2008 (4) TMI 337 - AT - Income Tax

Summary

Issues Involved
1. Validity of the order passed under Section 143(3) read with Section 147.
2. Determination of the residential status of the assessee as 'resident' versus 'not ordinarily resident' (NOR).
3. Entitlement to deduction under Section 80RRA.

Detailed Analysis

1. Validity of the Order Passed Under Section 143(3) Read with Section 147
The assessee contended that the reopening of the assessment was bad in law as it was based on a change of opinion. The return was initially processed under Section 143(1)(a) and later reopened under Section 148. The assessee argued that the ex parte order under Section 144 was passed without sufficient opportunity for representation. However, this ground was not pressed before the first appellate authority and was subsequently not pursued before the Tribunal. The Tribunal upheld the reopening of the assessment, referencing the Supreme Court judgment in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., which clarified that processing under Section 143(1)(a) does not constitute an assessment, thus validating the reopening.

2. Determination of Residential Status
The primary issue was whether the assessee's residential status was 'resident' or 'not ordinarily resident' (NOR) under Section 6(6) of the IT Act. The assessee argued that he was NOR, which would exempt foreign income under the proviso to Section 5(1)(c). The Tribunal considered various precedents and the CBDT circular, concluding that the assessee met the criteria for NOR status. The Tribunal emphasized that the amendment to Section 6(6) by the Finance Act, 2003, was not retrospective and applied only from 1st April 2004. The Tribunal followed the Supreme Court's reversal of the Gujarat High Court's decision in Pradip J. Mehta vs. CIT, affirming that both conditions (residence in nine out of ten preceding years and presence in India for at least 730 days in the last seven years) must be met for ordinary resident status. Consequently, the Tribunal directed the AO to treat the assessee as NOR.

3. Entitlement to Deduction Under Section 80RRA
The assessee made an alternative claim for deduction under Section 80RRA, which was not initially claimed due to the belief that he was NOR. The Tribunal noted that the assessee satisfied all conditions for the deduction, including being a citizen of India, receiving remuneration in foreign currency for services rendered abroad, and having the terms of service approved by the Ministry of Finance. The Tribunal held that the Revenue should have considered this legal claim and afforded the assessee an opportunity to furnish the necessary details. However, since the primary issue was resolved in favor of the assessee, the Tribunal did not separately adjudicate this alternative claim.

Conclusion
The Tribunal allowed the appeals, directing the AO to treat the assessee as 'not ordinarily resident' and thus exempting the foreign income from tax. The reopening of the assessment was upheld, but the alternative claim under Section 80RRA was not separately adjudicated due to the favorable decision on the primary issue.