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2015 (5) TMI 938 - DELHI HIGH COURT

2015 (5) TMI 938 - DELHI HIGH COURT - [2015] 375 ITR 172 (Del) - Treatment as a resident Indian - whether the period for which the assessee was in India involuntarily on account of his passport having been impounded is not to be counted for purposes of Section 6(1)(a) of the Income Tax Act so as to hold him entitled to be a non-resident? - Held that:- the Income Tax Act leaves the choice to the citizen to be in India and be treated as a resident for purposes of taxation or be not in India so as .....

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if it is brought about under compulsion or, to put it simply, involuntarily. There has to be, in the opinion of this Court, something to show that an individual intended or had the animus of residing in India for the minimum prescribed duration. If the record indicates that – such as for instance omission to take steps to go abroad, the stay can well be treated as disclosing an intention to be a resident Indian. Equally, if the record discloses materials that the stay (to qualify as resident Ind .....

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r absurd consequences but also be prone to abuse. While executive action resulted in his passport being unjustifiably impounded, this rendered if impossible for the assessee to leave India. He virtually became an unwilling resident on Indian soil without his consent and against his will. His involuntary stay during the period that followed till the passport was restored under Court’s directive, thus, must be excluded for calculating the period under Section 6(1)(a) of Income Tax Act - Decided ag .....

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ferred to as the Act ) arise out of the common order dated 11.04.2014 of Income Tax Appellate Tribunal (hereinafter referred to as the ITAT ) whereby the cross appeals of the respondent (assessee) and the Revenue, for Assessment Years (AY) 2007-08 and 2008-09, against separate orders of Commissioner of Income Tax (Appeals) [CIT(Appeals)] dated 18.03.2013 and 22.05.2013 were decided. 2. The moot issue before the first and second appellate authority in these matters was as to whether the assessee .....

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cess and, thus, unintentional. ITAT held that the assessee continued to enjoy the status of non-resident and, thus, not amenable to be held accountable under the Income Tax Act for income not earned here. 3. The Revenue, feeling aggrieved, challenges the said conclusion, raising the following as the substantial question of law:- Whether the ITAT was correct in taking the view that the period for which the assessee was in India involuntarily on account of his passport having been impounded is not .....

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peals for both the said AYs had converged before the ITAT which heard and decided them through the common order, impugned before us, it is proper to take note of the background facts as culled out therein for present discussion. 6. It has been the case of the Revenue that the Department of Income Tax having received information about involvement of the assessee in brokering defence deals for Department of Defence Production and Supplies in the Ministry of Defence of the Government of India again .....

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ugh received abroad, was brought into India in the form of Foreign Direct Investments (FDI) for being injected into different projects like hotels, real estate, etc. In the wake of the search and seizure action, the case of the assessee was centralized by the Director of Income Tax-II, International Taxation, New Delhi by order under Section 127(2), as per file No. DIT(INTL.TAX.)-II/2007-08/32 dated 26.10.2007. 7. In response to the notice issued, the assessee filed his return for AY 2007-08 on .....

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the income of ₹ 81,75,150/-. A notice was issued on 21.11.2008 under Section 143(2). The assessee later filed a revised return on 18.08.2009 now declaring the total income of ₹ 86,55,160/-. Another notice under Section 143(2) was issued on 29.01.2010 followed by yet another notice under Section 142(1) with detailed questionnaire issued on 13.09.2010. The proceedings culminated in assessment order being framed on 20.12.2010 for AY 2008-09. 9. From the effect summarized by ITAT in (pa .....

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unt of unexplained cash found at the time of searches (for AY 2007-08); ₹ 28,47,533/- on account of investment made in renovation of Sonali Farms (AY 2007-08); ₹ 5,10,57,115/- on account of deposit in Deutsche Bank, Singapore (AY 2007-08); and ₹ 8,45,288/- on account of foreign remittance taxable in India (AY 2008-09). 10. Feeling aggrieved, the assessee filed appeals against both assessment orders before the CIT(Appeals). His appeal No. 82/11-12 for AY 2007-08 resulted in orde .....

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ring the periods under consideration had exceeded 182 days because of reasons beyond his control since his passport had been impounded by the government agencies rendering him unable to travel from India. The CIT(Appeals) rejected this contention and affirmed the view taken by the AO holding the assessee to be a resident for purposes of the two AYs. 12. The CIT(Appeals), however, deleted some of the additions made by the AO upholding certain others on protective basis . For clarity, it must be n .....

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rvation that there was a backward link between the funds transferred…which have been sourced from entities under the control of the assessee but with a rider that the same could be taxed as income tax of the assessee only if a direct link was established, for ascertaining real facts in which regard directions were given to the AO to pursue the reference made on the subject to governmental authorities in Mauritius, Jersey and British Virgin Island, in terms of Tax Information Exchange Agre .....

