Supreme Court of India
PRADIP J. MEHTAversusCOMMNR. OF INCOME-TAX, AHMEDABAD
- Citation
- 2008 INSC 488
- Decided
- 11 April 2008
- Disposal
- Case Allowed
- Bench
- ASHOK BHAN
Holding
A person is "not ordinarily resident" if he has not been resident in India in nine out of the ten preceding years or has not stayed in India for 730 days or more in the preceding seven years; the appellant satisfied the first condition and therefore is "not ordinarily resident".
Summary
The appellant, a marine engineer employed abroad, claimed "not ordinarily resident" status for AY 1982‑83 under s.6(6)(a) of the Income Tax Act, 1961 to exclude his foreign income under s.5(1)(c). The Assessing Officer rejected the claim, holding that the appellant had been resident in India for more than 730 days in the preceding seven years and had not been non‑resident for nine out of the ten preceding years. The CIT (Appeals) and the Income Tax Appellate Tribunal upheld the denial, and the Gujarat High Court affirmed their decisions without recording any agreement or dissent with earlier High Court judgments on the same provision. The Supreme Court examined the proper construction of s.6(6)(a), held that a person is "not ordinarily resident" only if he fails either of the two conditions – (i) not being resident in nine out of ten preceding years, or (ii) not staying in India for 730 days or more in the preceding seven years. Since the appellant satisfied the first condition, he was entitled to the status of "not ordinarily resident" and the lower courts' orders were set aside.
Issues considered
- Whether the appellant qualifies as "not ordinarily resident" under s.6(6)(a) of the Income Tax Act, 1961.
- Interpretation of s.6(6)(a): whether both conditions must be satisfied for "resident and ordinarily resident" and failure of either condition results in "resident but not ordinarily resident".
- Whether the High Court erred by not recording its agreement or dissent with the cited High Court judgments.
- Whether departmental circulars issued under the Income Tax Act are binding on the tax department.
Legislation cited
- Finance Act, 2003s. 6(6) amendment (effective from 1 April 2004)
- Income Tax Act, 1922s. 4B (corresponding provision)
- Income Tax Act, 1961s. 5(1)(c), s. 6(1), s. 6(6)(a)
Subjects
not ordinarily residentresidentordinary residenceIncome Tax Act 1961section 6(6)tax residencystatutory interpretationjudicial proprietydepartmental circularsforeign income exemption
Judgment
[2008] 6 S.C.R. 383
PRADIP J. MEHTA A
v.
COMMNR. OF INCOME-TAX, AHMEDABAD
(Civil Appeal No. 4291 of 2002)
APRIL 11, 2008
B
[ASHOK BHAN AND DALVEER BHANDARI, JJ.]
..... j
Income Tax Act, 1961 - ss. 6 (6) (a) and 5 (1) (c) -
Assessee claiming status of "not ordinarily resident in India" -
For the purpose of exclusion of income occurring outside India c
- Revenue authorities denying the status on the ground that
two conditions of s. 6 (6) (a) were not fulfilled - Order of the
Revenue confirmed by the Appellate Authorities and High
Court - On appeal, held: The assessee was entitled to the
status of 'not ordinarily resident in India - In order to determine
such status, the proper way to approach is to decide whether
0
the assessee falls within definition of 'resident' and if the answer
is 'no' he would be treated as 'not ordinarily resident'- When
two interpretations are possible, the interpretation in favour of
the assessee, would be adopted- Interpretation of Statutes.
E
Judicial propriety- High Court passing the judgment
without recording its agreement or dissent on the cited
judgments passed by other High courts ~ Held: Judgment of
other High Courts, not binding on a High Court, have only
pursuasive value - However, judiCial decorum, propriety and F
discipline requires that they should be taken note of and
dissented especially where the court is taking contra view -
Precedent.
Words and Phrases - ' resident', 'ordinarily resident' and
'not ordinarily resident' - Meaning of, in the context of s. 6 of G
Income tax Act, 1961.
