2015 (5) TMI 938 - HC - Income Tax

Treatment as a resident Indian - whether the period for which the assessee was in India involuntarily on account of his passport having been impounded is not to be counted for purposes of Section 6(1)(a) of the Income Tax Act so as to hold him entitled to be a non-resident? - Held that - the Income Tax Act leaves the choice to the citizen to be in India and be treated as a resident for purposes of taxation or be not in India so as to avail the status of a non-resident. The simple test the muster of which is to be passed is the minimum prescribed period of presence in India in a particular financial year. It naturally follows that the option to be in India or the period for which an Indian citizen desires to be here is a matter of his discretion. Conversely put presence in India against the will or without the consent of the citizen should not ordinarily be counted adverse to his chosen course or interest particularly if it is brought about under compulsion or to put it simply involuntarily. There has to be in the opinion of this Court something to show that an individual intended or had the animus of residing in India for the minimum prescribed duration. If the record indicates that such as for instance omission to take steps to go abroad the stay can well be treated as disclosing an intention to be a resident Indian. Equally if the record discloses materials that the stay (to qualify as resident Indian) lacked volition and was compelled by external circumstances beyond the individual s control she or he cannot be treated as a resident Indian. We do not agree with the contention of the Revenue that Section 6(1)(a) of the Income Tax Act shall be a strictly constructed or that it does not permit exceptions. The case at hand itself is a good example why a literal interpretation of the relevant statutory clause is not commended for such course might not only lead to unjust unfair or absurd consequences but also be prone to abuse. While executive action resulted in his passport being unjustifiably impounded this rendered if impossible for the assessee to leave India. He virtually became an unwilling resident on Indian soil without his consent and against his will. His involuntary stay during the period that followed till the passport was restored under Court s directive thus must be excluded for calculating the period under Section 6(1)(a) of Income Tax Act - Decided against revenue.

Summary

Issues Involved:
1. Determination of the assessee's residential status for AY 2007-08 and 2008-09.
2. Legality of additions made by the AO on various accounts.
3. Validity of ITAT's decision to exclude involuntary stay periods from residential status calculation.

Issue-wise Detailed Analysis:

1. Determination of the Assessee's Residential Status:
The primary issue was whether the assessee could be treated as a resident Indian under Section 6(1)(a) of the Income Tax Act during AY 2007-08 and 2008-09. The AO and CIT(Appeals) treated the assessee as a resident Indian since he was in India for more than 182 days during these years. However, the ITAT overturned this conclusion, agreeing with the assessee that his presence in India was due to the compulsion of legal processes, specifically the impounding of his passport, which was not voluntary. The ITAT held that the assessee continued to enjoy non-resident status and was not accountable under the Income Tax Act for income not earned in India.

2. Legality of Additions Made by the AO:
The AO made several additions to the assessee's income, including:
- Investment in Claridges Hotel Pvt. Ltd. by Universal Business Solutions Ltd.
- Investment by Palm Technologies in Mauritius Claridges.
- Unexplained cash found during searches.
- Investment in renovation of Sonali Farms.
- Deposit in Deutsche Bank, Singapore.
- Foreign remittance taxable in India.
- Jewellery found in the possession of the assessee's wife.

The CIT(Appeals) deleted some of these additions, such as the investments in Claridges Hotel Pvt. Ltd., due to a lack of evidence linking the funds to the assessee. Other additions were upheld on a protective basis, subject to further verification. The ITAT upheld the deletion of certain additions and directed further inquiry into others, especially emphasizing the lack of evidence directly connecting the assessee to the investments.

3. Validity of ITAT's Decision to Exclude Involuntary Stay Periods:
The ITAT concluded that the period during which the assessee was forced to stay in India due to the impounding of his passport should not be counted towards the 182-day requirement under Section 6(1)(a). The High Court agreed, noting that the assessee's presence in India was not by choice but due to illegal restraint by governmental agencies. The court emphasized that the intention behind the statutory provision was not to penalize individuals for involuntary stays. The court noted that the assessee had made continuous efforts to regain his passport and leave India, thus maintaining his non-resident status.

Additional Judgments and Directions:
The ITAT allowed the appeal regarding the addition made on account of the deposit in Deutsche Bank, Singapore, and foreign remittance, as the assessee was considered a non-resident for the relevant AYs. The ITAT also directed further inquiry into the investment in Sonali Farms and the recovery of unexplained cash. The addition on account of jewellery was deemed unfair since the asset was explained in the case of the assessee's wife.

Conclusion:
The High Court dismissed the appeals, affirming the ITAT's decision to exclude the period of involuntary stay from the residential status calculation and upholding the deletions and directions given by the ITAT. The court emphasized that each case must be examined on its own merits, particularly regarding claims of involuntary stay. Both parties were left to bear their own costs.