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Md. Ibrahim Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1983)5ITD146(Hyd.)
AppellantMd. Ibrahim
Respondentincome-tax Officer
Excerpt:
.....of the assessee is in question. he claims to be either as a non-resident or as a resident but not ordinarily resident. the ito did not accept his contention and held him to be resident and ordinarily resident and, consequently, the pension he was receiving from arabian and american company was included in his indian income and the total indian income was computed at rs. 77,570. the ito simply stated that the assessee did not fulfil the conditions laid down in section 6(6)(a) of the income-tax act, 1961 ('the act'). therefore, he treated the status of the assessee as 'resident'.2. when the matter was taken in appeal before the aac, he concurred with the view held by the ito and dismissed the appeal. he held that a person can claim the status of not ordinarily resident in india only if.....
Judgment:
1. In this case the status of the assessee is in question. He claims to be either as a non-resident or as a resident but not ordinarily resident. The ITO did not accept his contention and held him to be resident and ordinarily resident and, consequently, the pension he was receiving from Arabian and American company was included in his Indian income and the total Indian income was computed at Rs. 77,570. The ITO simply stated that the assessee did not fulfil the conditions laid down in Section 6(6)(a) of the Income-tax Act, 1961 ('the Act'). Therefore, he treated the status of the assessee as 'resident'.

2. When the matter was taken in appeal before the AAC, he concurred with the view held by the ITO and dismissed the appeal. He held that a person can claim the status of not ordinarily resident in India only if the following conditions are fulfilled : (ii) he has not been resident in India in nine out of ten previous years preceding that year ; and (iii) he has not during the seven previous years preceding that year been in India for a period of 730 days or more.

The AAC found that the assessment year is 1981-82 and the previous year is the financial year ending 31-3-1981, i.e., 1980-81. Therefore, the stay in India for financial years 1973-74 to 1979-80 has to be seen. He recorded a finding that the total stay of the assessee during this period was for more than 730 days. He held that the conditions prescribed in Clause (6) of Section 6 are alternative to one another and because the assessee is fulfilling one of the three conditions set out above he cannot be taken to be 'not ordinarily resident'. According to the AAC a person can be taken to be not ordinarily resident only when all the three conditions set out above are fulfilled. He appears to be of the opinion that if one among the three conditions is violated, then such person cannot be held to be not ordinarily resident. Further the AAC held that under the provisions of Section 6(1)(a) of the Act an individual is a resident in India if in any previous year he is in India, for a period or periods amounting in all to 182 days or more. He found that the assessee was resident in India throughout the previous year. Therefore, he concluded that as per Section 6(1)(a), he is a resident in India. Further in view of his dismissing the appeal and rejecting the arguments of the assessee he found that the consideration of Board's Circular No. 4 [F. No.73A/2/69-IT (A-II)], dated 20-2-1969 does not arise and the pension income earned by the assessee has to be included within the income subject to tax.

3. Aggrieved by the appellate order dated 15-10-1982, the present second appeal is filed before this Tribunal. The assessee worked in Arabian and American Oil Co. which is an undertaking run by the Government of Saudi Arabia. He retired and returned to India on 6-1-1978 and finally he settled in India. Till 6-1-1978 he was in Saudi Arabia right from 1957. The case of the assessee was that his pension money was being received in Alginia Bank in Saudi Arabia. From Alginia Bank it goes to City Bank, New York and from New York it comes to India (Madras) where the City Bank has got a branch. According to him the whole pension money was earned by him abroad and also received on his behalf abroad. In such a case, if he is found to be a resident but not ordinarily resident in India within the meaning of Section 6(6), according to the Board's Circular No. 4 [F. No. 73A/2/69-IT(A-II)], dated 20-2-1969, which is hereinafter called the circular, the whole of the pension received outside India is exempt from Indian Income-tax. In order to get such an exemption the assessee claims that his status was resident but not ordinarily resident. The question is whether his contention is correct and whether his status should be determined as prayed for by the assessee. Section 6(6) gives the requirement of a person to be described as not ordinarily resident. The provisions of Section 6(6)(a) are as follows : 6. (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 The departmental circular extracted from Chaturvedi and Pithisaria's Income-tax Law, Third "edition, Vol. I, is as follows : CIT, W.B.'s Circular letter No. J/28320I4A/10I5158-59, dated Calcutta, the 5th December, 1962, addressed to the Secretary, Indian Chamber of Commerce, Calcutta-1.-I am directed to refer to the correspondence resting with the Ministry of Finance (Department of Revenue) letter No. 4/22/61-IT(AT), dated 25th November, 1961 and to state that the Department's view has all along been that an individual is 'not ordinarily resident' unless he satisfies both the conditions in Section 4B(a), i.e., - (i) he must have been a resident in nine out of ten preceding years ; and (ii) he must have been in India for more than two years in the preceding seven years.