Appellant-assessee, while filing his return for the
relevant assessment year, claimed the status of 'not
ordinarily resident in India' as defined in Section 6 (6) (a)
383 H
384 SUPREME COURT REPORTS (2008] 6 S.C.R.
A of Income Tax Act, 1961 and thereby excluding his income
occurring outside India, u/s 5 (1) (c) of the Act. Assessing
Officer refused to grant such status on the ground that
the assessee did not fulfil the requirement provided u/s 6
(6) (a) as he was a non-resident in India for only 3 years
B during the last 10 years and during the 7 preceding years
his stay in India was for more than 730 days; and that in
order to claim such status, the assessee was required to
fulfil either of the two conditions viz. (1) not be resident in
India in 9 out of 10 years. or (2) not have stayed in India
C for a period of 730 days or more during the last seven
previous years. The view of the Assessing Officer was
confirmed in appeal by CIT (Appeals) as well as by Income
tax Appellate Tribunal. On reference, High Court upheld
the order of Tribunal answering the reference in favour of
the Revenue. The judgments passed by various High
0
Courts, were cited by the assessee, but the High Court
passed the judgment without either agreeing or
disagreeing with the cited judgments. Hence the present
appeal.
E Allowing the appeal, the Court
HELD: 1.1 The High Court in the impugned judgment
has erred in its interpretation of Section 6(6) of Income
Tax Act, '1961 and the *Patna High Court, **Bombay High
Court and ***Travancore-Cochin High Courts have laid
F down the correct law. A person will become an ordinarily
resident only if (a) he has been residing in nine out of ten
preceding years; and (b) he has been in India for at least
730 days in the previous seven years. The only direct way
of deciding whether the appellant was 'not ordinarily
G resident' in the relevant years is to formulate and answer
the direct question, 'Has the person been resident in 9
out of such 10 years?' When the answer to the question
is 'No', the appellant is to be treated as 'not ordinarily
resident. A person will be "resident and ordinarily resident"
H if both the conditions are satisfied but he will be "resident
PRADIP J. MEHTA v. COMMNR. OF INCOME-TAX, 385
AHMEDABAD
but not ordinarily resident" if either of those conditions is A
not satisfied." [Paras 17, 22, 29 and 30] [395-F, G; 396-A;
397-F, G; 400-E, F, G]
. .
*C.N. Towrisend.v. CIT 1974 (97) ITR 185 (Pat);
**Manibhai S. Patel v. .CIT 1953 (23) ITR. 27 (Boin); ***PB/
Bava v. CIT 1955 (27) ITR 463 (Trav. And Coch) - approved 8
In re Advance Ruling A No. P-5 of 1995 1997 (223) ITR
379 (AAR) - referred to.
Income Tax Law by Chaturvedi and Pithisaria's Fifth
Edition, Volume I, 1998 page 565 - referred to. C
1.2 Despite the recommendation of Law Commission
of India, legislature felt it necessary to keep Section 4B of
Income Tax Act, 1922 in tact and, accordingly, Section 6(6),
which corresponds to and is pari materia with Section 4B
of 1922 Act, .was ~ma~ted in 1961 ~ct. Th'is i:;hows the D
legislative will. It can be presumed that the' legislature was
in the know of the various judgments given by the different
High Courts interpreting Section 4B but still the legislature
chose to enactSection 6(6) in the 1961 Act, in its wisdom.
· It shows that the legislature accepted the interpretation E
put by the various High Courts prior to. enactment of 1961
Act. [Para 26] [399-A-D] ·
1.3 The circulars issued under the Income Tax Act or
Central Excise Act are binding on the 'Department. In the F
circulars issued by the Commissioner of West Bengal,
Circular Letter No. Jl28320/ 4A/1015/58-59 Calcutta dated
5.12.1962 reference has been made to the correspondence
resting with the Ministry of Finance (Department of
Revenue) letter No. 4/22/61-IT(AT), dated 25th November, G
1961, wherein it is stated that the department's view has
all along been that an individual is "not ordinarily resident"
unless he satisfies both the conditions in Section 4B(a),
i.e., (i) he must have been a resident in nine out of ten
preceding years; and (ii) he must have been in India for H
386 SUPREME COURT REPORTS [2008] 6 S C. R
A more than two years in the preceding seven years. In the
present case, the Circular issued by the Board in which
the opinion of the Central Government the Ministry of
Finance (Department of Revenue) letter No. 4/22/61-IT(AT),
dated 25th November, 1961 has been noted, the
t3 interpretation similar to the one put by the various High
Courts on Section 48 of 1922 Act has been accepted to
be the correct position. [Para 28] [400-8, C, D, E]
2. It is well settled that when two interpretations are
possible, then invariably, the Court would adopt the
C interpretation which is in favour of the tax payer and
against the Revenue. [Para 27] [399-D, E]
Sneh Enterprises v. Commissioner of Customs, New
Delhi 2006 (7) sec 714 - relied on.
