Ita/1489/2009 Of The Commissioner Of Income Tax, Calicut v. Shri.o.abdul Razak,Chemmad, Malappuram

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY MONDAY, THE 13TH DECEMBER 2010 / 22ND AGRAHAYANA 1932 ITA.No. 1489 of 2009() ---------------------- (AGAINST THE ORDER DATED 31/01/2008 IN IT(S&S)A 67/COCH/04 of I.T.A.TRIBUNAL,COCHIN BENCH) .................... APPELLANT / APPELLANT : ----------------------------- THE COMMISSIONER OF INCOME TAX, KOZHIKODE. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SHRI.P.K.R.MENON, SC FOR INCOME TAX RESPONDENT(S): / RESPONDENT : --------------- SRI. O.ABDUL RAZAK, EMIRATES RESIDENCE, KODINHI ROAD, CHEMMAD, MALAPPURAM. ADV. DR.K.B.MUHAMED KUTTY, SENIOR ADVOCATE FOR R1 SRI.K.M.FIROZ FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13/12/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & BHABANI PRASAD RAY, JJ. ---------------------------------- ITA No.1489 of 2009 --------------------------------- Dated, this the 13[th] day of December, 2010 J U D G M E N T Ramachandran Nair, J. The short question that arises for our decision in the appeal filed by the Revenue is whether the Commissioner ofIncome Tax (Appeals) and the Income Tax Appellate Tribunalwere justified in declaring the status of the respondentassessee as a “non-resident” for the assessment year 1989-1990. 2.We have heard learned senior counselShri.P.K.R.Menon appearing for the appellant Revenue andlearned senior counsel Dr.Shri.K.B.Mohammed Kutty appearingfor the respondent assessee. We have heard learned senior counsel 3.The assessee's residential status for assessmentarose for the assessment year 1989-90 in the course ofcompletion of block assessment for the period 1989-90 to I.T.A.No.1489/2009 1999-2000. While filing return, the assessee claimed hisresidential status as “non-resident” for the assessment years1989-90 and 1990-91, and for all the remaining years, hementioned his status as “not ordinarily resident”. Theassessee admitted in the course of enquiry that he had goneabroad and took up business there, or in other words, he hadnot gone there to take up employment under any employer.The Assessing Officer therefore held that since the assesseewent abroad for the first time on 24/09/1988 and though hewas in India for only 177 days, he will be covered by Section 6(1)(c) of the Income Tax Act (hereinafter referred to as the Actfor short), which declares a person as a resident in India forany assessment year, if he was in India in the previous year for60 days or more and was in India for 365 days or more in the4 years immediately preceding that previous year. Since theassessee went abroad on 24/09/1988 and was in India for 177days in the previous year and was in India for more than 365days in the 4 years preceding to that year, the Assessing I.T.A.No.1489/2009 Officer declared the assessee's status as 'resident' for theassessment year 1989-90. Even though, the assessee soughtexception under explanation (a) to Section 6(1)(c) contendingthat since he had gone abroad to take up employment in theprevious year, in order to become a resident under the saidexplanation, he should have stayed in India for not less than182 days in that year, this claim of the assessee was turneddown by the Assessing Officer for the simple reason that“employment outside India” covered by the explanation doesnot include “doing business”, by oneself. In other words, theAssessing Officer was of the view that the assessee will beentitled to the benefit of explanation (a) to Section 6(1)(c) ofthe Act only if such assessee went abroad in the previous yearto take up employment and not for doing business. Eventhough the Assessing Officer completed the assessment forthe assessment year 1989-90 assigning the status of“resident” to the respondent assessee brining into tax in Indiahis global income, in the appeal filed by the assessee, the CIT I.T.A.No.1489/2009 -4- I.T.A.No.1489/2009 -4- (Appeals) held that going abroad for doing business also iscovered by explanation (a) to Section 6(1)(c) of the Act in asmuch as employment referred to the above explanation takeshim self employment also. On second appeals filed by therespondent assessee and the Revenue, the Tribunal confirmedthe order of the CIT (Appeals), against which this appeal isfiled. 4.In order to decide the question, the scope ofexplanation (a) to Section 6(1)(c) of the Act has to beexamined, which reads as follows :- “6.For the purpose of this Act,- (1)An individual is said to be resident in India in any previousyear, if he- (a)is in India in that year for a period or periods amounting inall to one hundred and eighty-two days or more; or----(b) (c)having within the four years preceding that year been inIndia for a period or periods amounting in all to three hundredand sixty-five days or more, is in India for a period or periodsamounting in all to sixty days or more in that year.[Explanation.