DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM,
VISAKHAPATNAM – 531035, ANDHRA PRADESH

TEST OF RESIDENTIAL STATUS FOR INDIVIDUAL UNDER INCOME TAX ACT

PROJECT TITLE

TAX LAW - 1

SUBJECT

DR. SREE SUDHA

NAME OF THE FACULTY

Name of the Candidate – ANUSHKA BOLUSANI

Roll No. – 20LLB015
Semester – VI
 CERTIFICATE

I, Anushka Bolusani, hereby declare that this project titled “TEST OF RESIDENTIAL
STATUS FOR INDIVIDUAL UNDER INCOME TAX ACT” submitted by me is an original
work undertaken by me, I have duly acknowledged all the sources and references from which
ideas and extracts have been sourced. This project is free from plagiarism and does not utilize
any unfair means whatsoever.

(ANUSHKA BOLUSANI)

20LLB015

VI Semester
TABLE OF CONTENTS:

1. ABSTRACT

2. SYNOPSIS

CHAPTER -1

3. WHO IS A RESIDENT?

A. RESIDENTIAL STATUS OF AN INDIVIDUAL

B. RESIDENTIAL STATUS OF HUF

C. RESIDENTIAL STATUS OF A FIRM OR ASSOCIATION OF PERSONS
(AOP)
D. RESIDENTIAL STATUS OF A COMPANY
CHAPTER - 2
4. CATEGORIES OF RESIDENT
A. RESIDENT AND ORDINARILY RESIDENT
B. RESIDENT NOT ORDINARILY RESIDENT
C. NON-RESIDENT
D. NR AND RNOR
CHAPTER – 3
5. CASE LAWS
6. CONCLUSION
7. BIBLIOGRAPHY
 1. ABSTRACT:
The tax liability of a person under the Income-tax Act depends upon his residential status in
the financial year in which the income accrues or arises to him or is received by him.
Financial year means the period of twelve months commencing on the 1st day of April every
year. The residential status may change from year to year. Residential status under the
Income Tax Act is different from the residential status under Citizenship act, FEMA, Aadhar
Act and other Acts. A person may be a resident in more than one country in the same year,
depending upon the tax laws of the relevant country.1

It is important for the Income Tax Department to determine the residential status of a tax
paying individual or company. It becomes particularly relevant during the tax filing season.
In fact, this is one of the factors based on which a person’s taxability is decided.

This project explores the residential status and taxability in detail.2//CLEARTAX

2. SYNOPSIS:
I. INTRODUCTION:
Section 6 of the Income Tax Act 1961 talks about the Residential Status. Residential status of
a person means that whether the particular person is entitled to pay the income tax in India or
not?

Residential status of a person plays a vital role in the purpose of the levy of income tax
because the Income Tax department takes the tax based on the residential status of the person.
If a person is a citizen of India but at the end of the day, he can be a non-resident for a
financial year.

This can be also a vice versa like a foreigner can be a citizen of that particular country and if
he is living in India for a particular time period and that time period is fulfilling the criteria
for the Resident of India then he can be taxable in India.

1
For individual, HUF, AOP, Boi, AJP and firms. (n.d.). Retrieved March 27, 2023, from
https://incometaxindia.gov.in/Booklets%20%20Pamphlets/e-PDF__Know-your-
Income-Tax-Rate-AY-2021-22-23.pdf
2
Residential status for income tax – individuals and residents. cleartax. (n.d.). Retrieved
March 27, 2023, from https://cleartax.in/s/residential-status
While the residential status of the individual, company, a firm is determined in a different
way. Each one has a different time period for the determination of Resident in India.3

The taxability of an individual in India depends upon his residential status in India for any
particular financial year. The term residential status has been coined under the income tax
laws of India and must not be confused with an individual’s citizenship in India. An
individual may be a citizen of India but may end up being a non-resident for a particular year.
Similarly, a foreign citizen may end up being a resident of India for income tax purposes for a
particular year. Also, to note that the residential status of different types of persons viz an
individual, a firm, a company etc is determined differently. In this project, I have discussed
about how the residential status of an individual taxpayer can be determined for any
particular financial year.4

II. OBJECTIVES OF THE STUDY:

 The paper aims at throwing light upon those classified as assessees under the IT Act.
 It discusses the categories of residents as under Section 6 of the Act.
 It also discusses the exceptions to taxability under the Act.
 It sums up by substantiating with relevant case laws.

III. SCOPE OF THE STUDY:

The study touches upon the concept of resident and non-resident, assessees and elaborates
upon the relevant provisions and finally concludes with relevant case laws.

