Residence test under Income-tax law applies to the relevant previous year, and higher non-resident rate does not cover mixed residence status.

Section 4A(a) of the Income-tax Act, 1922 was construed to use "year" in the sense of the relevant previous year under section 2(11), not a single financial year preceding the assessment year, because residence must be tested by reference to the previous year in which income accrues. Section 17(1) was read as applying only where the assessee is non-resident in respect of all sources of income for the assessment year; it does not extend to mixed cases where the assessee is resident for some sources and non-resident for others. The higher rate therefore remained inapplicable on the stated facts.

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Issues: (i) Whether the word "year" in section 4A(a) of the Income-tax Act, 1922 means the previous year as defined in section 2(11) or the financial year preceding the assessment year; (ii) whether section 17(1) applies where the assessee is resident in respect of some source or sources of income and non-resident only in respect of others.

Issue (i): Whether the word "year" in section 4A(a) of the Income-tax Act, 1922 means the previous year as defined in section 2(11) or the financial year preceding the assessment year.

Analysis: The residential tests in section 4A(a) have to be applied in the context of section 4(1), because the total income of a previous year is computed by reference to the assessee's residential status during that previous year. Since different sources of income may have different previous years, the statutory word "year" in section 4A(a) must be read as referring to the relevant previous year and not to a single financial year preceding the assessment year. This construction is supported by the scheme of the Act and the interpretation placed on the cognate provision by the Privy Council.

Conclusion: The word "year" in section 4A(a) means the previous year as defined in section 2(11).

Issue (ii): Whether section 17(1) applies where the assessee is resident in respect of some source or sources of income and non-resident only in respect of others.

Analysis: Section 17(1) imposes a higher rate only where a person is not resident in the taxable territories. Read with the scheme of assessment, the provision is attracted only when the assessee is non-resident in respect of all sources of income for the assessment year, so that his total income is wholly that of a non-resident. The section does not reasonably extend to a mixed case where the assessee is resident for some sources and non-resident for others, and any ambiguity in a taxing provision must be resolved in favour of the assessee.

Conclusion: Section 17(1) does not apply where the assessee is resident in respect of some sources of income and non-resident only in respect of others.

Final Conclusion: The reference was answered in favour of the assessee, and the higher rate under section 17(1) was held inapplicable on the facts.

Ratio Decidendi: In income-tax assessment, the statutory test of residence under section 4A(a) is applied with reference to the relevant previous year, and the special higher-rate provision for non-residents applies only where the assessee is non-resident throughout the total income chargeable for the assessment year.

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