S. Ramachandra Iyer, C.J.
(1) The substantial question that now falls for determination on this reference is whether the assessee, a Ceylon national, was a 'resident' in this country in the previous financial year relevant to the assessment year 1942-43. For a due consideration of that question it is necessary to refer to certain events that took place during that period.
(2) The assessee had, from the time of his father, a business as ship-chandlers of Rangoon. Japan declared war against Burma on 9-12-1941. A week later, the assessee remitted a sum of Rs. 15000 to his brother-in-law, in Ceylon to purchase a house for him, evidently with an intention to occupy it in case he were obliged to leave for his home country. But the house was never purchased. The war scare became greater during the month of January 1942 in Rangoon. The assessee sent his wife and children to Ceylon in that month. After arrival at Jaffna, the children were admitted in the school there. The assessee sent to his wife during the month of January and February 1942 a sum of Rs. 61,300. She deposited that sum, together with other sums that she had brought wit her, in the Chartered Bank at Colombo. During the same months, the assessee also remitted a sum of Rs. 36500 to the Chartered Bank of Calcutta for an account to be opened in his name.
(3) Civilian, evacuation of Rangoon was ordered by the Military Authority on 22-2-1942, and the assessee left the place on the same day to Calcutta. While he left Rangoon, his intention was undoubtedly to go to Ceylon, for he had put up a board in front of his house in Rangoon to that effect that he was leaving for his 'Sweet Home in Jaffna.'
(4) After arriving at Calcutta, he purchased a demand draft payable at the Colombo branch of the bank of Rs. 20000. It is clear from the evidence that at that time he was not even aware as to whether the moneys remitted by him to his wife from Rangoon had reached her, for he sent a telegram to his brother-in-law asking for information in that behalf. The assesee left Calcutta on 15-3-1942, and arrived at Madras on 17-3-1942. He left Madras on the following day, reaching Ceylon two days later. In the meanwhile his wife appears to have transferred sums totalling Rs. 86000 to this country for opening accounts in the various banks situate in Lucknow, Allahabad, Kanpur and Amritsar. Those remittances by the assessee's wife were made during the month of March 1942. Shortly after the assessee's arrival at Ceylon, Trincomalle was bombed by the Japanese on 5-4-1942. That event perhaps made the assessee to think about his failure residence. On 9-4-1942, the assessee's brother-in-law wrote to him a letter form Colombo intimating the fact that he, as per his request, had remitted a sum of Rs. 5814.96 to the Colombo branch of the Mercantile Bank and added:
'I note you propose to leave on Saturday. If you have decided to go to India, I will strongly advise you to leave tomorrow rather than on Sunday, because I have good reasons in asking you to advance the date of departure by one day. Things are not bright at all.'
This letter would show that, at any rate, so far as the brother-in-law was concerned, the assessee had not intimated to him that he had finally decided to settle down in India. He left Ceylon with his family on 9-4-1942, and arrived at Kancheepuram from thereafter and resided there in a house taken upon lease.
(5) The Income-tax Officer, Kancheepuram, commenced proceedings in the year 1958 under S. 34 of the Act and called upon the assessee to submit a return for the assessment year 1942-43. The assessee submitted a return claiming that during the relevant year of account he was a non-resident. He further claimed that S. 34 as it stood after amendment, which extended the time limit to 8 years could not operate retrospectively, as the time within which proceedings against hi, could be initiated had expired on 31-3-1947, before the amended section came into operation. The Income-tax Officer overruled both the contentions and brought to tax a sum of Rs. 1,39,000 as remittances of profit earned in foreign parts.
(6) An appeal from that order to the Appellate Assistant Commissioner failed. The assessee then preferred a further appeal to the Appellate Tribunal raising the same contentions. The Tribunal accepted the view that S. 4-A(a)(iv) had no application to the assessee, as he arrived in India with the requisite intention of staying here only in which alone would entitle the authorities to bring the amount to tax. The tribunal also upheld the objection to the validity of the proceedings under S. 34. In so holding it followed the decision of this court in Mohd. Hussain Nachiar v. Commr. of Income-tax, : 29ITR848(Mad) . Thereupon the department obtained the present reference to this court under S. 66(1) of the Indian Income-tax Act, which raised he following questions.
'1. Whether the application of S. 34 is valid.
2. If the answer to the above question is in the affirmative, (a) whether the satisfaction the Income-tax Office referred to in S. 4-A(a)(iv) is subjective only and accordingly not open to be challenged in appeal; (b) Whether the assessee is a 'resident' within the meaning of S. 4-A(a)(iv).'
The Reference came up before us on 4-10-1961. By that time the view taken in : 29ITR848(Mad) had been followed in another case. United Nilgris Service Ltd. v. Commr. of Income-tax . We followed the two decisions referred to above and answered question No. 1 in favour of the assessee. In view of our answer tot he first question, it became unnecessary for us to answer the second.
