ORDER
R.S. Syal, A.M.
1. This appeal by the assessee arises out of the order passed by the CIT(A) dt. 2nd July, 2004 in relation to asst. yr. 2001-02.
2. The main grievance projected through the various grounds is against treating the residential status of the assessee as “resident and ordinarily resident” (hereinafter called ROR), which was claimed by him to be “resident but not ordinarily resident” (hereinafter called RNOR).
3. Briefly stated the factual matrix of the case is that the assessee received interest on term fixed deposit from bank which was claimed as exempt under Section 10(15)(iv)(fa). The reason for exemption was stated to be the assessee’s residential status as RNOR. The interest income accrued on term deposits in dollars deposited in the bank, which investment was at $ 52,250. On being called upon to prove the status as claimed, the assessee furnished a chart showing his stay in India in the preceding years as under:
Stay in India
A.Y. 1991-92 29 days (28.2.93 to 29.3.93)
A.Y. 1992 93 15 days (9.12.91 to 11.12.91 & 19.3.92 to 31.3.92)
A.Y. 1993-94 23 days (1.4.92 to 24.4.1992)
A.Y. 1994-95 24 days (13.3.1993 to 6.9.1993)
A.Y. 1995-96 92 days (19.5.1994 to 27.5.1994 + 30.10.94 to
5.11.1994 + to 31.3.95)
A.Y. 1996-97 366 days Resident
A.Y. 1997-98 365 days Resident
A.Y. 1998-99 359 days Resident
A.Y. 1999 2000 365 days Resident
A.Y. 2000-01 366 days Resident
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Total 1937 days (in 7 preceding years)
4. The AO observed that the above chart showed that the assessee was not “non-resident” in 9 out of 10 years and had also resided in India for more than 730 days in the preceding 7 years. Accordingly the status of ROR was granted, as a consequence of which the exemption under Section 10(15)(iv)(fa) was denied which resulted in charging to tax the interest income to the tune of Rs. 1,97,450. The first appeal did not cheer up the assessee as the assessment order was affirmed by relying on the judgment of the Hon’ble Gujarat High Court in the case of Pradip J. Mehta v. CIT .
5. We have heard the rival submissions and perused the relevant material on record. From the narration of the above facts it is clear that the assessee had claimed exemption of interest income at Rs. 1,97,450 under Section 10(15)(iv)(fa) on the ground that he was RNOR as against the AO and the learned first appellate authority assigning the status of ROR and charging to tax the interest income.
6. It is pertinent to note that the determination of correct residential status of an assessee is of paramount importance because the scope of total income as per Section 5 depends on it. A person who is a resident is liable to tax in respect of his world income received or deemed to be received, accruing or arising or deemed to be accrued or arose to him in India and also outside India. On the contrary a non-resident is liable only in respect of income received or deemed to be received, accruing or arising or deemed to accrue or arise in India only. It implies that the income derived by such non-residents from any source outside India is immune from taxation under the IT Act, 1961. The third category of the assessees having status of “not ordinarily resident” within the meaning of Section 6(6) is subject to tax in respect of income received or accruing or arising or deemed to be received, accruing or arising in India unconditionally and insofar as the income accruing or arising outside India is concerned, it would be put to tax only if it is derived from a business controlled in or a profession set up in India.
7. The assessee in the instant case has earned interest income on term fixed deposits from bank, which was claimed as exempt under Section 10(15)(iv)(fa). This exemption is available to the assessees having status of non-residents or not-ordinarily residents provided the acceptance of such deposits in foreign currency by banks is approved by the RBI. The AO has not denied that all the requisite conditions for claiming this exemption except the residential status of the assessee, are fulfilled. The moot question requiring adjudication at our end is to find out the correct residential status of the assessee. In other words if the residential status of the assessee is determined as ROR, there will not be available any benefit of exemption as claimed by the assessee and in the alternative if the assessee’s view is accepted that he was RNOR, then the benefit of exemption could not be denied.
8. At this juncture it would be apt to note down the material part of Clause (6), Section 6 prior to its substitution by the Finance Act, 2003, w.e.f. 1st April, 2004 which is as under:
(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.
It is equally important to consider Section 6(1) which runs as follows:
6. For the purposes of this Act,–
(1) An individual is said to be resident in India in any previous year, if he–
(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or
(b) (omitted w.e.f. 1st April, 1983)
(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.
On a careful and conjoint reading of the above sub-sections, it becomes clear that an individual is resident in India in any previous year if he satisfies the conditions of Section 6(1). Thus if an individual is in India for a total period of 182 days or more in the previous year, he would be treated as resident in India. If, however, conditions as per either of the two clauses, i.e., (a) or (c) of Section 6(1) are not satisfied, i.e., the individual is neither in India for a total period of 182 days or more or in previous year nor he had been in India for a total period of 60 days or more in previous year together with 365 days or more in 4 years preceding that year, he will acquire the status of non-resident. The essence of Section 6(6) is that where the individual is resident in the previous year, but was not resident in India in 9 out of 10 previous years preceding that year or was not in India for total period of 730 days or more in seven years preceding that year, then his residential status will become RNOR. Thus in order to acquire the status of RNOR, it is sine qua non that on one hand the individual should not be non-resident in that year and on the other hand he should firstly be resident in that year and thus should fulfill either of the conditions of Section 6(6). That is, he should meet either of the conditions of Section 6(1), say, be in India for 182 days or more in the previous year and thereafter either of the conditions enshrined in Section 6(6) be fulfilled, say, he should not be the resident in India in 9 out of 10 previous years preceding that year.
