income-tax Officer Vs. Dr. M. P. Konanhalli. - Court Judgment

Excerpt:
per bandyopadhyay, am - the only issue in this departmental appeal relates to whether the assessee can be considered as a "resident" or a nonresident during the year under consideration.2. the facts of the case are that the assessee is a medical doctor.around that period he was under the regular employment of m/s. medical services (lond.) ltd., london, in u.k. during the relevant previous year he received gross salary of 15,990 sterling pounds on account of his employment in uk and after deducting certain expenses, the net income of rs. 1,90,183 from that source was arrived at by the assessee in a statement enclosed to the return of income. the assessee was in regular employment of the abovementioned uk concern for the last six years. in the original return of income for assessment year.....

Judgment:
Per Bandyopadhyay, AM - The only issue in this departmental appeal relates to whether the assessee can be considered as a "resident" or a nonresident during the year under consideration.

2. The facts of the case are that the assessee is a Medical Doctor.

Around that period he was under the regular employment of M/s. Medical Services (Lond.) Ltd., London, in U.K. During the relevant previous year he received gross salary of 15,990 sterling pounds on account of his employment in UK and after deducting certain expenses, the net income of Rs. 1,90,183 from that source was arrived at by the assessee in a statement enclosed to the return of income. The assessee was in regular employment of the abovementioned UK concern for the last six years. In the original return of income for assessment year 1987-88 filed by the assessee on 14-5-1987, the residential status was shown as "not ordinarily resident". In a letter dated 6-4-1988 the status was declared as "resident but not ordinarily resident" for the purpose of Indian taxation. In a further letter dated 12-4-1988 however, the assessee claimed the status of "non-resident". The undisputed facts in this case are that during the relevant previous year, the assessee was in India for a period of 162 days and furthermore that during the last four previous years, the assessee was in India for a period exceeding 365 days. The ITO, therefore, by relying on the provisions of clause (c) of section 6(1) of the Income-tax Act, 1961, came to the conclusion that the assessee was to be considered as "resident" during this year.

3. At the first appellate stage, however, the learned CIT (Appeals) considered that the assessees case fell under the provisions of Explanation (a) to section 6(1). Accordingly, he directed the ITO to treat the assessee as "non-resident". The Department has come up in further appeal before us.

4. Sub-section (1) of section 6 of the Income Tax Act, 1961 reads as below : (I) An individual is said to be resident in India in any previous year, if he - (c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

(a) who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words sixty days, occurring therein, the words one hundred and eighty-two days had been substituted; (b) who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words sixty days, occurring therein, the words ninety days had been substituted." It may be seen from above that inasmuch as the assessee was in India during the relevant previous year for a period of 162 days, he would be liable to be treated as "non-resident" if his case be covered by clause (a) of the Explanation as mentioned above. On the other hand, if his case be covered by clause (b) of the said Explanation or if the case be simply covered by clause (c) of the relevant sub-section directly without any reference to either of the clauses of the Explanation, then the assessee will have to be treated as "resident". The learned counsel for the assessee has strongly contended that the case of the assessee will have to be considered as governed by clause (b) of the Explanation. For this purpose, he has made a reference to the Budget Speech of the Finance Minister, 1982-83, part 8 which discusses the purpose for bringing about certain amendments to the relevant provisions of law by the Finance Act of 1982, as reported at 134 ITR (St.) pages 25 and 26. The relevant portion from the Budget Speech of the Finance Minister may be extracted as below : "The tests of residence in India laid down for taxation purposes result in hardship to Indian citizens earning income in foreign countries who come to India for short spells. An individual is regarded as resident in India in a year if he stays here in that year for 30 days only, and also maintains a dwelling house here for 182 days or more. As this test causes hardship to person working outside India, who come home even on relatively short visits, I propose to delete this test of residence.

Under another test, persons who have been in India for 365 days or more in the four years preceding the relevant year, become resident in that year by being in India for 60 days or more in that year. In the case of Indian citizens who are employed abroad and who come to India on leave or vacation, the period is 90 days. I propose to extend this benefit also to the self-employed and those in other occupations, irrespective of their avocation abroad or the nature of their visit to India.