Thus, a person will be 'resident and ordinarily resident' if both these conditions are satisfied but he will be 'resident but not ordinarily resident' if either of those conditions is not satisfied.(p. 309) From the above circular it is very clear that the department is accepting the status of a person as not ordinarily resident, if either of the two conditions set out below is not satisfied or fulfilled : (i) he must have been a resident in nine out of ten preceding years ; and (ii) he must have been in India for more than two years in the preceding seven years.

Obviously, the assessee is not fulfilling the first condition set out above. Therefore, according to the Board's circular, the assessee should be declared as 'not ordinarily resident'. The Patna High Court had an occasion to consider the present question which arose before us in the case of C.N. Townsend v. CIT [1974] 97 ITR 185. The head note of the said decision clearly brings out the ratio of the case decided and it is as follows : If any of the conditions mentioned in Clause (a), (b) or (c) of Section 6(7) of the Income-tax Act, 1961, is fulfilled, the assessee will be a 'resident' within the meaning of the Act and if he comes within the mischief of either of the two conditions mentioned in Section 6(6)(a), he will be treated as 'not ordinarily resident'.

Where the assessee came to India in April, 1964 and continued to stay in India till the end of March, 1965, he clearly fulfilled the conditions laid down in Sub-section 6(1)(a) and as such he was a 'resident' in India during the previous year in question. The assessee, however, could not be treated as 'ordinarily resident' in India as he fell within the first condition in Section 6(6)(a), namely, that he was not resident in India in nine out of the ten previous years preceding the year 1964-65, even though he did not come within the mischief of the second condition. (p. 185) From the above it is clear that simply because a person was found to be a resident for 182 days or more in any previous year and simply because he is found to be a resident in India within the meaning of Section 6(1) (a), his status cannot be determined only on the outcome of that investigation. One should also investigate whether he comes within the mischief of either of the two conditions mentioned in Section 6(6)(a).

If he comes within the mischief of either of the two conditions mentioned in Section 6(6)(a), then he should be treated not-ordinarily resident. Therefore, in view of the clear law enunciated by the Patna High Court in the above decision and in view of the Board's circular, we have no difficulty in coming to the conclusion that the status of the assessee should be determined as that of not ordinarily resident within the meaning of Section 6(6)(a), in view of the fact, that the assessee has not been the resident of India in nine out of ten previous years preceding the assessment year 1981-82.

4. The circular mentioned above as far as is relevant for our purposes is as follows (Circular No. 4 [F. No. 73A/2/69-IT(A-II)J, dated 20-2-1969) : Under Section 9(1)(iii), pension accruing abroad is taxable in India only if it is earned in India. Pensions received in India from abroad by pensioners residing in this country, for past services rendered in the foreign countries, will be income accruing to the pensioners abroad and will not, therefore, be liable to tax in India on the basis of accrual. These pensions will also not be liable to tax in India on receipt basis, if they are drawn and received abroad in the first instance and thereafter remitted or brought to India.** ** ** While the pension earned and received abroad will not be chargeable to tax in India if the residential status of the pensioner is either 'non-resident' or 'resident but not ordinarily resident', it will be so chargeable if the residential status is 'resident and ordinarily resident'. The aforesaid status of 'ordinarily resident' cannot, however, be acquired by a person unless he has been resident in India in at least nine out of the preceding ten years. [See Taxmann's Direct Taxes Circulars, Vol.1, 1980 edition, p. 31.] There is no dispute that the pension is drawn and received abroad in the first instance and thereafter it is remitted and brought to India.

That factor taken in conjunction with the status of the assessee being determined as not ordinarily resident, according to the circular quoted above, earns the assessee exemption of his pension income from Indian Income-tax. Therefore, the appeal is allowed and the ITO is directed to determine the status of the assessee as not ordinarily resident and exempt the pension income received by the assessee from income-tax.


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