-1981. As such, the assessee was resident for less than nine years out of the ten years preceding the previous year under consideration and as such the assessee was "not ordinarily resident" for the previous year under consideration in accordance with Sub-clause (a) of Clause (5) of Section 6.
19. We direct that the assessment of the assessee be made by taking his status for the assessment year 1983-84 as being that of "resident but not ordinarily resident".
20. The appeal of the assessee is allowed.