D 3. The High Court, without either recording its
agreement or dissent of the judgments cited before it,
answered the two questions referred to it in favour of the
Revenue. Judicial decorum, propriety and discipline
required that the High Court should, especially in the event
E of its contra view or dissent, have discussed the
judgments of the different High Courts and recorded its
own reasons for its contra view. The judgments given by
a High Court are not binding on the other High Court(s),
but all the same, they have persuasive value. Another High
F Court would be within its right to differ with the view t<!ken
by the other High Courts but, in all fairness, the High Court
should record its dissent with reasons therefor. The
judgment of the other High Court, though not binding,
have persuasive value which should be taken note of
G and dissented from by recording its own reasons.
[Para 24] [398-D, E, F, G]
K.P Varghese v. !TO 1981 (4) SCC 173; UCO Bank v
CIT, WB. 1999 (4) SCC 599; Collector of Central Excise
Vadodra v. Dhiren Chemical Industries 2002 (2) SCC 127 -
H relied on.
PRADIP J. MEHTA v. COMMNR. OF INCOME-TAX, 387
AHMEDABAD [BHAN, J.]
r CIVIL APPELLATE JURISDICTION : Civil Appeal No. A
4291 of 2002.
From the final Judgment and Order dated 03.05.2002 of
the High Court of Gujarat atAhmedabad in Income Tax Re'erence
No. 7of1988.
B
. i P.H. Parekh, Sumit Goel, Diksha Rai and Akshat Jain for
the Appellant.
P.V. Shetty and V. Shekhar, Alka Sharma (for B.V. Bairam
Das) for the Respondent.
c
The Judgment of the Court was delivered by
BHAN, J. 1. Assessee is the appellant herein.
2. In this appeal the assessee has challenged the final
judgment and order dated 3rd May, 2002 passed by the High
D
Court of Gujarat in ITR No. 7 of 1988. The High Court has
. ·" disposed of the Reference upholding the view taken by the
Income Tax Appellate Tribunal, Ahmedabad Bench-A (for short
"the Tribunal") that the status of the assessee for the assessment
year 1982-83 was not that of"not ordinarily resident". The High
E
Court also recorded that the Tribunal has not committed any
error in interpreting the provisions of Section 6(6) of the Income
Tax Act, 1961 (for short "1961 Act").
3. Brief facts of the case culminating into filing of the present
appeal, are as under: F
4. The assessee was appointed as Marine Engineer by
Wallem Shipping Management Ltd., Hong Kong on 5th October,
1976 and, during the course of his employment, he was posted
to work on high seas and paid abroad for many years. The
assessee while filing his return for the assessment year 1982- G
83 (for short "relevant year") claimed the status of "not ordinarily
resident in India" as defined in Section 6(6)(a) of the 1961 Act
>i and to exclude income accruing outside India under Section
5(1 )(c ) of the 1961 Act, which provides that in the case of a
person not ordinarily resident in India within the meaning of sub- H
388 SUPREME COURT REPORTS (2008] 6 S.C.R.
A section (6) of Section 6, the income which accrues or arises to
him outside India shall not be so included in his total income.
5. Relevant portion of Sections 5 and 6 of 1961 Act is
quoted as under:
B "Section 5 - Scope of total income
(1) Subject to the provisions of this Act, the total income '\
~
of any previous year of a person who is a resident includes
all income from whatever source derived which-
(a) ......
c
(b) ......
(c) accrues or arises to him outside India during such
year:
D Provided that, in the case of a person not ordinarily resident
in India within the meaning of sub-section (6) of section 6
the income which accrues or arises to him outside India '
shall not be so included unless it is derived from a business
controlled in or a profession set up in India."
E "Section 6 - Residence in India
For the purposes of this Act,-
Xxxx
[(6)A person is said to be "not ordinarily resident" in India
F in any previous year if such person is-
(a) an individual who has not been resident in India in nine
out of the ten previous years preceding that year, or has
not during the seven previous years preceding that year
been in India for a period of, or periods amounting in all
G
to, seven hundred and thirty days or more ; or .... "
6. As the assessee was not resident in India in 9 out of 10
previous years preceding that year (which is finding of fact), he
claimed the status of "not ordinarily resident" for the
H relevant year.