-In the case of an individual,- (a)being a citizen of India, who leaves India in any previousyear [as a member of the crew of an Indian ship as defined inclause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, theprovisions of sub-clause (c) shall apply in relation to that year asif for the words “sixty days”, occurring therein, the words “onehundred and eighty-two days” had been substituted;] There is no controversy on facts in as much as the assessee was in India for only 177 days in the previous year relevant forthe assessment year 1989-90, and unless it is established thatexplanation (a) to sub clause (c) of Section 6(1) of the Act isnot available to the assessee, he cannot be treated as aresident in India for the purpose of assessing his globalincome including the business income earned abroad duringthe previous year. Obviously explanation (a) is an exception toSection 6(1)(c) of the Act, under which 60 days residencereferred to in clause (c) is substituted to 182 days if theassessee went abroad in the previous year for the purpose ofemployment. Admittedly, the assessee went abroad on24/09/1988 only to take up business there. If the businessundertaken and carried on by the assessee in the previousyear abroad amounts to employment within the meaning ofexplanation (a) to Section 6(1)(c) of the Act, then the assessee I.T.A.No.1489/2009 -6- is entitled to the status of non-resident declared by the CIT(Appeals), which is confirmed by the Tribunal. 5.The contention of the learned senior counselappearing for the Revenue is that employment necessarilyinvolves employer - employee relationship with terms ofemployment and only under an employer a person can beemployed. Learned senior counsel appearing for the assessee,on the other hand, contended that employment in the contextof explanation(a) includes self employment, and taking up andcontinue business is also employment for the purpose of theabove explanation. 6.During hearing, learned senior counsel for theRevenue has relied on the decision of the Supreme Court inLakshminarayan Ram Gopal & Son Ltd.v. The Government ofHyderabad, reported in 25 ITR 449. We do not think thedecision is applicable to the facts of this case. Learned seniorcounsel for the assessee has relied on the Memorandumexplaining the provisions of the Finance Bill introducing the During hearing, learned senior counsel for the I.T.A.No.1489/2009 explanation, contained in 134 ITR 137 (St.)[Para 35 of theFinance Bill), which reads as follows :- 6.During hearing, learned senior counsel for theRevenue has relied on the decision of the Supreme Court inLakshminarayan Ram Gopal & Son Ltd.v. The Government ofHyderabad, reported in 25 ITR 449. We do not think thedecision is applicable to the facts of this case. Learned seniorcounsel for the assessee has relied on the Memorandumexplaining the provisions of the Finance Bill introducing the During hearing, learned senior counsel for the I.T.A.No.1489/2009 explanation, contained in 134 ITR 137 (St.)[Para 35 of theFinance Bill), which reads as follows :- “(iii)It is proposed to provide that where an individual who is acitizen of India leaves India in any year for the purposes ofemployment outside India, he will not be treated as resident inIndia in that year unless he has been in India in that year for 182days or more. The effect of this amendment will be that the “test”of residence in (c) above will stand modified to this extent in suchcases.” Similarly the Central Board of Direct Taxes issued CircularNo.346 dated 30/06/1982, which reads as follows:- “7.3With a view to avoiding hardship in the case of Indiancitizens, who are employed or engaged in other avocations outsideIndia, the Finance Act has made the following modifications in thetests of residence in India:- -----(i)-----(ii) (iii)Where an individual who is a citizen of India leaves India inany year for the purposes of employment outside India, he will notbe treated as resident in India in that year unless he has been inIndia in that year for 182 days ore more. The effect of thisamendment will be that the test of residence in (c) above will standmodified to that extent in such cases.” 7. What is clear from the above is that no technical meaning is intended for the word “employment” used in theexplanation. In our view, going abroad for the purpose of I.T.A.No.1489/2009 employment only means that the visit and stay abroad shouldnot be for other purposes such as a tourist, or for medicaltreatment or for studies or the like. Going abroad for thepurpose of employment therefore means going abroad to takeup employment or any avocation as referred to in the Circular,which takes in self employment like business or profession. So much so, in our view, taking up own business by theassessee abroad satisfies the condition of going abroad for thepurpose of employment covered by explanation (a) to Section6(1)(c) of the Act. Therefore, we hold that the Tribunal hasrightly held that for the purpose of the explanation,employment includes self employment like business orprofession taken up by the assessee abroad. We therefore dismiss the appeal filed by the Revenue. (C.N.RAMACHANDRAN NAIR, JUDGE) (BHABANI PRASAD RAY, JUDGE)