IV. SIGNIFICANCE OF THE STUDY:

The case laws cited in this paper reflect, besides the concept, the nature of interpretation of
this concept under the Act.

3
-, U. A. K., By, -, Khan, U. A., & here, P. enter your name. (2022, January 11). What are
the different types of residential status under Income Tax Act and what is their
relevance? iPleaders. Retrieved March 27, 2023, from
https://blog.ipleaders.in/residential-status-income-tax-act/
4
Residential status for income tax – individuals and residents. cleartax. (n.d.). Retrieved
March 27, 2023, from https://cleartax.in/s/residential-status
 V. LITERATURE REVIEW:
ARTICLES:

1. “WHAT ARE THE DIFFERENT TYPES OF RESIDENTIAL STATUS

UNDER INCOME TAX ACT AND WHAT IS THEIR RELEVANCE?” by
Avinash Kumar – This article is a crisp insight into the importance of residential
status, the burden of proof and the categorization under Section 6.
2. “RESIDENTIAL STATUS UNDER INCOME TAX ACT, 1961 IN INDIA” by
Pratibha K Sain – This article discusses, besides the concept of residential status, the
exceptions attached under each category of persons.
3. “RESIDENTIAL STATUS FOR INCOME TAX – INDIVIDUALS &
RESIDENTS” by Cleartax.in – This article highlights the importance and ways of
determination of residential status and the relevant taxability.
4. “RESIDENTIAL STATUS UNDER INCOME TAX ACT” by Tax Adda – This
article lays emphasis on the categories of persons classifies as assessees under the Act
and are brought under the ambit of taxation.

REFERRED BOOKS:
1. “STUDENTS’ GUIDE TO INCOME TAX” by Singhania, Dr. V & Singhania –
With regards to the excerpts I have referred to, from this book, the author has
articulated the concepts in a crisp yet effective way by highlighting on the important
aspects of the topic and yet making it seemingly easy to understand from the students’
point of view.
2. “PROFESSIONAL APPROACH TO DIRECT TAXES, LAW AND
PRACTICE” by Dr. K. Ahuja, Dr. Girish & Gupta, Dr. Ravi – With regards to
the excerpts I have referred to, from this book, the author has taken a rather technical
approach to the concept and dealt with it the concept in a detailed manner.
3. “TAXATION LAWS” by Kailash Rai – With regards to the excerpts I have referred
to, from this book, the author has, in my opinion, laid out the concept and
substantiated it with relevant case laws in a simplified, efficient and in student-
friendly manner.

VI. TYPE OF RESEARCH:

This research is critical and explanatory in nature.
 VII. RESEARCH METHODOLOGY:
This study uses doctrinal method of research.

VIII. MODE OF CITATION:

Oxford mode of citation has been used in this project.

IX. RESEARCH DESIGN:

CHAPTER 1 – Touches upon the concept of Resident under the Income Tax Act.

CHAPTER 2 – Discusses the categorization of residents.

CHAPTER 3 – Deals with the relevant case laws and conclusion.

X. RESEARCH QUESTION:
1. Whether there are exceptions to calculation of residential status under the Income Tax
Act?
2. Whether stringent interpretation is applied? Explain in light of relevant cases.

CHAPTER - 1

3. WHO IS A RESIDENT?
The Income Tax Act places a lot of importance on residential status since it has a significant
impact on how much tax is owed.

An assessee is either (a) an Indian resident or (b) not an Indian resident. Individuals who are
residents and HUFs may be either (a) usually residents who are residents or (b) ordinarily
residents who are not residents.

Both residents and non-residents are the other assessees.5

The test of residency is outlined in Section 6 for the following tax-exempt entities:

a. people;

b. Hindu undivided families;

c. businesses;

5
Agarwal, P. (n.d.). Residential status under income tax act. TaxAdda. Retrieved March 27,
2023, from https://taxadda.com/residential-status-income-tax-act/
d. corporations; and

e. every other person.6

A. RESIDENTIAL STATUS OF AN INDIVIDUAL:

A person who has never gone out of India is always a resident and ordinarily resident in
India.

 Determining whether he/she is resident in India –

A person is considered to be a resident of India if at least one of the following requirements is
met: I he must spend at least 60 days there throughout the year and at least 365 days there
during the four years that immediately preceded the current year. If an Indian citizen leaves
India during the year to work outside of India or if an Indian citizen leaves India during the
year to serve on the crew of an Indian ship, the aforementioned 60-day term is increased to
182 days. The necessity is leaving India for work reasons for this purpose (the employment
may be in India or may be outside India).