PRADIP J. MEHTA v. COMMNR. OF INCOME-TAX, 389
AHMEDABAD [BHAN, J.]
7. The Assessing Officer by his Order dated 3rd A
September, 1984 refused to grant the assessee the status of
"not ordinarily resident" for the relevant year, on the ground that
the assessee was a non-resident in India for only 3 years during
the last 1Oyears and during the past 7 years he had stayed in
India for more than 730 days. The Assessing Officer found that B
the assessee had resided in India for the period which is shown
- t
below, in the last nine previous years:
Sr. No. Financial year Stay in India
(1) 1980-81 91 c
(2) 1979-80 62
(3) 1978-79 272
(4) 1977-78 50
(5) 1976-77 197 D
- .-(
(6) 1975-76 365
(7) 1974-75 365
(8) 1973-74 365
(9) 1972-73 365 E
8. The Assessing Officer further found that in view of the
provisions of Section 6(6)(a) of the 1961 Act, the assessee was
required to fulfil either of the following two conditions to claim
the status of "not ordinarily resident":
F
"(1) in nine out of ten previous years, he should not be
resident in India, or
(2) he should not have stayed in India for a period of
seven hundred thirty days or more during the last
seven previous years." G
The Assessing Officer came to the conclusion that, during
the last 9 previous years, the assessee was non-resident for
only three years and during the last seven previous years, he
had stayed in India for a period of 1,402 days. It was held that
H
390 SUPREME COURT REPORTS [2008] 6 S.C.R
A the status claimed by the assessee of 'not ordinarily resrdent'
was not acceptable.
9. Assessee being aggrieved by the order of the
Assessing Officer, filed an appeal before the CIT (Appeals)
who, by his order dated 13th of August, 1985 while concurring
8 with the view taken by the Assessing Officer, dismissed the
appeal. Further appeal filed by the assessee before the Tribunal " -
was also dismissed on 24th of July, 1987.
10. The assessee thereafter filed an Application before
c the Tribunal under Section 256(1) of the 1961 Act (as it existed
at the relevant time) seeking following two questions of law to
be referred to the jurisdictional High Court for its opinion:
"(1) Whether on the facts and in the circumstances of the
case, the Tribunal was justified in law in holding that
D the status of the assessee for the year in question
was not that of 'resident but not ordinarily resident'
as claimed by him?
. -
(2) Whether the Tribunal has erred in law in interpreting
provisions of section 6 of the Act while holding that
E the assessee's case did not fall within the purview of
section 6(6) of the Act as claimed by him in view of
undisputed position of his status in relation to
preceding ten years?"
F 11. Accordingly, the aforesaid two questions were referred
to the High Court for its opinion. The High Court by the impugned
judgment and order upheld the orders impugned before it and
answered the reference in favour of the Revenue and against
the assessee.
G 12. The High Court refused to grant the status of "not
ordinarily resident" as contemplated under Section 6(6)(a) of
the 1961 Act by observing thus:
"12. The short contention raised for the assessee was
that section 6(6)(a) was applicable to this assessee who
H
PRADIP J. MEHTA v. COMMNR OF INCOME-TAX, 391
AHMEDABAD [BHAN, J.]
must be treated to be 'not ordinarily resident' in India, A
because, he was resident in India in eight out of ten years
preceding the previous year 1981-82 and not nine out of
ten years. In other words, he would be an individual who
is 'not ordinarily resident' in India even if for all the
remaining eight years he is a resident in India within the B
J meaning of section 6(1) of the Act. Only if the assessee,
has been resident in India for nine out of ten years, he will
be ordinarily resident in India, otherwise he will be 'not
ordinarily resident' in India. This contention though
appearing to be attractive at first blush, is not at all c
warranted by the provisions of section 6(6)(a) of the Act.
