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PETITIONER: K.RAMULLAN

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, COCHIN

DATE OF JUDGMENT:       09/08/2000

BENCH: S.N.Hedge, S.S.M.Quadri, S.P.Bharucha

JUDGMENT:

     Syed Shah Mohammed Quadri, J.

     The short point that arises for consideration in these appeals  is:   whether the appellant-assessee is a  resident outside  India  as defined in Section 2 (q) of  the  Foreign Exchange Regulation Act, 1973?  These appeals arise from the common order of the High Court of Kerala at Ernakulam passed in  Income  Tax Reference Nos.109 and 113-114 of 1992  dated September  10,  1996.   The questions referred to  the  High Court  in those cases were under the Income Tax Act as  well as  the  Wealth Tax Act.  Being of the view that the  second question  in I.T.R.  No.109 of 1992, viz., Whether, on  the facts  and in the circumstances of the case, the Tribunal is right  in  law in holding that the assessee is  entitled  to exemption  of  the  interest  earned   on  the  deposits  in Non-resident  (External) Account in terms of Section  10(4A) of  the  Income-tax Act, 1961?, is germane and would  cover all the other questions referred to it, the High Court dealt with and answered that question by the impugned common order in  the negative, i.e., in favour of the Revenue and against the  assessee.  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.  For the Assessment Years  1983-84  and 1984-85,  he  claimed  that the interest accrued  on  credit balance  in  his Non- Resident (External) Account cannot  be included  in  computing  his  total income in  view  of  the provisions  of  Section 10(4A) of the Income Tax  Act,  1961 (for short, the I.T.Act).  During the period June 13, 1982 to  April  14,  1985 he stayed with his wife  in  India  for undergoing  medical  treatment.    The  Assessing  Authority treated him as a resident in India on the ground that he was living  with his wife and children.  The Appellate Authority agreed with that view.  On the appellants appeal before the Income Tax Appellate Tribunal, it was held that he was not a person resident in India in terms of Section 2(p)(iii)(c) of the  Foreign  Exchange and Regulation Act, 1973 (for  short, the  FERA).   The High Court, on reference, held, A  bare reference to sub-clause (p)(iii)(c) would show that a person who  is not a citizen of India, but has come to or stays  in India  for staying with his or her spouse, such spouse being a  person  resident in India would have to be  regarded  and understood  as a person resident in India. In that view  of the  matter, the High Court held that the appellant was  not entitled  to the exemption under Section 10(4A) of the  I.T.

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Act and thus answered question No.2 in the negative, against the  appellant.  Mr.C.S.Vaidyanathan, learned senior counsel appearing  for  the  appellant,  invited  our  attention  to paragraph  (c)  of sub-clause (iii) of Section 2(p)  of  the FERA and argued that stay of a person with his or her spouse referred  to  therein  postulates not a  mere  temporary  or short-term stay but somewhat permanent stay.  The High Court did  not  consider  the nature of the stay for  purposes  of Section  2(p)(iii)(c)  of the FERA and, therefore, erred  in treating the appellant as a resident for purposes of Section 10(4A)  of the I.T.Act.  Mr.Ranbir Chandra, learned  counsel appearing  for  the Revenue, contended that in view  of  the long  stay  of  the appellant in India he could not  but  be treated  as  a  resident in India and, therefore,  the  High Court  rightly held him to be resident in India.  In view of these  submissions,  we shall advert to the point in  issue. There  is  no  dispute that Section 10(4A)  of  the  I.T.Act excludes  any income from interest on moneys standing to the credit of a non- resident in Non-Resident (External) Account in  any  bank in India, in computing the total income  of  a person  resident  outside  India.  Explanation  appended  to Section  10(4A)  of the Act says that for purposes  of  that clause  person  resident  outside  India  shall  have  the meaning  assigned  to it in clause (q) of Section 2  of  the FERA.   Section  2(q)  defines that expression  to  mean  a person who is not a resident of India.  And that expression is  defined  in clause (p) of Section 2 of the FERA,  which, insofar  as  it is relevant for the present  discussion,  is extracted  as  under:  2 Definitions  In this Act,  unless the context otherwise requires,-

     (a) to (o) *** *** ***

     (p)  person resident in India means- (i) to (ii) *** ***  (iii)  a person, not being a citizen of India, who  has come to, or stays in India, in either case-

     (a) for or on taking up employment in India, or

     (b) for carrying on in India a business or vocation in India, or

     (c)  for  staying with his or her spouse, such  spouse being a person resident in India, or

     (d)  for  any other purpose, in such circumstances  as would  indicate  his  intention  to stay  in  India  for  an uncertain period;

     Explanation    A person, who has, by reason  only  of paragraph  (a)  or  paragraph (b) or paragraph (d)  of  sub- clause (iii) been resident in India, shall during any period in  which he is outside India, be deemed to be not  resident in India;

     Paragraph  (c)  of sub-clause (iii) of the FERA  deals with stay with his or her spouse.  Shorn of immaterial words Section  2(p)(iii)(c) will read thus :  a person resident in India  means a person, not being a citizen of India, who has come  to  or  stays  in India for staying with  his  or  her spouse,  such  spouse being a person resident in  India.   A plain  reading  of paragraph (c), extracted above, makes  it evident that the stay contemplated therein has to be of some permanence and not with the intention of returning abroad in some  short,  set period.  The word staying  in  paragraph

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really  means residing with the spouse.  Even the purposes referred to in paragraphs (a), (b) and (d) indicate that the term  stay does not denote a short or casual stay;  it has to  be  a  stay  for taking up  employment  or  carrying  on business or a vocation or with the intention of remaining in India for an uncertain period.  If we construe paragraph (c) to include a mere casual stay or stay for a short period, it would  defeat the purpose of having Non-Resident  (External) Account.   This being the position, the appellant cannot  be treated  as  a person resident in India during the  relevant period.   Consequently, he will be a person resident outside India  within the meaning of Section 2(q) of the FERA.   We, therefore,  set  aside  the order of the  High  Court  under challenge,  answer question No.2 in favour of the  appellant and  against the Revenue and thus allow the appeals.   There shall  be no order as to costs.