2026 (1) TMI 560 - AT - Income Tax

Tax residency for overseas Indian visitor u/s6 182-day rule and DTAA tie-breaker, residence upheld, appeal dismissed

The dominant issue was whether the individual was 'resident' under s. 6(1)(c) and entitled to the 182-day relaxation under Expln. 1(a)/(b). The ITAT ... Period of stay in India - criteria of 'permanent home' - 'being outside India' OR 'being non-resident' - residential status of Appellant u/s 6(1)(c) - assessee is resident of India or not? - habitual abode and nationality - assessee submitted that he did not 'continue to stay in India' - assessee submitted that assessee has a permanent home in Singapore and assessee does not own any residential house in India and he has also not taken any house on rent in India it was the claim of the assessee that on the criteria of 'permanent home' assessee has a permanent home in Singapore and does not have a permanent home in India - 'Tiebreaker' test of DTAA - Tie-breaker clause under Article 4 of the India-Singapore DTAA - applicability of provisions of Explanation is 7 (a) to section 9(1)(i) of the Act. HELD THAT:- It is an undisputed fact that in FY 2019-20, assessee stayed in India for 141 days. Therefore according to section 6(1)(a) assessee does not cross threshold of 182 days. According to provision of section 6(1)(c) of the Act, if having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year. Thus, both the cumulative considering of stay in four preceding years and also of stay in the relevant financial year needs to be satisfied to hold the assessee as resident in India. Thus assessee has stayed for more than 365 [1237 days] in preceding four years, the first threshold of section 6(1)(c) is met. Second threshold is of 60 days or more in the impugned financial year, for which assessee has stayed for more than 141 days in India. Therefore it also crosses the second threshold for satisfaction of section 6(1)(c) of the Act. Explanation 1(b) to section 6(1)(c) provides for a concession for Indian citizens or persons of Indian origin who, being outside India, come on a visit to India in any previous year. In such cases, the prescribed period of 60 days in India to be considered a resident under clause (1)(c) is relaxed to 182 days. The objective behind this relaxation is to enable non-resident Indians who have made investments in India and who find it necessary to visit India frequently and stay here for the proper supervision and control of their investments to retain their status as non-resident. As decided in Binod Kumar Singh [2019 (4) TMI 1533 - BOMBAY HIGH COURT] the assessee had migrated to a foreign country where he had set up his business interest. He pursued his higher education abroad, engaged himself in various business activities and continued to live there with his family. His whatever travels to India, would be in the nature of visits, unless contrary brought on record. As in Sudhir Choudhrie [2017 (5) TMI 774 - ITAT DELHI] the word 'being outside India' for non-residents only as assessee was residing abroad and came to India claiming extension of time line from 60 days to 182 days. Subsequent amendment in clause (b) of Explanation 1 also shows that it is enacted to counter instances where individuals who actually carry out substantial economic activities from India manage their period of stay in India to remain a non-resident in perpetuity and not be required to declare their global income in India. The amendment restricts the relaxation in clause (b) in Explanation 1. This, it is not obviating the difficulty of ' Non-resident' but restrictions to their non- residential status. This also shows that clause (b) of Explanation [1] applies only to non-residents. Thus, we hold that ld AO and Ld DRP has correctly held that period of stay cannot be extended to 182 days instead of 60 days for deciding the residential status of the assessee as per second limb of section 6(1)(c) of the Act by virtue of Explanation 1 (b) of the Act. Submission made by the assessee itself shows that he is not a person who is leaving India for employment but he is residing in Singapore, comes on brief visit to India. If the stand of the assessee is accepted that for this assessment year [ AY 2020-21] also the assessee should get a benefit of extended time period of 182 days instead of 60 days as per the second limb of section 6(1)(c) of the Act than every person who visits India will get such an extension of period every year. The provision applies only to the person who are leaving India and not visiting India. That is neither the intention nor the spirit of the provisions. Therefore he does not qualify even for the relaxation provided under Explanation 1 (a) of section 6(1)(c) of the Act. It is not in dispute between the parties and both have confirmed that it is well settled that in construing fiscal statutes the principle of literal construction is paramount. Nothing can be read into or implied beyond the plain meaning of the words used. We also agree with the above submission of both the parties and we have construed the provisions of section 6 for the purpose of deciding the residential status of the assessee giving literal construction to the provisions. We accept the attempt of neither the revenue or assessee to read something more what has been legislated. Therefore, we hold that assessee has been in India for more than 60 days and satisfied the residential test of provisions of section 6(1)(c) of the Act and is not entitled to the relaxation in the period of stay as envisaged under clause (a) or (b) to