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2008 (4) TMI 6 - SC - Income TaxResidential Status - A 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. Interpretation of Section 6(6) of the Income Tax Act, 1961. 2. Determination of the status of "not ordinarily resident" for the assessment year 1982-83. 3. Whether the High Court erred in its interpretation of Section 6(6) of the Act. Issue-wise Detailed Analysis: 1. Interpretation of Section 6(6) of the Income Tax Act, 1961: The core issue revolves around the interpretation of Section 6(6) of the Income Tax Act, 1961, which defines the status of "not ordinarily resident." The relevant portion of Section 6(6) states that a person is "not ordinarily resident" if they have not been resident in India in nine out of the ten previous years preceding that year or have not been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more during the seven previous years. The High Court interpreted this provision to mean that the assessee must not have been resident in India for nine out of the ten previous years to qualify as "not ordinarily resident." The Supreme Court, however, found that this interpretation was incorrect and that the correct interpretation is that a person becomes "ordinarily resident" only if both conditions are met: (a) being resident in nine out of ten preceding years, and (b) being in India for at least 730 days in the previous seven years. 2. Determination of the status of "not ordinarily resident" for the assessment year 1982-83: The assessee was employed as a Marine Engineer and worked on high seas, claiming the status of "not ordinarily resident" for the assessment year 1982-83. The Assessing Officer denied this status, stating that the assessee was a non-resident in India for only three years during the last ten years and had stayed in India for more than 730 days in the past seven years. The CIT (Appeals) and the Tribunal upheld this decision. The Supreme Court, however, disagreed with this finding, stating that the correct interpretation of Section 6(6) requires fulfilling either of the conditions mentioned. The Court noted that the assessee should be considered "not ordinarily resident" if he did not meet both conditions simultaneously. 3. Whether the High Court erred in its interpretation of Section 6(6) of the Act: The Supreme Court found that the High Court erred in its interpretation of Section 6(6). The High Court's interpretation was that the assessee must not have been resident in India for nine out of the ten previous years to qualify as "not ordinarily resident." The Supreme Court held that this interpretation was not warranted by the provisions of Section 6(6)(a) and that the correct interpretation is that a person becomes "ordinarily resident" only if both conditions are met. The Supreme Court emphasized that judicial decorum, propriety, and discipline required the High Court to discuss the judgments of different High Courts and record its own reasons for any contra view. The Supreme Court agreed with the views of the Patna High Court, Bombay High Court, and Travancore-Cochin High Court, which had laid down the correct law regarding the interpretation of Section 6(6). The Supreme Court also noted that the Law Commission of India had recommended the total abolition of the provisions defining "ordinary residence," but the Legislature chose to retain these provisions in the 1961 Act, indicating legislative intent to follow the interpretations put forth by various High Courts. Conclusion: The Supreme Court concluded that the High Court had erred in its interpretation of Section 6(6) of the Income Tax Act, 1961, and that the correct interpretation is that a person is "not ordinarily resident" if either of the conditions mentioned in Section 6(6)(a) is not fulfilled. The appeal was accepted, and the orders passed by the High Court and the Authorities below were set aside. The two questions of law were answered in favor of the assessee and against the revenue.
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