1. The appeal has been filed by the assessee against the order of the Id. CIT(A) -11, Kanpur dated 13.7.2004 for assessment year 2001-02.
2. The effective ground of appeal is that the Id. CIT(A) erred in holding that the residential status of the assessee was 'resident and ordinarily resident' as against resident but not ordinarily resident'.
3. Brief facts of the case are that assessee tiled his return of income declaring total income at NIL. The assessee had claimed income to be exempt Under Section 5(1) of the Act. The assessee was serving in Merchant Marinar in the rank of Chief Officer and driving salary in foreign currency from the employer M/s MOL Ship Management Asia Pvt.
Ltd, Singapore. The assessee claimed his residential status as "resident but not ordinarily resident". In support of his claim of status, the assessee has submitted copy of acknowledgement of filing of return for assessment years 1995-96 to 1999-2000 and certificate of being out of India for the preceding years. The AO noticed that assessee had not been in India as per certificate as under: 4. The AO observed that from this chart it was evident that during the relevant assessment year under consideration the assessee had been in India exceeding 182 days. Therefore, his residential status was taken as resident as per Section 6(1)(a) of the Act. In order to determine the status whether he was 'resident and ordinarily resident' or 'resident but not ordinarily resident' he noted that he had been resident in India in 5 years out of 10 previous years preceding previous year under consideration. Thus, he had been in India more than 730 days in all during the seven previous years preceding the year under consideration. After considering the assessee's submissions, the AO treated the assessee as 'resident and ordinarily resident' Under Section 6(1) read with 6(6) of the Act. The Id. CIT(A), after considering the amendment brought in the Act by the Finance Act, 2003 in Section 6(6), observed that the person will be 'not ordinarily resident' only when he is non-resident in atleast 9 out of 10 previous years preceding the relevant year. He observed that this amendment is clarificatory in nature as per explanatory note in the Finance Act. He, accordingly, upheld the order of the AO.5. The Id. Counsel relied on various case laws and submitted that admittedly, the assessee was not resident in India in 9 out of 10 years. He was resident only for 5 years and therefore, the residential status of the assessee was 'resident but not ordinarily resilient'. He has relied on the following cases: 279 ITR 310 Sedco Forex International Drill Inc. and Ors. v CIT (S.C.) 6. In the case before the Authority for Advance Rulings, 229 ITR 379, the facts were that the assessee had returned to India in 1995 after having left in 1970. It was held that she was resident but not ordinarily resident for assessment years 1996-97 to 2004-05. It was further held that the correct construction of Section 6(6) of the Act was that a person would become resident and ordinarily resident if - (a) he had been a resident in 9 out of 10 previous years preceding that year; and (b) had been in India for atleast 730 days or more during the 7 years preceding that year.
7. An individual will be treated as 'resident but not ordinarily resident' if either of these conditions was not fulfilled.
8. In the case of Morgenstern Werner v. CIT 233 ITR 751, it was observed that Section 6 of the Act lays down that a person is not ordinarily resident in India if in 9 out of 10 preceding years he had not been resident in India. This decision of the Hon'ble, Allhabad High Court was affirmed by the Hon'ble Supreme Court in 259 ITR 486.
9. The Id. DR pointed out that in order to remove the ambiguity in the section, a clarifactory amendment has been brought out in Section 6(6)(a) and in view of this amended section unless an individual has been non-resident in India in 9 out of 10 years preceding the year under consideration, he will not be treated as 'resident but not ordinarily resident'. He submitted that assessee was, admittedly not nonresident in 9 out of 10 preceding years and therefore, his status has rightly been taken as 'resident and ordinarily resident'.
10. I have considered the rival submissions and have perused the record of the case. As per Section 6(1)(a), if a person is in India for a period or periods amounting in all to 182 days or more in a year, then he will be resident in India in that year. Section 6(6) lays down when a person is said to be 'not ordinarily resident in India'. Prior to its substitution by Finance Act, 2003 with effect from 1.4.2004, Clause 6(6)(a) read as under: (6) A person is said to be "not ordinarily resident" in India in any previous year if such person is- (a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or 11. This section has now been substituted by Finance Act, 2003 with effect from 1.4.2004 as under: (6) A person is said to be "not ordinarily resident" in India in any previous year if such person is - (a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or.
12. The residential status of a person is 'resident but not ordinarily resident' when he satisfies one of the basic conditions as contemplated under sub section (1) of Section 6 and either of the conditions as contemplated under sub Section (6) Clause (a) is fulfilled. In the present case, it is not disputed that the assessee was in India for more than 730 days and therefore, one of the conditions laid down under Clause (a) to sub Section (6) of Section 6 is not satisfied. There is no dispute to this extent.
