Not ordinarily resident test turns on residence in taxable territories, and exemption failed on the facts found.

For determining whether an individual was "not ordinarily resident" under Section 4B(a) of the Indian Income-tax Act, 1922, the statutory enquiry centres on residence in the taxable territories during the relevant period, not on time spent outside them. The provision sets two alternative tests: non-residence in the taxable territories in nine of the ten preceding years, or absence from the taxable territories for more than two years during the seven preceding years. On the facts found, the assessee had been in the taxable territories for more than two years within the seven-year period and therefore failed the statutory test. The claimed exemption was accordingly unavailable.

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Issues: Whether the assessee was "not ordinarily resident" in the taxable territories during the relevant accounting year so as to claim exemption under the second proviso to Section 4(1) of the Indian Income-tax Act, 1922.

Analysis: Section 4B(a) of the Indian Income-tax Act, 1922 lays down two alternative tests for determining whether an individual is "not ordinarily resident": he must either not have been resident in the taxable territories in nine out of the ten preceding years, or he must not during the seven preceding years have been in the taxable territories for a period exceeding two years. The relevant enquiry is directed to the assessee's residence in the taxable territories, not to the time spent outside them. On the facts found, the assessee had been in the taxable territories for more than two years during the seven-year period, and therefore did not satisfy the second condition.

Conclusion: The assessee was not "not ordinarily resident" in the taxable territories and was not entitled to the claimed exemption.

Final Conclusion: The reference was answered against the assessee, and the claimed exclusion from total income failed.

Ratio Decidendi: For the purpose of Section 4B(a), the statutory test of "not ordinarily resident" is satisfied only by reference to the assessee's residence in the taxable territories during the relevant period; residence outside the taxable territories does not count towards fulfilling the two-year condition.

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