1983 (2) TMI 113 - AT - Income Tax

Summary

Issues:
1. Determination of the assessee's status as a resident or not ordinarily resident.
2. Inclusion of pension income in Indian income for taxation purposes.
3. Interpretation of the conditions for being considered not ordinarily resident under section 6(6) of the Income-tax Act, 1961.
4. Application of relevant departmental circulars to determine tax liability on pension income received abroad.

Detailed Analysis:

1. The primary issue in this case revolves around the determination of the assessee's status as a resident or not ordinarily resident for income tax purposes. The Income Tax Officer (ITO) initially held the assessee to be a resident and ordinarily resident, including the pension income from Arabian and American companies in his Indian income. The assessee claimed to be either a non-resident or a resident but not ordinarily resident. The Appellate Assistant Commissioner (AAC) concurred with the ITO's decision, emphasizing that the assessee did not meet the conditions under section 6(6)(a) of the Income-tax Act, 1961, to be considered not ordinarily resident. The AAC held that since the assessee fulfilled one of the conditions but not all three, he could not be classified as not ordinarily resident.

2. The interpretation of the conditions for being considered not ordinarily resident under section 6(6) of the Income-tax Act was crucial in this case. The AAC emphasized that all three conditions must be met for an individual to be classified as not ordinarily resident. The conditions required that the individual must not have been a resident in India in nine out of the ten previous years and must not have been in India for 730 days or more in the seven previous years. The AAC's decision was based on a strict interpretation of these conditions, leading to the inclusion of the pension income in the assessee's Indian income.

3. The appellate order was challenged before the Tribunal, where the assessee argued that his status should be determined as a resident but not ordinarily resident, citing the Board's Circular No. 4. The Tribunal analyzed the departmental circular and relevant case law, including the decision of the Patna High Court in C.N. Townsend v. CIT, to determine the assessee's status. The Tribunal highlighted that if an individual fulfills any of the conditions in section 6(1) and falls within the conditions of section 6(6)(a), they would be treated as not ordinarily resident. In this case, since the assessee did not meet the condition of being a resident in nine out of the ten previous years, he should be classified as not ordinarily resident.

4. The application of relevant departmental circulars played a significant role in determining the tax liability on the pension income received abroad. The circular clarified that pension earned and received abroad would not be taxable in India if the individual's residential status was either non-resident or resident but not ordinarily resident. Since the pension income was drawn and received abroad before being remitted to India, and the assessee was determined to be not ordinarily resident, the Tribunal directed the ITO to exempt the pension income from Indian Income-tax. This decision was in line with the circular's provisions and the assessee's status as not ordinarily resident under section 6(6)(a) of the Income-tax Act.