Section 6(6) does not define 'ordinarily resident in India'
but describes 'not ordinarily resident' in India. It resorts to
the concept of 'resident in India' for which criteria is laid
down in section 6(1) of the Act. On its plain construction
0
clause (a) of section 6(6) would mean that if an individual
has in all the nine out of ten previous years preceding the
relevant previous year not been resident in India as
contemplated by section 6(1 ), he is a person who is 'not
ordinarily resident' in India. To say that an individual who
has been resident in India for eight years out of ten E
preceding years should be treated as 'not ordinarily
resident' in India, does not stand to reason and such
contention flies in the face of the clear provision of clause
(a) of section 6(6) which contemplates the period of nine
years out of ten preceding years of not being a resident F
in India before an individual could be said to be 'not
ordinarily resident' in India, which position will entitle such
person to claim exemption under section 5(1 )(c) of the Act
in respect of his foreign income. An individual who has not
been resident in India, within the meaning of section 6(1 ), G
for less than nine out of ten preceding years does not
satisfy that statutory criteria laid down for treating such
individual as a person who can be said to be 'not ordinarily
resident' in India, as defined by section 6(6). A resident of
India who goes abroad and is not a resident in India for H
392 SUPREME COURT REPORTS [2008] 6 S.C.R.
A two years during the preceding period of ten years will
therefore, not satisfy the said condition of not being a
resident of India for nine out of ten years."
13. It may be mentioned here that the Assessee had cited
the following judgments before the High Court to support his
B claim:
~
..
(A) The decision of the Patna High Court in C.N.
Townsend v. CIT (1974) 97 /TR 185 (Pat), for the
proposition that, if any of the conditions mentioned
in clauses (a), (b) or (c) of section 6(1) of the 1961
c Act is fulfilled, the assessee will be a 'resident' within
the meaning of the 1961 Act and if he comes within
the mischief of either of the two conditions mentioned
in section 6(6){a), he will be treated as 'not ordinarily
resident'. In that case, the assessee came to India in
D April, 1964, and continued to stay in India till the end
~ .
of March, 1965, and therefore, it was held that he
clearly fulfilled the condition laid down in sub-section
(6)(1 )(a) of the 1961 Act and as such, was a 'resident
in India' during the previous year in question. It was
E held that the assessee, however, could not be treated
as 'ordinarily resident' in India as he fell within the
first condition in section 6(6)(a) namely, that he was
not resident in India in nine out of ten previous years
preceding the year 1964-65 even though he did not
come within the mischief of the second condition.
F .
(B) The decision of the Authority for Advance Rulings, In
re Advance Ruling A. No. P-5of1995 [(1997) 223
/TR 379 (AAR)], to point out that the said authority
while construing the meaning of the expression
G 'resident but not ordinarily resident', held that the
correct construction of Section 6(6)(a) of the 1961
Act was that, a person would become ·ordinarily
resident' only if (a) he has been "resident" in nine out
of ten preceding previous years; and (b) has been in
H India for at least 730 days in the seven preceding
PRADIP J. MEHTA v. COMMNR. OF INCOME-TAX, 393
AHMEDABAD [BHAN, J.]
~
previous years and that, he will be treated as resident A
but not ordinarily resident if either of these condition
is not fulfilled.
(C) The decision of the Bombay High Court in Manibhai
S. Patel v. CIT (1953) 23 /TR 27 (Som), for the
"I ., proposition that, in order, that an individual is 'not B
ordinarily resident' in the taxable territories, he should
satisfy one of the two conditions laid down in Section
4B(a) of. the Indian Income Tax Act, 1922 (which
corresponded to Section 6(6)(a) of the 1961 Act). It
was held that, under Section 48(a}, what was required c
to be considered was the assessee's residence in
the 'taxable territories' and not his residence outside
the 'taxable territories'. If the assessee had been in
the 'taxable territories' for more than two years in the
preceding seven years, then he does not satisfy the D
second condition laid down in Section 4B(a) and
would, therefore, not be 'not ordinarily resident' in
the taxable territories. In that case, the assessee
was living in Africa for four years out of the preceding
seven years and he was in the 'taxable territories' for E
about three years and the question was whether he
was 'not ordinarily resident' in 'taxable territories'
under the second part of Section 4B(a). It was held
that, he did not satisfy the second condition.