(7) The Department feeling dissatisfied with our answer, filed an appeal to the Supreme Court, which was registered as C. A. No. 953 of 1963. While that appeal was pending, the decision in : 29ITR848(Mad) was reversed in regard to the first question we have stated above. The Supreme Court judgment is reported in Commr. of Income-tax v. Janaba Md. Hussain Nachiar Ammal : 49ITR80(SC) . When C. A. No. 953 of 1963 came up before the Supreme Court, it was pointed out that the first question must be answered in favour of the Department, having regard to the earlier decision of the Supreme Court referred to above. The Supreme Court accepted the appeal. As the second question in the reference had not been decided by us, the matter has been remitted to this court for final disposal.
(8) We are, therefore, now concerned only with the second question. In the case of a foreigner, like the assessee, residence will be the essential test of the liability to income-tax. To attract liability the assessee must have resided in this country during the year of account. Section 4-A lays down the tests for ascertaining the residence of an assessee. That states:
'For the purposes of he Act-(a) any individual is resident in the taxable territories in any year if he..................................................................
(iv) is in the taxable territories for anytime in that year and the Income-tax Officer is satisfied that such individual having arrived in the taxable territories during that year is likely to remain in the taxable territories for not less than 3 years from the date of his arrival.'
It will be seen form the terms of the section that the 'residence' must be determined with reference to each year. What is importance to consider will therefore be whether the assessee was a 'resident; in the year of account. For that purpose, he should have factually come into the taxable territories at any time during that year, and secondly, the Income-tax Officer must be satisfied that such individual is likely to remain in the taxable territories for not less than three years from the date of his arrival. In other words, it has to be determined, by the Income-tax Officer that, when the assessee arrived in India during the year of account he had the intention of continuing to reside here for not less than three years. If he had not that intention then, the mere fact that during the subsequent years he made up his mind to come and remain in this country for the requisite period will not make him a 'resident' during the relevant year of account. Per contra, if the assessee had the intention at the time of his coming here of continuing to remain in this country for more than three years, the fact hat he changed his mind in the following year and left this country will not affect his liability to tax as a 'resident'.
(9) Whereas in this case assessment proceedings are commenced more than three years after the date of arrival of the assessee in this country, it is inevitable that the factual position would, to a large extent colour the judgment of the Income-tax Officer as to whether the assessee had the intention when he arrived, of remaining in this country for the prescribed period. But even so, the essential thing to be found is the intention of the assessee when he arrived in this country during the year of account. That question will largely be one of fact to be decided on a consideration of relevant circumstances. Further, as residence determines the liability to tax, the decision of the Income-tax Officer in that regard will be subject to an appeal and a further appeal as provided under the Act. Whether the circumstances warrant as inference that the assessee had the intention when he arrived of living in this country for the next three years will have to be decided objectively. We have therefore no hesitation in answering the first part of the second question in the negative and against the department.
(10) What then has to be considered is, whether there are materials on record to justify the conclusion reached by the Appellate Tribunal that the assessee was not a 'resident'. We have already referred to the fact that the assessee arrived in Calcutta sometime about 13-3-1942., and at Madras on 17th march of the same year. That he came to these places only on his way to the Jaffna, where, according to him, was the 'Sweet Home', is fairly clear on the evidence. There is also the fact that soon after arrival at Jaffna in January 1942, his wife had admitted her children in the schools at Jaffna, praying the school fees for the entire term. There is further evidence to show that the assessee took as large a sum of Rs. 20000 from Calcutta to Jaffna. If he had then an idea of coming back to this country, there would have been no need at all for that amount. As we said, there was bombing by the enemy in Trincomalle on 5-4-1942. This must probably upset the plans of the assessee. The letter of he assessee's brother-in-law dated 9-4-1942, clearly shows that to the knowledge of the writer the assessee had not even then finally made up his mind to come to his country. The Income-tax Officer took the view that inasmuch as sums amounting to Rs. 86000 had been remitted by the assessee's wife for opening accounts at various places in India, the assessee must have had an intention of coming and settling down in this country even by that time. There is, however, no evidence available in this case to indicate that what the wife did was on the advise or with concurrence of this husband.
It is seen from the telegram sent by the assessee from Calcutta on 13-3-1942, that he was not even sure whether the amounts that he sent from Rangoon had reached his wife. A substantial part of the remittance by the wife to this country had been made even before 15-3-1942. Therefore, the conduct of the wife in opening up banking accounts in various places in India cannot be taken as decisive of the fact that it was done with the knowledge of the husband. Secondly, the mere fact that investments were made in a foreign country cannot by itself indicate that the remitter had an idea of settling down in that country. We have however sufficient material in the case to show that by 9-4-1942, the assessee had made up his mind to come and settle down in this country. But that circumstances cannot in the light of the other events we have narrated above, be taken as evidence of any anterior intention on his part to remain in this country for any length of time. There is every probability of the assessee having decided to take up his residence in this country only in the month of April 1942, after Trincomalle was bombed by the enemy. We are, therefore, of opinion that the Tribunal had sufficient material before it to sustain its conclusion that during the month of march 1942, the assessee did not stay in this country with any intention of taking up his residence for the prescribed period to time. Our answer to the second part of the second question will be in the negative and in favour of the assessee. The department will pay the costs of the assessee. Advocate's fee Rs. 250/-.
(11) Answer accordingly.