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Appeals), however, deleted the said addition on the ground that the asset had been explained ( for good reasons ) in the case of the assessee s wife. 14. The ITAT, in the impugned order, has discussed at length the facts and circumstances in which the assessee was constrained to be in India for periods more than 182 days, inter alia, finding/concluding thus:- 43. ...on 10.10.2006 the CBI impounded assessee s Passport suspecting his alleged broker's role in purchase of Barak Missiles from Isr .....

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inst the order of Hon'ble Delhi High Court the assessee approached Hon'ble Supreme Court and Hon'ble Supreme Court vide order dated 24.1.2008 ordered for release of passport. Ironically before the passport could be physically released consequent to Supreme Court order, the Passport Authorities again impounded the passport on 25.3.2008 under some other provisions. Against the later order of Pass Port Authorities the assessee again approached Hon'ble Delhi High Court against impoun .....

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cted the Trial Court to permit the assessee to go to London for a period of two weeks on furnishing of security of ₹ 50 crores. ... passport was never handed over to assessee prior to 21-9-2011 order ... X X X 46. The assessee was fervently raising the issue of his NRI status and praying for release of his passport. It is evident from the specific prayer raised before various courts. ...as is evident from para 6 of the Hon'ble High Court's order which reads as under:- "It was .....

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very legal effort to maintain his past status as non resident and endeavored to defend his legal rights before various legal forums. Had the Passport been released after first order of spl. Judge CBI court, the assessee would have travelled abroad thus maintaining his NRI status, it is only the wrongful impounding of passport which is the cause of preventing the assessee from exercising his lawful right of travelling abroad. 15. Section 6(1)(a) of the Income Tax Act which is at the core of the d .....

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riod has been less than 182 days per assessment year. The assessee s claims that for most of the periods he was away from India, he had been living and working for gain from United Arab Emirates (UAE). 17. It has been an admitted case of the assessee that he had come to India on 28.09.2006. It is undisputed that it was during the visit to India beginning 28.09.2006 that his passport was impounded by CBI (on 10.10.2006). Further, the passport was released pursuant to Court orders, only on 21.09.2 .....

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ould not be just or fair nor in consonance with the intention of the legislature. 19. It is trite that plain or literal interpretation of a statutory provision is not to be adopted if it produces manifestly unjust results or absurdly unreasonable consequences which could never have been intended. To obviate injustice flowing from mechanical interpretation and to bring about rationality, it is permissible, even in the field of taxation, to prefer such construction as results in equity over such l .....

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005-06) for more than 182 days. Thus, he consciously did not intend treatment as resident Indian for purposes of Income Tax law. It appears that he has business interests abroad. His choice to be non-resident cannot be faulted. Given the narrative of events wherein he was constrained to continue in India in the course of his visit beginning 28.09.2006, it cannot be contended by the Revenue that he intended to be in India by choice beyond 10.10.2006, the day his passport came to be impounded by C .....

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estored to him. 22. It must also be noted here that ITAT, the final fact-finding forum for purposes of Income Tax law, has also concluded that the action of the concerned governmental agencies in impounding of passport was unjustified, illegal and untenable and, therefore, in the nature of illegal restraint. The Revenue does not even remotely challenge the correctness of the said conclusions in these appeals. 23. As observed earlier, the Income Tax Act leaves the choice to the citizen to be in I .....

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ld not ordinarily be counted adverse to his chosen course or interest, particularly if it is brought about under compulsion or, to put it simply, involuntarily. There has to be, in the opinion of this Court, something to show that an individual intended or had the animus of residing in India for the minimum prescribed duration. If the record indicates that - such as for instance omission to take steps to go abroad, the stay can well be treated as disclosing an intention to be a resident Indian. .....

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ause is not commended for such course might not only lead to unjust, unfair or absurd consequences but also be prone to abuse. 25. While executive action resulted in his passport being unjustifiably impounded, this rendered if impossible for the assessee to leave India. He virtually became an unwilling resident on Indian soil without his consent and against his will. His involuntary stay during the period that followed till the passport was restored under Court s directive, thus, must be exclude .....

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in the case of assessee here is in the peculiar facts and circumstances wherein he was inhibited from travelling out of India on account of such action of the law enforcement agencies as was found to be wholly unjustified. Here, it is important to notice that the passport impounding order was invalidated as without authority of law. The finding on whether in a given case an assessee s claim to extended stay being involuntary, has to be fact dependent. For purposes of Section 6(1)(a), each case .....

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