Indian citizens who go abroad for purposes of employment are now chargeable to tax in India on their foreign income, if they have stayed in India for more than 60 days that year. I propose to liberalise the provision so that an Indian citizen who leaves India in any year for purposes of employment shall not be treated as resident unless he has been in India for 182 days or more in that year." A reference to the amendments brought about by the Finance Act, 1982 would show that the first para, as mentioned above, out of the Budget Speech of the Finance Minister related to deletion of clause (b) of sub-section (1) of section 6. This has got nothing to do with the present problem before us. However, the second para, as above, may be considered to be relating to clause (b) of the Explanation to the relevant sub-section, whereas the third para as above relates to clause (a) of the said Explanation. The contention of the learned counsel for the assessee is that the case of the assessee falls within the purview of clause (a) of the Explanation whereas the departmental contention is that this particular case falls within clause (b) of the Explanation. Shri Ganesh Rao, learned counsel for the assessee, strongly contends that the expression "who leaves India in any previous year for the purpose of employment outside India" takes into consideration the case of the assessee who had actually left India in an earlier year. We are afraid that bythe expression "Previous year" he has meant a "preceding year".

However, the expression "previous year" as used herein must be considered to mean "previous year" as defined in the Income-tax Act which would actually denote the accounting year or the financial year just preceding the assessment year for the assessee in respect of the appellate year under consideration. Shri Ganesh Rao has also tried to argue that otherwise, the assessee may be considered to have left India during the relevant previous year itself after spending the period of leave or vacation etc., in India and that that departure from India was also for the purpose of his employment outside India. His contention in this regard also cannot be accepted. A thorough reading of the relevant provisions along with speech of the Finance Minister (third para as quoted above) would clearly show that what is intended under clause (a) of the Explanation is the cases of Indians who go out of India for the purpose of securing an employment or being employed outside India during the relevant previous year only. The expression "for the purpose of employment" cannot be considered as equivalent to "in connection with employment". Hence, if somebody was already in employment, came to India either during the relevant previous year or in the immediately preceding previous year, stayed here for some time and again departed from India to rejoin his employment, such a case cannot be considered to be falling within the ambit of clause (a) of the Explanation. On the other hand, such case must be considered to be falling within the purview of clause (b) of the Explanation where a reference is clearly made to citizens of India or persons of Indian origin who, already being outside India, comes on a visit to India in any previous year. If the contention of Shri Ganesh Rao about the assessees case also falling within the purview of clause (a) of the Explanation be correct, then clause (b) of the said Explanation would become limited to cases of only persons who are not employed outside India but engaged in other activities like business, self-employment etc., in a foreign country.

Such a narrow consideration to clause (b) of the Explanation cannot be accepted. This is again clear from the speech of the Finance Minister as mentioned above (second para.) in which it has clearly been stated that whereas the earlier provision [of clause (b) of the Explanation] only covered persons employed abroad, the amended provisions of the said clause would henceforth extend to cases of self-employed persons and also those in other occupations, irrespective of their avocation abroad or the nature of their visit to India. Taking into consideration all these facts, therefore, we would like to agree with the departmental contention that inasmuch as the assessees case falls within the purview of clause (a) to the Explanation to section 6(1) and keeping in mind the fact that the assessee was, during the relevant previous year, in India for a period of 162 days, he has got to be considered as having been resident in India during the relevant assessment year.

The learned counsel for the assessee has also relied on the judgment of the Supreme Court in the case of CIT v. J. K. Hosiery Factory [1986] 159 ITR 85 in which it has been held that in case of doubt, the assessee is entitled to an interpretation which is favourable to him.

That would, however, be the case where two interpretations of equal strength are available. In the instant case the interpretation as sought for by the assessee is very weak and does not stand on proper legs on account of the discussions made by us above. On the other hand, the interpretation at which we have ultimately arrived as above, seems to be the correct interpretation on the basis of the various considerations as mentioned above. Hence, this particular decision of the Supreme Court does not come to be of much help to the assessee. We reverse the decision of the CIT (Appeals) and direct the Assessing Officer to treat the assessee as "resident" for taxation purposes.