Explanation 1. Argument of the assessee that he satisfies the criteria to be considered as a resident of Singapore as per Article 4 of the India Singapore Double Taxation Avoidance Agreement which has not been appreciated by the learned dispute resolution panel and the learned assessing officer who erroneously held that assessee is a resident of India even on application of Article 4 of The Double Taxation Avoidance Agreement - If the individual has a permanent home in both the contracting States, the issue of examining his centre of vital interest arises meaning thereby that it is to be ascertained with which of the two states his personal and economic relations are closer. One must have a regard to his family and social relationships, his occupation, his political, cultural or other activities, his place of business and the place from which he administers his property. The circumstances must be examined as a whole. It is further attest that if a person who is a home in one state sets up a second in the other state while retaining the first, the fact that he retains the first in the environment very has always lived, where he has always worked and where he has his family and possessions, can, together with other elements go to demonstrate that he has retained his centre of vital interest in the first state. In the present circumstances, the assessee has made investment only after he has shifted to Singapore. Still his major investment, his house properties are situated in India. His family has also migrated with him over a period of time. The wide variety of investments that he has made while in India such as alternative investment funds, unlisted companies equity shares, listed equity shares and mutual funds do not exist in Singapore. In Singapore the assessee has made investment in shares of unlisted companies and further held substantial assets through family trust where assessee and his wife are the major beneficiaries. Assessee's major capital commitments of investments are also in India. Assessee has also provided loans to the tune of Rs. 30 crores to various entities in India. Assessee does not own any immovable property outside India. Therefore it is apparent that assessee has retained his houses in India where he has decided throughout his life, where he is carried out his business and in assessee's own words he is one of the most successful entrepreneurs through start-ups. It is to be appreciated that assessee moved with his family and his family also shifted to Singapore. But even his family does not have any home in Singapore, therefore, looking at his major economic interest, it is apparent that it is more closer in India than Singapore or anywhere else [ as no details provided about Investment in Singapore only] Habitual abode, it is apparent that he stayed in India for 141 days in India and balance days in other countries. This is the first year that assessee went out of India for employment purposes. But he kept on visiting India for almost 141 days. Thus, for most part of his life, he was in India, he is having house in India. Thus the assessee worked only for the part of the year in Singapore and also lived in India for part of the year. Thus, In that case, the assessee will have an habitual abode in both India and Singapore. Undisputedly, assessee is an Indian national. In view of the above facts we hold that according to the Tiebreaker test also the assessee is a resident of India. Accordingly we uphold the order of the learned assessing officer and dismiss ground of the appeal. Notices issued under section 143(2) by Addl. Commissioner, NaFAC instead of jurisdictional Assessing Officer to assessee under Central Charge - Where assessee, after being served with notice under section 143(2) had filed response and had also filed response to subsequent notices served under section 142(1) and had participated in proceedings culminating into assessment order, it could not challenge jurisdiction of Assessing Officer to pass impugned assessment order. Accordingly, respectfully following the decision of Adarsh Developers [2024 (1) TMI 425 - KARNATAKA HIGH COURT] we dismiss ground No. 6 of the appeal. AO has treated the assessee as a 'resident' as per draft assessment - it is the argument of the assessee that when assessee is a 'resident' assessee, there is no requirement of passing of the draft assessment order u/s 144C(1) of the Act in case of a 'resident' assessee - While disposing the earlier grounds of this appeal, we have already held that action of the learned assessing officer is correct in treating assessee as resident of India. We also note that the provisions of section 144C(1) refers to passing of a draft assessment order 'in the first instance'. Therefore the issue of the eligible assessee u/s 144C(15)(b)(ii) is required to be tested at the time of return filed by the assessee as that is the ' in the first instance' and further the issue of eligible assessee u/s 144C(15)(b)(i) is to be tested at the time of passing of the order of the transfer pricing officer under section 92CA(3) of the Act, because in that case it would be ' in the first instance'. Naturally, in this case, the assessee has opted to go before the learned dispute resolution panel on challenge to the draft assessment order. We take the another issue, that suppose if before the higher courts, the assessee challenges his residential status, and if it is held in favour of the assessee that assessee is a non-resident, then this argument does not survive. Therefore, it is correct that 'in the first instance', the learned