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Issues involved: Determination of residential status of the assessee for tax purposes and eligibility for exemption under section 10(15)(fa) of the Income Tax Act.
Residential Status Issue: The Assessing Officer initially considered the assessee as a "resident" and denied exemption under section 10(15)(fa) on the basis that it was available only to a "non-resident" or "not ordinarily resident." However, the CIT (Appeals) determined that the assessee qualified as "not ordinarily resident" based on the physical presence criteria specified in section 6(6)(a) of the IT Act. The CIT (Appeals) found that the assessee did not meet the conditions to be considered "resident and ordinarily resident," as he fell short of being a resident in nine out of the ten preceding years. Consequently, the assessee was deemed to be "resident but not ordinarily resident" for tax purposes. Exemption Eligibility Issue: The exemption under section 10(15)(fa) was denied by the Assessing Officer due to the deposits not being in foreign currency, which was a requirement for the exemption. The CIT (Appeals) concurred with this decision, ultimately dismissing the appeal on the grounds that the deposits did not fulfill the conditions of the section. Despite the disagreement on the exemption, the determination of the assessee's residential status as "not ordinarily resident" was upheld, leading to the dismissal of the revenue's appeal. Legal Interpretation and Precedents: The interpretation of the term "not ordinarily resident" was based on the provisions of section 6(6)(a) of the IT Act, which sets out the criteria for determining residential status. The section specifies that an individual must meet certain conditions regarding residency and physical presence in India to be classified as "not ordinarily resident." This interpretation was supported by various legal precedents and authoritative sources, including decisions by the Authority for Advance Ruling and circulars issued by the CBDT. Effect of Amendment and Retroactive Application: The judgment highlighted an amendment to section 6(6)(a) introduced by the Finance Act, 2003, aligning with the view expressed by the Gujarat High Court. However, the amendment was deemed clarificatory and applicable only from 1-4-2004, not retroactively. The decision emphasized that the interpretation of the section, as upheld in previous rulings, had been consistent and in line with legislative intent, making retrospective application of the amendment unwarranted. Conclusion: The appeal by the revenue challenging the residential status determination of the assessee was dismissed, affirming the decision of the CIT (Appeals). The assessee was categorized as "resident but not ordinarily resident" for the relevant tax year based on the criteria specified in section 6(6)(a) of the IT Act. The judgment underscored the importance of meeting both residency and physical presence conditions to be considered "resident and ordinarily resident" for tax purposes.
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