Residential status test for foreign income taxability under the Income-tax Act turns on the karta's presence in British India.

Foreign income remained taxable because the Hindu undivided family could not satisfy the statutory test of being "not ordinarily resident" under Section 4B(a) of the Indian Income-tax Act, 1922. The relevant criterion was actual presence in British India for an aggregate period exceeding two years during the preceding seven years, and the family's residential status followed that of its karta under Section 4B(b). As the karta had been resident in British India in nine of the ten preceding years and met the two-year presence condition, the family did not qualify for the exemption and its foreign income was rightly included in the assessment.

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Issues: Whether, on the facts found, the Hindu undivided family was "not ordinarily resident" in British India within the meaning of Section 4B(a) of the Indian Income-tax Act, 1922, so that its foreign income was exempt from inclusion in the total income for assessment.

Analysis: Under Section 4(1), a resident's foreign income is ordinarily chargeable, but the proviso withdraws taxability where the person is not ordinarily resident and the income is neither derived from a business controlled in India nor brought into British India. Section 4B(a) lays down when an individual is not ordinarily resident, and the test in the second limb is one of presence in British India for an aggregate period of more than two years during the preceding seven years. The status of the karta governed the status of the Hindu undivided family under Section 4B(b). As the karta was resident in British India in nine out of the ten preceding years and had been in British India for more than two years in the relevant seven-year period, the statutory condition for being not ordinarily resident was not satisfied.

Conclusion: The family was not entitled to claim the status of "not ordinarily resident" and its foreign income was correctly included in the assessment.

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue on the interpretation of Section 4B(a).

Ratio Decidendi: For purposes of Section 4B(a) of the Indian Income-tax Act, 1922, the relevant test is actual presence in British India for an aggregate period exceeding two years during the preceding seven years, and a Hindu undivided family takes the residential status of its manager under Section 4B(b).

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