assessing officer should have passed the draft assessment order only. Such ' first instance' is the claim of the assessee in his ROI of residential status. Draft order passed by the ld AO is based on this 'first Instance'. Issues: (i) Whether the assessee was a resident of India for FY 2019-20 under section 6(1)(c) read with Explanation 1(a) and 1(b) to that section; (ii) Whether, alternatively, the assessee was a resident of Singapore under the tie-breaker clause of Article 4(2) of the India–Singapore DTAA; (iii) Whether the notice under section 143(2) issued initially by the National Faceless Assessment Centre (NFAC) and the procedure under section 144C were valid; (iv) Ancillary computational and consequential claims (computation sheet discrepancy, demand computation, interest and penalty charges).Issue (i): Whether the assessee is a resident of India for FY 2019-20 under section 6(1)(c) read with Explanation 1(a) and 1(b) to that section.Analysis: The statutory test in section 6(1)(c) requires satisfaction of both limbs (365 days in preceding four years and at least 60 days in the relevant year), subject to substitution of 182 days where Explanation 1 applies. The Tribunal examined documentary evidence of stays, timing of departures, employment arrangements, and the legislative history and CBDT circulars relating to the Explanations. The Tribunal considered whether the phrase 'being outside India' in Explanation 1(b) denotes an already settled presence abroad (as reflected in CBDT circulars and legislative material) or merely physical absence; it evaluated the genuineness and substance of the claimed foreign employment and the timing and nature of resignation, engagements and employment passes. The Tribunal also considered precedents and the revenue's submissions on substance over form and colourable arrangements, as well as the assessee's evidence of family residence, employment and tax filings abroad.Conclusion: Issue decided against the assessee. The assessee is held to be a resident of India for FY 2019-20 under section 6(1)(c).Issue (ii): Whether the assessee was a resident of Singapore under Article 4(2) DTAA (tie-breaker) and thus entitled to treaty relief.Analysis: The Tribunal applied the sequential tie-breaker criteria: permanent home, centre of vital interests, habitual abode and nationality. It evaluated factual records about residences in India and Singapore, family location, economic relations, and evidence of permanent homes. The Tribunal considered the assessing officer's findings that the assessee retained permanent home and substantial economic ties in India and that the alleged foreign employments were not independent, substantiated arrangements but were closely linked to Indian operations.Conclusion: Issue decided against the assessee. On the tie-breaker analysis the assessee is not a resident of Singapore for the year in question and treaty relief is not available.Issue (iii): Whether issuance of the initial notice by NFAC and the framing of a draft order under section 144C were invalid and/or rendered the assessment time-barred.Analysis: The Tribunal considered statutory scheme and relevant judicial authority and circulars on NFAC's powers to issue notices under section 143(2) and the conditions for invoking section 144C procedure. It noted that the case was transferred to the jurisdictional international-tax AO and that a prejudicial variation in income arose on re-determination of residential status, thereby attracting the draft-order / DRP route. The Tribunal examined whether the assessee's participation before the DRP and the nature of variation rendered the 144C process properly invoked.Conclusion: Issue decided against the assessee. The notice/procedure was held valid and the draft/final assessment under section 144C was not barred by limitation.Issue (iv): Whether computation errors, demand calculation, interest under sections 234A/234B and penalty under section 270A were wrongly levied.Analysis: The Tribunal examined the computation sheet and assessment figures, the claimed refund/adjustment, and the contentions on interest and penalty. It directed verification and rectification consistent with Rule 115 and deductions properly allowable (as reflected in DRP directions and AO verification) where computational discrepancies were identified.Conclusion: Partial factual conclusions: computation issues required rectification in accordance with taxation rules; substantive interest and penalty claims were evaluated in light of final taxable determination and available reliefs. Overall, no relief altering the primary conclusion on residential status and taxability in favour of the assessee was granted.Final Conclusion: The Tribunal's determinations sustain the assessing officer's conclusion that the assessee is taxable in India for the year under challenge, uphold the procedural steps taken under section 143(2) and section 144C, and reject the principal pleas advanced by the assessee seeking non-resident status or treaty protection; consequential computational adjustments are to be made as directed by the DRP/AO where applicable.Ratio Decidendi: The explanatory exceptions in section 6(1)(c) apply only where, on the facts, the individual had a substantively established residential situs outside India prior to the relevant previous year; where foreign employment and movements are self-created, closely connected to Indian interests, or otherwise lacking requisite substance, the main statutory test in section 6(1)(c) governs and the assessee is to be treated as resident of India.