2000 (8) TMI 2 - SC - Income Tax

Supreme Court Grants Tax Exemption to Non-Resident Appellant

The Supreme Court ruled in favor of the appellant, determining that the appellant was a person resident outside India during the relevant period. The ... Appellant, though of Indian origin, has settled down in Malaysia in 1941 and acquired Malaysian citizenship. His wife and children reside in India and he owns some agricultural land, house property and investments in banks in India. - he claimed that the interest accrued on the credit balance in his Non-resident (External) Account cannot be included in computing his total income in view of s. 10(4A) - held assessee is a resident outside India as defined in section 2(q) of FERA Issues:1. Determination of residency status under the Foreign Exchange Regulation Act.2. Interpretation of the stay provision with spouse for residency status.3. Application of section 10(4A) of the Income-tax Act.Analysis:1. Determination of Residency Status: The main issue in this case was to determine whether the appellant-assessee qualified as a resident outside India under section 2(q) of the Foreign Exchange Regulation Act, 1973. The appellant, an individual of Indian origin settled in Malaysia, claimed exemption under section 10(4A) of the Income-tax Act for interest accrued on his Non-resident (External) Account. The assessing authority considered him a resident in India due to his stay with his wife and children in India, leading to a series of appeals and references.2. Interpretation of Stay Provision with Spouse: The High Court held that under section 2(p)(iii)(c) of the Foreign Exchange Regulation Act, a person staying with their spouse in India, where the spouse is a resident in India, should be considered a resident in India. The appellant's counsel argued that the stay with the spouse should be somewhat permanent, not temporary, for the residency determination. The court emphasized that the stay provision required a more permanent residence rather than a short-term or casual stay, aligning with the intention of staying in India for an uncertain period.3. Application of Section 10(4A) of the Income-tax Act: Section 10(4A) of the Income-tax Act excludes income from interest on a non-resident's account in India when computing the total income of a person resident outside India. The definition of 'person resident outside India' in section 2(q) of the Foreign Exchange Regulation Act is crucial for determining the applicability of this provision. The court clarified that the stay provision with the spouse should signify a more permanent residence rather than a temporary stay, ensuring that the appellant could be considered a resident outside India as per the relevant legal definitions.In conclusion, the Supreme Court ruled in favor of the appellant, determining that the appellant was a person resident outside India during the relevant period. The court set aside the High Court's order, allowing the appeals and granting the appellant the exemption under section 10(4A) of the Income-tax Act.