(D) The decision of the Travancore-Cochin High Court F
• in P.B.I. Bava v. CIT (1955) 27 /TR 463 (Trav. &
Coch), to point out that, in the context of section
4B(a) of the Indian Income Tax Act, 1922, the High
Court had held that a person was not ordinarily
resident in any year unless he satisfies both of the G
conditions of the said provision which make a person
ordinarily resident, namely, (i) the condition that he
'"" must have been resident, in nine out of ten years
preceding that year, and (ii) the condition that he
must have been, here for periods of more than two H
394 SUPREME COURT REPORTS [2008) 6 S.C.R.
A years during the seven years preceding that year. It
was held that a person is 'not ordinarily resident' in
India in the previous year if he has not been 'resident'
in nine out of the ten years preceding that year; he
need not establish that he was 'not resident' in nine
B out of the ten years. It was observed that 'not resident'
and 'not ordinarily resident' are not positive concepts
,.
't
but only the converse of 'resident' and 'ordinarily
resident' and a category of persons 'not resident
and not ordinarily resident' is impossible to imagine
c and unknown to the Act.
14. The aforesaid decisions cited by the assessee have
been noted by the High Court. The High Court answered the
refe~rence in favour of the revenue and against the assessee,
without either agreeing or disagreeing with the view taken by
D the various High Courts and the Authority for Advance Ruling,
which is presided over by a retired Judge of the Supreme
Court.
15. Section 6(6)(a) of the 1961 Act corresponds to and is
pari matena with Section 4B of the Income Tax Act, 1922 (for
E short "1922 Act"). Section 4B of 1922 Act reads thus:
"48. Ordinary Residence - For the purpose of this
Act-
(a) an individual is 'not ordinarily resident' in British India
F in any year if he has not been resident in British India in
nine out of the ten years preceding that year or if he has
not during the seven years preceding that year been in
British India for a period of, or for periods amounting in all
to, more than two years."
G
16. The proposed definition of "resident" and "not ordinarily
resident" was enacted by the British Rulers, i.e., the officers of
~
the Indian Civil Services and those in armed forces serving in
India, who were absent from India on furlough for a year out of
every four years so that they could be treated as "not ordinarily
H
PRADIP J. MEHTA v. COMMNR. OF INCOME-TAX, 395
AHMEDABAD [BHAN, J.]
resident" and avoid tax on income in their home country, A
notwithstanding continuous stay and service in India.
17. The High Court ofTravancore and Cochin in PB/ Bava
v. CIT [supra] while interpreting Section 6(a) of the Travancore
Income Tax Act, corresponding to Section 4B(a) of the 1922
Act, relying upon the speech of Sir James Grigg during the B
~
1' assembly debates on Section 48, where he had said:
"a man is not ordinarily resident unless he satisfies both
of those conditions amount to saying that he must have
been resident in nine out of ten years and he must have c
been here for substantial periods in the preceding seven
years."
and the notes embodied in the Travancore Income Tax
Rules:
D
"An individual is ordinarily resident in Travancore if he has
been resident as defined above in 9 out of 10 years
preceding that year and has been in Travancore for periods
amounting in all to more than 2 years during the 7 years
preceding that year".
,E
held that:
"The clause no doubt is a model of ambiguous and obscure
drafting" as observed by Sir Jamshedji Kanga in his "Law
and Practice of Income-tax" (p.362) but the basic outlines
are clear enough to support the conclusion reached by the F
Appellate Assistant Commissioner of Income-tax,
Trivandrum. His approach was right when he said :
"In my opinion, the only direct way of deciding whether the
appellant was 'not ordinarily resident' in the relevant years
G
is to formulate and answer the direct question, 'Has the
appellant been resident in Travancore in 9 out of such .1 O
. years?' This question permits of only one answer and that
answer is an emphatic 'No'. When such is the answer to
the question, how can I help treating the appellant as 'not
H
396 SUPREME COURT REPORTS (2008] 6 S.C.R.
A ordinarily resident'? The answer which the Income-tax
Officer seeks to get can be obtained only if the question
could be framed as 'Has the appellant been not resident
(or non-resident) in Travancore in 9 out of such 10 years?'
But this is not the direct question but very indirect and
B roundabout and is, in my opinion, quite inappropriate."
