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2008 (4) TMI 6 - SC - Income TaxResidential Status - Period of stay in India - Person will become an ordinarily resident only if (a) he has been residing in nine out of ten preceding years; and (b) he has been in India for at least 730 days in the previous seven years - Original order denying the status of not-originality resident set aside.
Issues Involved:
1. Determination of the appellant's residential status as "not ordinarily resident" under Section 6(6) of the Income Tax Act, 1961 for the assessment year 1982-83. 2. Interpretation of Section 6(6) of the Income Tax Act, 1961 regarding the criteria for "not ordinarily resident" status. 3. Validity of the High Court's judgment in light of previous judicial decisions and departmental circulars. Detailed Analysis: 1. Determination of Residential Status: The core issue in this case was whether the appellant qualified as "not ordinarily resident" in India for the assessment year 1982-83 under Section 6(6) of the Income Tax Act, 1961. The appellant, a marine engineer employed by a Hong Kong company, claimed this status to exclude income accruing outside India from his total income under Section 5(1)(c) of the Act. The Assessing Officer, however, denied this status, stating that the appellant was a non-resident for only three out of the preceding ten years and had stayed in India for more than 730 days in the last seven years, thus not fulfilling the requirements of Section 6(6)(a). 2. Interpretation of Section 6(6): The appellant contended that under Section 6(6)(a), he should be considered "not ordinarily resident" if he was not a resident in nine out of the ten preceding years. The High Court, however, interpreted the provision to mean that an individual must not have been a resident in India for nine out of ten years to qualify as "not ordinarily resident." The appellant relied on several judgments, including those from the Patna High Court, Bombay High Court, and Travancore-Cochin High Court, which supported the view that fulfilling either of the two conditions in Section 6(6)(a) suffices for the "not ordinarily resident" status. 3. Validity of the High Court's Judgment: The Supreme Court criticized the High Court for not engaging with the persuasive judgments from other High Courts and the Authority for Advance Rulings, which had interpreted Section 6(6)(a) in favor of the appellant's position. The Supreme Court emphasized the importance of judicial decorum and the need for the High Court to provide reasons if it chose to dissent from established judicial interpretations. The Court also noted that the departmental circulars, which are binding on the department, supported the appellant's interpretation that a person is "not ordinarily resident" if either of the conditions in Section 6(6)(a) is not satisfied. Conclusion: The Supreme Court set aside the High Court's judgment and the orders of the lower authorities, ruling in favor of the appellant. It held that the appellant was "not ordinarily resident" under Section 6(6) of the Income Tax Act, 1961, for the relevant assessment year. The Court endorsed the interpretations of the Patna, Bombay, and Travancore-Cochin High Courts, which aligned with the appellant's claim, and highlighted the principle that when two interpretations are possible, the one in favor of the taxpayer should be adopted. The appeal was accepted, and the questions of law were answered in favor of the assessee, with no costs imposed.
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