The moment one become resident in India as per Income Tax Act, his global income becomes taxable. If one is Non Resident, his income earned outside India is not taxable. So, for a non resident, there is always danger of taxation of global income if stay is longer than specified numbers of days in India.
A very interesting interpretation in favour of all Non Resident Indians by ITAT, Bangalore has been confirmed by Karnataka High Court on the the question whether the period of visit by NRI preceding his return to India should be excluded from the total stay of NRI. Karnataka High Court in Manoj Kumar Reddy Nare [2011] 12 taxmann.com 326 (Kar.), has held that the period of visit by a Non Resident shall be excluded for counting the number of days of stay in a year for the purpose of determination whether he/she is resident in India in that year.
How does this decision affect all Non Resident Indian?
The two ways a person becomes resident in India are :
You are resident in India if you fulfill any of the following two conditions
1. If you are in India for 183 days [Section 6(1)(a) of the Act], or
2. you are in India 60 days in the year for which residential status is being found out and in preceding four years to that year, you are in India for 365 days in aggregate [Section6(1)(c) of the Act].
Exception to aforesaid second Rule of stay in 60 days.
There are two exception to the rule of 60 days (plus 365 days in aggregate ). These are:
If a person satisfies any of the following conditions, one can stay upto 182 days instead of 60 days in the previous year for which residency is checked
1. Indian resident leaves India during previous years for the purpose of employment outside India.
2. Indian Citizen or Person of Indian Origin, being outside India, comes on a visit to India.
The decision of Karnataka High Court favours NRI because the Court held that if NRI comes on visit to India, the numbers of days he comes on visit, should be excluded from computation of 60 days for the purpose of determination of residency.
Case before Karnataka High Court
In this case, the issue before the Karnataka High Court was to determine the residential status of an individual assessee for assessment year 2005-06 (previous year 2004-05). The assessee who was an employee of an Indian company was deputed to Chicago, USA with effect from 1st February 2004. He stayed in India for 365 days during each of the years from previous year 2000-01 to 2006-07, except for the previous years 2003 -04 and 2004-05, wherein he stayed in India for 306 days and 78 days respectively. The stay of 78 days during previous year 2004-05 (“the relevant previous year”) included the days of his visit to India from 18th August 2004 to 6th September 2004.The assessee came back permanently to India on 31st January 2005. The assessee was held to be resident as his stay during the relevant previous year exceeded 60 days and stay during the four years immediately preceding the relevant previous year was more than 365 days. During the course of proceedings before the ITAT, an alternative contention was raised on behalf of the assessee. It was contended that period of 60 days referred to in section 6(1)(c) of the Act should exclude the period of stay in India while on a visit and that non-acceptance of this contention would lead to an absurd result Two examples were given in this regard:
Example A: A person (citizen of India / PIO) who comes on a visit to India and stays in India for 120 days would be treated as non-resident, as the threshold in his case for being treated as resident in India would get extended to 182 days instead of 60 days by virtue of clause (b) of the Explanation.
Example B: If a person (citizen of India /PIO) comes on visit and stays in India for 90 days and returns abroad and later on comes back to India permanently and he stays in India for a period of 30 days, he will become a resident according to A O. In this case, the threshold would not get extended to 182 days as the assessee has come back to India permanently.
Thus, it was put forth on behalf of the assessee that an individual coming to India during a previous year on a visit and later coming back to India permanently during the same year would face hardship vis-a-vis a person coming to India only on visits during a previous year and staying in India for the same period as the former. While considering this contention, the ITAT referred to the corresponding provisions of the Indian Income-tax Act, 1922 and after considering the legislative history and the intention of the legislature, agreed with the contention of the assessee that period of stay on a casual or occasional visit to India is not to be reckoned while computing the period of stay in India. Thus, the period of the assessee’s visit (from 18th August 2004 to 6th September 2004) was held to be excludible from his stay in India during the relevant previous year. Karnataka High Court held:
6. The material on record would clearly show the fact that the assessee was to work in U.S.A., though he continued to be an employee of the company in India, on the basis of the letter of Deputation. However, there is a concurrent finding by the Assessing Officer, the Appellate Authority and the Tribunal, that excluding the time during which he was visiting India, the requisite number of days, that is 60 days during the current year, the assessee was not in India and therefore, he is to be treated as non-resident and cannot be taxed as a resident under section 6(1)(c). The said finding of fact is arrived at on the basis of the material on record. The Tribunal and the Appellate Authority have relied upon a certificate issued by Warton Residential, the employer, which is dated 18-1-2008. In the certificate, it is stated that the assessee was resident of River North Park Apartments from 20th March, 2004 until 9th April, 2005 and that during the said period, he resided at 320 W, Illinois St. #801, Chicago. It is held by the Tribunal that it is a fact that the assessee was on deputation from April 2004 to January 2005 and his stay in India from 18th August, 2004 to 6th September, 2004 was in respect of a visit to India and this period is to be excluded while considering the applicability of section 6(1)(c). By holding so, the Tribunal accepted the alternative contention of the assessee and held that for the purpose of computing the period of 60 days as mentioned in section 6(1)(c), the period of visit to India would be excluded and assessment shall be done considering his status as ‘non-resident’.
7. The above said finding of fact, cannot at all said to be perverse and arbitrary as it is well-founded and all the material available have been taken into consideration by the Appellate Authority and the Tribunal. Therefore, no substantial question of law arises for consideration in this appeal. Accordingly, appeal is dismissed.
This observation of the Karnataka High Court may particularly be important in tax planning of outbound employees. An outbound employee, who comes to India on a visit during a particular year, and also comes back permanently after the end of his deputation in the same year, will be able to retain the status of non-resident by virtue of the observation of Karnataka High Court.
This will however need to be examined on case to case basis.
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