2010 (12) TMI 940 - HC - Income Tax

Residential status - assessee claimed his residential status as non-resident - Held that - Going abroad for the purpose of employment, therefore, means going abroad to take up employment or any avocation as referred to in the circular, which takes in self-employment like business or profession, taking up own business by the assessee abroad satisfies the condition of going abroad for the purpose of employment covered by Explanation (a) to section 6(1)(c) of the Act, Tribunal has rightly held that for the purpose of the Explanation, employment includes self employment like business or profession taken up by the assessee abroad. No controversy on the facts inasmuch as the assessee was in India for only 177 days in the previous year relevant for the assessment year 1989-90, and unless it is established that Explanation (a) to sub-clause (c) of section 6(1) of the Act is not available to the assessee, he cannot be treated as a resident in India for the purpose of assessing his global income including the business income earned abroad during the previous year - dismiss the appeal filed by the Revenue.

Summary

Issues:
Residential status determination for assessment year 1989-90 based on Explanation (a) to section 6(1)(c) of the Income-tax Act.

Analysis:
The primary issue in this case revolves around the residential status of the assessee for the assessment year 1989-90, specifically whether the assessee should be considered a "non-resident" as claimed, or a "resident" as determined by the Assessing Officer. The dispute arises from the interpretation of Explanation (a) to section 6(1)(c) of the Income-tax Act, which provides an exception to the residency criteria based on the purpose of the individual's stay abroad.

The assessee claimed non-resident status for the assessment years 1989-90 and 1990-91, citing business activities abroad. The Assessing Officer, however, deemed the assessee a resident based on the number of days spent in India and the purpose of the foreign visit. The crux of the matter lies in whether the business conducted abroad qualifies as "employment" under Explanation (a) to section 6(1)(c) of the Act, thereby justifying the non-resident status.

The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld the assessee's non-resident status, emphasizing that the term "employment" in the context of the Explanation encompasses self-employment activities like conducting business abroad. This interpretation was challenged by the Revenue, arguing that employment entails an employer-employee relationship and does not cover self-employment.

The court analyzed the legislative intent behind Explanation (a) and relevant precedents, concluding that the term "employment" should be broadly construed to include self-employment endeavors such as running a business abroad. The court referenced the Finance Bill's Memorandum and Circulars issued by the Central Board of Direct Taxes to support this interpretation, emphasizing that the purpose of the foreign visit should align with employment-related activities.

Ultimately, the court dismissed the Revenue's appeal, affirming the Tribunal's decision that the assessee's business activities abroad constituted employment within the scope of Explanation (a) to section 6(1)(c) of the Income-tax Act, warranting the non-resident status for the assessment year 1989-90.