18. The Bombay High Court in Manibhai S. Patel v. ..
Commissioner of Income Tax [supra}, held:
" ... the Leg is la tu re is primarily concerned with the
c residence of the assessee in the taxable territories, and
in order that an assessee should be "not ordinarily resident"
in the taxable territories what has got to be considered is
his residence in the taxable territories ... "
19. The Patna High Court in C.N. Townsend v. CIT, Bihar
D [supra] where the assessee came to India in April, 1964 and
continued to stay in India till the end of the March 1965, held:
"he clearly fulfilled the conditions laid down in Sub-section
(1)(a) of Section 6 of the Act and as such he has been
rightly held to be a "resident" in India during the previous
E year in question. The assessee, however, could not be
treated as "ordinarily resident" in India as he came within
the mischief of the first condition laid down in Sub-section
(6)(a) of Section 6, namely, that he was not resident in
India in nine out of the ten previous years preceding the
F year 1964-65. though he did not come within the mischief
of ttie second condition."
20. In ttie decision of the Authority for Advance Ruling In re
Advance Ruling A. No. P-5of1995 {supra), it was held:
G " ... It seems correct to construe the definition as providing
that a person will become resident and ordinarily resident
only if (a) he has been "resident" in nine out of the ten
proceeding previous years, and (b) has been in India for
at least 730 days in the seven preceding previous years
H and that he will be treated as resident but not ordinarily
PRADIP J. MEHTA v. COMMNR OF INCOME-TAX 397
AHMEDABAD [BHAN, J.]
resident if either of these conditions is not fulfilled ... " A
21. The Income Tax Act of 1922 was replaced by the
·Income Tax Act of 1961. The Law Commission of. India has
recommended the total abolition of the provisions of Section
4B of the 1922 Act defining "ordinary residence" of the taxable
entities. The Income-tax Bill, 1961 (Bill No. 27of1961) did not B
.... "t' contain any such provision. On the legislative anvil, it was felt
necessary to keep the provisions of Section 4B of the 1922 Act
in tact and, therefore, Section 6(6) had to be enacted in the
1961 Act. Referred to Chaturvedi & Pithisaria's Income Tax Law,
Fifth Edition, Volume I, 1998 page 565. c
22. Further, in the same book the departmental circular
being C.l.T., W.B.'S Circular letter No. J/28320/4A/10/5/58-59,
dated Calcutta, the 5th December, 1962, addressed to the
Secretary, Indian Chamber of Commerce, Calcutta, has been
D
cited, which states as under:
"I am directed to refer to the correspondence resting with
the Ministry of Finance (Department of Revenue) letter
No. 4/22/61-IT(AT), dated 25th November, 1961, and to
state that the Department's view has all along been that E
an individual is "not ordinarily resident" unless he satisfies
both the conditions in section 4B(a). i.e., -
(i) he must have been a resident in nine out of ten
preceding years; and
F
(ii) he must have been in India for more than two years
in the preceding seven years.
Thus, a person will be "resident and ordinarily resident" if
both these conditions are satisfied but he will be "resident
but not ordinarily resident" if either of those conditions is G
not satisfied."
~ 23. It may be noted here that the Parliament has amended
Section 6(6) of the 1961 Act by Finance Act 2003 w.e.f. 1st April,
2004, which reads as under:
H
398 SUPREME COURT REPORTS [2008] 6 S.C.R.
A "Section 6
(6) A person is said to be "not ordinarily resident" in India
in any previous year if such person is-
(a) an individual who has not been resident in India in
B nine out of the ten previous years preceding that year, or
has not during the seven previous years preceding that .. ""
year been in India for a period of, or periods amounting in
all to, seven hundred and thirty days or more ; or
............
c
However, the said amendment will not be applicable to
the present case as the notes on clauses of the Finance Bill,
2003 provide that the said amendment will have effect only from
151 April, 2004.
D 24. Although the judgments referred to above, were cited
at the bar in the High Court, which were taken note of by the
learned Judges of the Bench of the High Court, but without either
recording its agreement or dissent answered the two questions
referred to it in favour of the Revenue. Judicial decorum, propriety
E and discipline required that the High Court should, especially in
the event of its contra view or dissent, have discussed the
aforesaid judgments of the different High Courts and recorded
its own reasons for its contra view. We quite see the fact that
the judgments given by a High Court are not binding on the other
F High Court(s), but all the same, they have persuasive value.
Another High Court would be within its right to differ with the ..
view taken by the other High Courts but, in all fairness, the High
Court should record its dissent with reasons therefor. The
judgment of the other High Court, though not binding, have
G persuasive value which should be taken note of and dissented
from by recording its own reasons.