Whenever an Indian citizen or someone of Indian descent pays a visit to India, the previously
mentioned 60-day term is also extended to 182 days. If a person was born in unrecognised
India, any of his parents or any of his grandparents are considered to be of Indian ancestry. A
person is a non-resident if they fail to meet any of the aforementioned two requirements.

 Determining whether he/she is ordinarily resident or not ordinarily resident:

If a person meets the requirements for resident status as stated above and also both of the
following requirements—(i) he has been a resident in India in at least 2 out of the 10 years
immediately preceding the relevant year (ii) he has been in India for a period of at least 730
days during the 7 years immediately preceding the relevant year—they are treated as resident
and ordinarily resident in India.

6
TaxmannTaxmann Publications has a dedicated in-house Research & Editorial Team. This
team consists of a team of Chartered Accountants. (2023, February 23). All-about the
residential status under the income-tax act. Taxmann Blog. Retrieved March 27, 2023,
from https://www.taxmann.com/post/blog/all-about-the-residential-status-under-the-
income-tax-act
The individual who does not meet both of the aforementioned requirements is a resident but
not one who normally lives there.

 Tax Planning In Respect Of Residential Status By Individual:

Depending on the assessee's residency status, an income source may or may not be subject to
income tax. Those who spend a significant amount of time outside of India during the current
year and the previous year should keep a few things in mind so that, if they are able to change
their schedule, they may save a lot of tax.

For non-resident status, visitors to India for business or in any other capacity should not
remain for more than 181 days in a calendar year and no longer than 364 days in the four
years prior.

A person should avoid staying in India for more than 59 days in a calendar year if they spent
more than 364 days there in the four years before. If someone wishes to remain longer than
59 days, he may arrive after February 2nd and go before May 29th, for example, such that no
more than 59 days occur in a year. such that in both years, a maximum of 59 days is covered.

A person of Indian descent or a citizen of India should schedule their travel such that no more
than 181 days occur in a single year.

Even if the firm is directly managed from India, a non-resident should not get any direct
income there. To avoid paying taxes on such income, he should first obtain it outside of India
before remitting it there.

Similar to this, a non-resident should get their income from a firm that is managed outside of
India that is generated outside of India.7

B. RESIDENTIAL STATUS OF HUF:

A Hindu Undivided Family (HUF) is considered to be a resident of India if all or a portion of
its management and control are located there. If the Karta (inclusive successive karta)
satisfies both of the following requirements:

(i) he has been resident in India in at least 2 out of the 10 years immediately

7
Agarwal, P. (n.d.). Residential status under income tax act. TaxAdda. Retrieved March 27,
2023, from https://taxadda.com/residential-status-income-tax-act/
 preceding the relevant year; and
(ii) he has been in India for a period of at least 730 days during the 7 years
immediately preceding the relevant year, the Karta is treated as a resident HUF
and is considered to be ordinarily resident in India.
Karta is considered as a resident but not an ordinary resident if none of the aforementioned
requirements are met.

If HUF's administration and control are located entirely outside of India, it is regarded as
non-resident.

C. RESIDENTIAL STATUS OF A FIRM OR ASSOCIATION OF PERSONS (AOP):

A partnership firm or group of people is deemed to be a resident of India if during the
pertinent prior year, control and management of its affairs were wholly or partially located
within India. But, if the whole of its management and control is located outside of India, it is
classified as non-resident in India.

D. RESIDENTIAL STATUS OF COMPANY:

A company with Indian roots will always be based there.

foreign company's residence status as of the 2016–17 assessment year.

If a foreign firm's place of effective management (POEM) for the relevant prior year was in
India, that company would be considered a resident of India. The term "site of effective
management" refers to a location where crucial managerial and business choices that are
essential to the operation of an organisation as a whole are, in essence, made. The Board of
the Benefit of the Taxpayers as well as Tax Administration may provide a set of guidelines to
be followed in determining POEM for this reason.8

CHAPTER - 2

4. CATEGORIES OF RESIDENT:
A. RESIDENT AND ORDINARILY RESIDENT:
Resident and Ordinarily Resident (ROR)

8
Agarwal, P. (n.d.). Residential status under income tax act. TaxAdda. Retrieved March 27,
2023, from https://taxadda.com/residential-status-income-tax-act/
Under Section 6(1) of the Income Tax Act an Individual is said to be resident in India if he
fulfils the condition: If he/she stay in India for a period of 182 days or more in a financial
year, or He/ She is in India for a period of 60 days or more in a financial year and If he/she
stays in India for a period of 365 days or more during the 4 years immediately preceding the
previous year.