9. Adverting to the facts of the case as borne out from the assessment order we note that the assessee was residing in India from 1st April, 1995 to 31st March, 2001 and during that period he was out of India only for 6 days, i.e., from 8th June, 1997 to 14th June, 1997. The position which therefore emerges is that in the previous year (i.e., from 1st April, 2000 to 31st March, 2001) he was in India for 365 days, thereby successfully satisfying the test of Section 6(1) and was also not resident in two years, i.e., asst. yrs. 1994-95 and 1995-96 in 10 years preceding the previous year (i.e., 1st April, 1990 to 31st March, 2000) thereby fulfilling the criteria as per Section 6(6), being not resident in India in 9 out of 10 previous years preceding that year.
10. Now we will focus on the viewpoint canvassed by the learned CIT(A) in the penultimate para of the impugned order that in order to claim residential status of RNOR both the conditions set out in Section 6(6)(a) be cumulatively fulfilled, that is the assessee should not be resident in India in 9 out of 10 previous years preceding that year and also should not be in India for 730 days or more in 7 years preceding that year. From the factual position noted supra, we note that the assessee is satisfying the first condition of Section 6(6)(a) and not the second.
11. Here we are reminded of the well settled literal rule of interpretation as per which the language of the section should be construed as it exists. The intention of the legislature is to be gathered from the words used and should not be needlessly inferred. It has been held by the Hon’ble Supreme Court in numerous judgments including the case of Federation of Andhra Pradesh Chambers of Commerce & Industry and Ors. Etc. Etc. v. State of Andhra Pradesh and Ors. Etc. Etc. that taxing statute has to be strictly construed and nothing can be read in it. Similar view has been taken in the case of Padmasundara Rao (Decd.) and Ors. v. State of Tamil Nadu and Ors. in which it was field that “while interpreting a statute legislative intention must be found in the words used by the legislature”. Similar view has been reiterated in the case of Commr. of Agrl. IT v. Plantation Corporation of Kerala Ltd. (2000) 164 CTR (SC) 502 : (2001) 247 ITR 155 (SC) providing that “So long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible”.
12. Coming back to the language of Section 6(6)(a) we find that the word ‘or’ has been used between the lines “who has not been resident in India in nine out of ten previous years preceding that year” and “has not during the seven years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more”. It is beyond our comprehension as to how the learned CIT(A) could substitute the word ‘and’ for the word ‘or’ used in the section. The intendment of the legislature is manifest that either of the two conditions of Section 6(6)(a) and not both be complied with for acquiring the residential status of RNOR. As in the facts and circumstances of the present case, the assessee has satisfied the first condition and not the second, we are of the considered opinion that the learned CIT(A) erred in holding that the residential status of the assessee was ROR.
13. Now we will refer to the legal position arising out of the judicial precedents on the issue, which seems to be no more res integra in view of the judgment of the Hon’ble apex Court in the case of CIT and Anr. v. Morgenstern Werner in which the judgment of the Hon’ble Allahabad High Court in Morgenstern Werner v. CAT was affirmed. The facts of the case as recorded by the Hon’ble High Court are that the petitioner worked with the Kraft Work Union (Siemens), Germany and drawing his salary of DM 3882 per month in Germany. BHEL sought the services of a technical liaison officer. The Ministry of Industries, Government of India informed the BIIEL about the approval of the Government for engaging his services in that case for a period of 1.5 years in India on terms of payment of daily allowance or Rs. 500 per day in India. On the basis of the said approval the petitioner came to India for rendering the service to BHEL on deputation basis. The petitioner in that case by way of revision’ application under Section 264 claimed that the salary was not received in India and hence he was not liable to pay any tax in India. When the controversy reached the High Court, it held in para 6 as under:
Considering the aforesaid provisions of law, I find that a person is ‘not ordinarily resident’ in India if in nine out of the ten preceding years he had stayed outside India. Admittedly, it is nobody’s case that the petitioner had stayed in India during the preceding nine years. In that view of the matter, I have no doubt in my mind that the petitioner is ‘not ordinarily resident’ in India and will be governed by the proviso to Section 5(1)(c) of the Act.
The Hon’ble Supreme Court affirmed the view of the Hon’ble High Court holding that the assessee was a person “not ordinarily resident” in India as the High Court found that the assessee had not stayed in India during the preceding 9 years and hence he was “not ordinarily resident in India”. From the above judgment of the Hon’ble Supreme Court it becomes crystal clear that the opinion of the learned first appellate authority for fulfilling both the conditions of Section 6(6) simultaneously is no more correct. When one of these two conditions as laid down in Section 6(6)(a) is fulfilled, the status of resident gets converted into RNOR. All the judgments and orders inconsistent with the view of the Hon’ble Summit Court stand impliedly overruled. We, therefore, hold that as the assessee had not been resident in India in 9 out of 10 previous years preceding that year, his claim for status of RNOR cannot be negatived.
14. Before parting with this appeal and to provide completeness to this order we would like to mention that Section 6(6) has been substituted by the Finance Act, 2003 w.e.f. 1st April, 2004. In the present appeal we are concerned with the pre-amendment era as the assessment year involved is 2001-02. The substituted Sub-section (6) of Section 6 is prospective as has been laid down by the Lucknow Bench of the Tribunal in the case of Abhay Pratap Singh Sengar v. ITO (2007) 109 TTJ (Lucknow) 255 : (2007) 108 ITD 8 (Lucknow) and hence can have no retrospective application to the year in question.
15. To sum up, we hold that the residential status of the assessee is “resident but not ordinarily resident” and the claim of exemption under Section 10(15)(iv)(fa) for interest amounting to Rs. 1,97,450 is as per law. The consequential charging of interest under Section 234B would also be brought to naught. We, therefore, set aside the impugned order and accept the assessee’s contention.
In the result, appeal of the assessee is allowed.