1989 (5) TMI 85 - AT - Income Tax

Summary

Issues Involved:
1. Determination of "not ordinarily resident" status.
2. Interpretation of the expression "who has not been resident in India in nine out of the ten previous years."
3. Applicable law for determining residency status in preceding years.

Issue-Wise Detailed Analysis:

1. Determination of "not ordinarily resident" status:

The primary issue is whether the assessee was "not ordinarily resident" during the assessment year 1983-84. The assessee claimed this status to exempt the salary received in Nigeria from 1-4-1982 to 24-6-1982 from taxation. Both the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) rejected this claim, leading to the appeal.

2. Interpretation of the expression "who has not been resident in India in nine out of the ten previous years":

The AAC interpreted the expression to mean that the assessee should have been non-resident for nine out of the ten previous years. The assessee contended that it should mean being resident in India for less than nine out of the ten years. The Tribunal agreed with the assessee, stating that the requirement is to be resident in India for less than nine out of the ten preceding years, not necessarily non-resident for nine years. This interpretation aligns with the precedent set by the Travancore-Cochin High Court in P.B.I. Bava v. CIT [1955] 27 ITR 463.

3. Applicable law for determining residency status in preceding years:

The Tribunal needed to decide which law to apply when determining the residency status for the previous year ended on 31-3-1981. The assessee argued that the law prevailing as of 1-4-1983 should be applied, while the department contended that the law applicable in the previous year (1981) should be used. The Tribunal sided with the assessee, stating that for the assessment year 1983-84, the law prevailing on 1-4-1983 should be applied to determine the status. This conclusion was based on the principle that the law applicable to the assessment year should govern the determination of status for that year.

Detailed Analysis:

1. Determination of "not ordinarily resident" status:

The Tribunal examined the conditions under clause (6) of section 6, which defines when a person is "not ordinarily resident." The two conditions are: (a) not being resident in India in nine out of the ten previous years, or (b) not being in India for at least 730 days in the seven previous years. The second condition was not in dispute, so the focus was on the first condition.

2. Interpretation of the expression "who has not been resident in India in nine out of the ten previous years":

The Tribunal clarified that the expression means being resident in India for less than nine out of the ten preceding years. This interpretation was supported by the Patna High Court in C. N. Townsend v. CIT [1974] 97 ITR 185, and the Travancore-Cochin High Court in P.B.I. Bava v. CIT [1955] 27 ITR 463. The Tribunal disagreed with the AAC's interpretation that the assessee should be non-resident for nine out of ten years.

3. Applicable law for determining residency status in preceding years:

The Tribunal emphasized that the law applicable to the assessment year 1983-84 should govern the determination of residency status. The Explanation to clause (1) of section 6, effective from 1-4-1983, was relevant. According to this Explanation, an individual who leaves India for employment outside India should be considered resident only if they are in India for at least 182 days in that year. The assessee was in India for less than 182 days in the previous year ended 31-3-1981, thus not meeting the residency criteria.

Conclusion:

The Tribunal concluded that the assessee was "not ordinarily resident" for the assessment year 1983-84, as he was resident in India for less than nine out of the ten preceding years. The appeal was allowed, and the assessee's status was directed to be "resident but not ordinarily resident" for the assessment year 1983-84.