A person shall be considered as a "Resident and Ordinarily Resident" (ROR) in India if they
meet any of the two qualifications listed in section 6(6) of the Income Tax Act, 1961.

If throughout the seven years before to the current year, he or she spent at least 730 days in
India.

if he or she spent at least two of the ten most recent financial years, which came before the
prior years, in India.

If the individual doesn’t satisfy either of the condition, then he is no eligible to qualify as
Resident and Ordinarily Resident (ROR).

 Points which are essential while calculating ROR

There is no requirement that the assessed remain at the same location for a set amount of time
or continuously, so it is not necessary that the assessment occur frequently.

India's territorial area comprises its continental shelf, airspace up to twelve nautical miles,
and territorial waters.

When someone travels to India, their physical presence in India will be taken into account
when determining whether they are considered an Indian resident. And an hourly total of
these bodily presences will be kept. If there is a disagreement on how to determine their
physical presence, the day they arrive in India and the day they depart India will be taken into
account for determining their residential status.9

Let's use an example to clarify the ROR:

9
TaxmannTaxmann Publications has a dedicated in-house Research & Editorial Team. This
team consists of a team of Chartered Accountants. (2023, February 23). All-about the
residential status under the income-tax act. Taxmann Blog. Retrieved March 27, 2023,
from https://www.taxmann.com/post/blog/all-about-the-residential-status-under-the-
income-tax-act
If Mr. Nayar, an Indian resident, had stayed in India for 250 days or more during the 2018–19
fiscal year, which is more than the required 182 days, and had stayed in India for more than
730 days during the previous seven fiscal years, he would be eligible to pay taxes in India. As
a result of Mr. Nayar completing the requirements of ROR, his income will be taxed.

An individual may be (a) resident and ordinarily resident, (b) resident but not ordinarily
resident, or (c) non-resident.

 Resident and ordinarily resident [Sec. 6(1), 6(6)(a)]

To find out whether an individual is “resident and ordinarily resident” in India, one has to
proceed as follows —

Step 1 First find out whether such individual is “resident” in India.

Step 2 If such individual is “resident” in India, then find out whether he is “ordinarily
resident” in India. However, if such individual is a “non-resident” in India, then no further
investigation is necessary.

Basic conditions to test as to when an individual is resident in India:

Under section 6(1) an individual is said to be resident in India in any previous year, if he
satisfies at least one of the following basic conditions—

Basic condition (a) He is in India in the previous year for a period of 182 days or more.

Basic condition (b) He is in India for a period of 60 days or more during the previous year
and 365 days or more during 4 years immediately preceding the previous year.

 Exceptions:
The following exclusions apply to the aforementioned residence rule:

The first exception (Special Case 1) - According to Explanation 1(a) of Section 6, the "60
days" mentioned in (b) above in Special Case 1 have been increased to 182 days (1).
However, if an Indian citizen left India in the previous year in order to work outside of India
or if an Indian citizen left India in the previous year in order to serve on the crew of an Indian
ship, Special Case 1 is available. For this reason, leaving India for the purpose of
employment rather than leaving India to pursue work outside of India is required (the
employment may be in India or may be outside India).10 Or, to put it another way, the person
need not be unemployed— 155 Taxman 326, British Gas India (P.) Ltd., In re [2006] (AAR –
New Delhi). He might have had a job in India but travelled outside of the country in the
previous year on business. It is sufficient to demonstrate this need to go overseas on a
business visa in order to start a firm or to accept a job outside of India—K. Sambasiva Rao v.
ITO [2014] 42 taxmann.com 115. (Hyd.). As an alternative, he may be an unemployed
individual who leaves India in search of work abroad.

In Special Case 1, a person will only be considered to be a resident of India if he spent at

least 182 days there in the pertinent previous year.

The second exception (Special Case 2) states that, according to Explanation 1(b) of Section 6,
the "60 days" mentioned in (b) above have been extended to 182 days# (1). A person who is
an Indian citizen or who is of Indian ancestry and who travels to India during the preceding
year is covered under Special Case 2. If a person was born in unrecognised India, either of
their parents or any of their grandparents are considered to be of Indian descent.
Grandparents include both maternal and paternal relatives, it should be noted.

Under Special Case 2, a person will only qualify as a resident of India if they spent at least
182 days there in the prior year.

Third exception - Section 6 specifies Third exception (1A). Starting with the evaluation year
2021–2022, it is applicable.

 Additional conditions to test when a resident individual is ordinarily resident in India:

Under section 6(6), a resident individual is treated as “resident and ordinarily resident” in
India if he satisfies the following two additional conditions—

Additional condition –

I He has lived in India for at least two of the ten years immediately prior to the relevant prior
year.