25. Otherwise also, we find ourselves in agreement with
the view taken by the three High Courts, namely, the Patna High
Court in C.N. Townsend v. CIT, Bihar [supra), the Bombay
H High Court in Manibhai S. Patel v. Commissioner of Income
PRADIP J. MEHTA v. COMMNR OF INCOME-TAX, 399
AHMEDABAD [BHAN, J.]
Tax [supra] and the High Court of Travancore and Cochin in A
PB/ Bava v. CIT [supra].
26. The Law Commission of India had recommended that
the provisions of Section 48 of 1922 Act defining "ordinary
residence" of the taxable entities be deleted but the suggestion
was not accepted by the Legislature. Rather, on the legislative 8
anvil, it was felt necessary to keep Section 48 of 1922 Act in
tact and, accordingly, Section 6(6), which corresponds to and
is pari materia with Section 48 of 1922 Act, was enacted in
1961 Act. This shows the legislative will. It can be presumed
that the legislature was in the know of the various judgmenc-> C
given by the different High Courts interpreting Section 48 but
still the legislature chose to enact Section 6(6) in the 1961 Act,
in its wisdom, the legislature felt necessary to keep the provisions
of 48 of 1922 Act in tact. ·It shows that the legislature accepted
the interpretation put by the various High Courts prior to D
enactment of 1961 Act. It is only in the year 2003 that the
Legislature amended Section 6(6) of the 1961 Act, which came
into effect from 151 April, 2004.
27. It is well settled that when two interpretations are
possible, then invariably, the Court would adopt the interpretation E
which is in favour of the tax payer and against the Revenue.
Reference may be made to the decision in Sneh Enterprises
v. Commissioner of Customs, New Delhi {(2006) 7 SCC
714], of this Court wherein, inter alia, it was observed as under:
F
"While dealing with a taxing provision, the principle of "Strict
Interpretation" should be applied. The Court shall not
interpret the statutory provision in such a manner which
would create an additional fiscal burden on a person. It
would never be done by invoking the provisions of another G
Act, which are not attracted. It is also trite that while two
interpretations are possible, the Court ordinarily would
interpret the provisions in favour of a tax-payer and against
the Revenue."
28. This Court in a catena of d~cisions, has held that the H
400 SUPREME COURT REPORTS [2008) 6 S.C.R
A circulars issued by the Department are binding on the
Department. See: K.P. Varghese v. /TO [(1981) 4 SCC 173],
UCO Bank v. CIT, WB. [(1999) 4 SCC 599], Collector of
Central Excise Vadodra v. Dhiren Chemical Industries
[(2002) 2 sec 127], etc. In all these cases it has been held that
B the circulars issued under the Income Tax Act or Central Excise
Act are binding on the Department. It may be noted that in the ...
circulars issued by the Commissioner of West Bengal, reference
has been made to the correspondence resting with the Ministry
of Finance (Department of Revenue) letter No. 4/22/61-IT(AT),
dated 25th November, 1961, wherein it is stated that the
c department's view has all along been that an individual is "not
ordinarily resident" unless he satisfies both the conditions in
Section 4B(a), i.e., (i) he must have been a resident in nine out
of ten preceding years; and (ii) he must have been in India for
more than two years in the preceding seven years. In the present
D
case, the Circular issued by the Board in which the opinion of
the Central Government the Ministry of Finance (Department of '1
Revenue) letter No. 4/22/61-IT(AT), dated 25th November, 1961
has been noted, the interpretation similar to the one put by the
various High Courts on Section 4B has been accepted to be
E the correct position.
29. In these circumstances, a person will become an
ordinarily resident only if (a) he has been residing in nine out of
ten p1·eceding years; and (bJ he has been in India for at least
F 730 days in the previous seven years.
30. Acco:dingly, this appeal is accepted. The order passed ..
by the High Court and the Authorities below are set aside. It is
held that the High Court in the impugned judgment has erred in
its interpretation of Section 6(6) of the Act and the view taken
G by Patna High Court, Bombay High Court and Travancore-
Cochin High Court has laid down the correct law. The two
questions of law referred to above are answered in favour of
the assessee and against the revenue. No costs.
K.K.T. Appeal allowed.
H
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