13. Now the dispute concentrates only with respect to the other part of Clause (a) of sub Section (6) of Section 6 viz. - an individual who has not been resident in India (non-resident as substituted by Finance Act, 2003) in nine out of the ten previous years preceding that year. The assessee's claim is that he fulfils this condition because he was resident only for 5 years in 9 out of the 10 previous years preceding the year in question. In support of his contention, the assessee has relied on various case laws particularly on the decision of the ITAT Bangalore Bench in the case of Ram Sagar Chaudhari v. Third Income-tax Officer 31 ITD 21, wherein it has been held that the requirement of Section 6(6)(a) is not that the assessee should be a non-resident in 9 out of 10 years. The meaning of the expression is that if the assessee has not been resident in India in 9 out of 10 previous years, he will be 'not ordinarily resident' i.e. if he is resident for less than 9 out of previous 10 years, he will he 'not ordinarily resident'.
14. Now a specific amendment has been brought in the Act by the Finance Act, 2003 as noted earlier. The Id. CIT(A) in para 6 has quoted the explanatory note from the Finance Act where it is clarified that the amendment is only clarificatory in nature. The relevant part of the explanatory note is reproduced below: 6.1 Under the existing provision contained in Sub-section (6) of Section 6. a person is said to be "not ordinarily resident" in India in any previous year if such person is an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or is a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more. This definition has been subject to differing legal interpretations.
6.2 In order to remove any doubts in this regard, the Act has substituted the existing definition with a new one to provide that a person would be "not ordinarily resident" in India in any previous year if such person is an individual who has been non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty nine days or less; or is a Hindu undivided family whose manager has been non-resident in India in nine out of the ten previous years preceding that year, or has during the even previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty nine days or less.
6.3 The amendment is clarificatory in nature and will take effect from 1^st April, 2004.
15. Though in the notes on clauses it has been mentioned that the proposed amendment is clarificatory in nature, but the. amendment has been made applicable in relation to the assessment year 2004-05 and subsequent years which is evident from Finance Bill 2003 introducing this amendment 260 ITR 41 statute. It is a substantive provision inasmuch as it determines the tax liability of a person and therefore, it cannot be said to be a procedural section. Moreover, the definition of resident is entirely different from non-resident. Therefore, once in the substituted section the concept of non-resident has been brought into in place of resident, it cannot be said that it is clarificatory in nature. The scope of total income of an assesses is decided with reference to residential status. Consequently, the tax effect of the assessee's total income is decided with reference to the residential status. By virtue of this section the assessee acquired a vested right in the form of reduced total income. In regard to statues dealing with substantive rights, I may refer to the decision of the Hon'ble Supreme Court in the case of Keshvan v. State of Bombay wherein it has been held that a cardinal principle of construction of statues is that every statute is prima-facie prospective unless it is expressly or by necessary implication made to have retrospective operation. This rule is applicable where the object of the statute is to affect vested rights (e.g. in the present case by amendment, a person who hitherto was to be assessed as 'resident but not ordinarily resident' will be assessed as 'resident and ordinarily resident' thereby increasing his scope of total income and consequently tax liability) or to impose new burdens or to impair existing obligations.
In the words of Lord BLANESBURG, "provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment". Therefore, merely because in notes on clauses it has been mentioned that it is clarificatory in nature, it cannot be said that the substituted section is clarificatory in nature. In the present case, since it is not disputed that the assessee. was not resident in India in 9 out of 10 years preceding the assessment year in question, the assessee had rightly claimed its status as of "resident and not ordinary resident" in assessment year 2003-04. The interpretation given by the Id. CIT(A) based on notes on clauses cannot be accepted.
16. The Id. CIT(A)'s observations that the interpretation placed by Tribunal in Ram Sugar Chauhan's case will create anomalous position is purely based on conjectures inasmuch as the basic cannon of taxing statutes is of strict interpretation. If the language of section is clear and unambiguous then the same cannot be interpreted in a manner so as to subscribe an altogether different meaning to that plece of legislation. Courts are not to take into consideration the consequences that would follow. Courts are not to fill in the gaps in legislation. A matter which should have been, but has not been provided for in a statute cannot be supplied by courts, as to do so will be legislation and not construction. In the present case not mentioning of non-resident in Section 6(6)(a) is a case of casus omissus which has been corrected by Finance Act, 2003. I may further observe that aid so Notes on clauses can be had only in case of some ambiguity in the section and not otherwise.
17. In view of aforementioned discussion, 1 allow the assessee's appeal.