2003 (1) TMI 240 - AT - Income Tax

Summary

Issues Involved:
1. Validity of proceedings initiated under section 147 of the Income-tax Act, 1961.
2. Determination of the assessee's residential status as "resident" or "not ordinarily resident".

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated under section 147 of the Income-tax Act, 1961:

The first issue concerns the validity of the proceedings initiated by the Assessing Officer (AO) under section 147 of the Income-tax Act, 1961. The AO observed that the return of income for the assessment year 1989-90 was filed beyond the statutory period prescribed under section 139, as it was filed on 22-8-1991, while the allowable period expired on 31-3-1991. The AO also noted that the assessee earned US $11,071 (equivalent to Rs. 1,60,384) from Univan Ship Management Ltd. during his stay outside India for 143 days and was in India for 222 days, making him a resident in India for tax purposes. Consequently, the AO believed that the income had escaped assessment due to the invalid original return and improper exemption claim. The CIT(A) confirmed the initiation of proceedings under section 147.

Upon review, it was found that the AO had valid reasons to believe that the income had escaped assessment, empowering him to issue a notice under section 148. The AO also obtained the necessary approval from Addl. CIT. The assessee's counsel failed to provide substantive arguments or materials to invalidate the initiation of proceedings under section 147. Therefore, the Tribunal upheld the CIT(A)'s order, confirming the validity of the proceedings under section 147.

2. Determination of the assessee's residential status as "resident" or "not ordinarily resident":

The second issue revolves around determining the assessee's residential status. The assessee's counsel argued that the AO misinterpreted subsection (6) of section 6 of the IT Act in determining the residential status. The counsel contended that the correct interpretation should be that a person is "not ordinarily resident" if he has not been a resident in at least two out of the ten previous years preceding the assessment year. The counsel supported this interpretation with commentaries and articles from learned authors.

The Tribunal examined the provisions of subsection (6) of section 6, which states that a person is "not ordinarily resident" if he has not been a resident in nine out of the ten previous years or has not been in India for 730 days or more during the seven preceding years. The Tribunal found that the correct interpretation is that a person must be a non-resident in nine out of the ten previous years to be considered "not ordinarily resident." This interpretation aligns with the judicial decision in Pradeep J. Mehta v. CIT [2002] 256 ITR 647 by the Hon'ble Gujarat High Court.

The assessee's stay in India from the financial years 1978-79 to 1987-88 showed that he was a resident in seven out of ten previous years, failing to meet the criteria for "not ordinarily resident." Therefore, the Tribunal upheld the CIT(A)'s order, confirming the assessee's status as "resident" and subjecting his overseas income to taxation in India.

Conclusion:

The appeal filed by the assessee was dismissed, confirming the validity of the proceedings under section 147 and the determination of the assessee's residential status as "resident" for the assessment year 1989-90.