10
TaxmannTaxmann Publications has a dedicated in-house Research & Editorial Team. This
team consists of a team of Chartered Accountants. (2023, February 23). All-about the
residential status under the income-tax act. Taxmann Blog. Retrieved March 27, 2023,
from https://www.taxmann.com/post/blog/all-about-the-residential-status-under-the-
income-tax-act
Added requirement (ii) He has spent at least 730 days in India during the seven years
immediately before the relevant prior year.

If a person achieves at least one of the fundamental qualifications plus the two extra
conditions I and (ii)], they are said to become residents and normally residents of India.

 Other points:
The following widely accepted notions must be kept in mind while assessing an assessee's
residence status:11

Staying at the same location is not required—Kinloch v. IRC 14 TC 736—because it is not

necessary for the stay to take place there. Also, it's not required that the stay be nonstop. The
same applies to where you stay and why you remain.

Stay in territorial waters: According to Baryard Brown v. Burt (5 TC 667), a person's stay
aboard a boat anchored in Indian territorial waters is regarded as his presence in India for the
purposes of this clause.

Presence for a portion of a day - If a person is only in India for a portion of a day, the
computation of their physical presence should be done on an hourly basis. According to
Walkie v. IRC [1952] 1 AER 92, a stay of a total of 24 hours across a number of days is to be
treated as being equal to a stay of one day. The day on which a person enters India as well as
the day on which he departs India will be considered as the person's stay in India if data is not
available to compute the duration of a person's stay in India in terms of hours. In re [1997] 90
Taxman 62, Advance Ruling P. No. 7 of 1995 (AAR – New Delhi).

According to CIT v. Suresh Nanda [2015] 233 Taxman 4, an individual's unlawful passport
impoundment-related involuntary stay in India shall be disregarded for evaluating his
residence status under section 6. (Delhi).12

11
TaxmannTaxmann Publications has a dedicated in-house Research & Editorial Team. This
team consists of a team of Chartered Accountants. (2023, February 23). All-about the
residential status under the income-tax act. Taxmann Blog. Retrieved March 27, 2023,
from https://www.taxmann.com/post/blog/all-about-the-residential-status-under-the-
income-tax-act
12
TaxmannTaxmann Publications has a dedicated in-house Research & Editorial Team. This
team consists of a team of Chartered Accountants. (2023, February 23). All-about the
residential status under the income-tax act. Taxmann Blog. Retrieved March 27, 2023,
 B. RESIDENT NOT ORDINARILY RESIDENT:
If an individual qualifies as a resident, the next step is to determine if he/she is a Resident
ordinarily resident (ROR) or an RNOR. He will be a ROR if he meets both of the following
conditions:

1. Has resided in India for at least two of the most recent ten years; and

2. Has spent at least 730 days in India during the seven years before.

As a result, if a person does not meet even one of the aforementioned requirements, he will
be an RNOR.

From FY 2020–2021, a citizen of India or a person of Indian origin who leaves India
throughout the year for work outside India will be a resident and normally resident if he stays
in India for an aggregate of 182 days or more. But only if his total income (not from overseas
sources) reaches Rs 15 lakh will this criterion be applicable. A citizen of India who is
considered to be a resident in India will also be a resident and normally resident in India (as
of FY 2020–21).

NOTE: Income from foreign sources refers to earnings made outside of India (except income
derived from a business controlled in India or profession set up in India).

NON-RESIDENT:

An individual satisfying neither of the conditions stated in (a) or (b) above would be an NR
for the year.

 Exceptions:
 In the situations listed below, even if a person does not meet either of the two
prerequisites, he is still considered to be a resident but not a regular resident.
 First exception - Starting with the assessment year 2021–2022, this exception is
permitted by section 6(1A) read with section 6(6)(d). If a person meets the following
three requirements, he will be considered to be resident but not ordinarily resident in

from https://www.taxmann.com/post/blog/all-about-the-residential-status-under-the-
income-tax-act
 India: (a) he is an Indian citizen; (b) his total income (other than the income from
foreign sources) during the relevant previous year exceeded Rs. 15,00,000; and (c) he
is not subject to taxation in any other country or territory as a result of his domicile,
residence, or any other factors of a similar nature.
 Even though a foreign citizen is of Indian descent, this provision does not apply to
them.
 Second exemption - Starting with the assessment year 2021–2022, this exception is
provided by section 6(6)(c) read with Explanation 1(b) to section 6(1). The following
four requirements must be met by an individual to qualify for this exception: a. he
must be an Indian citizen or a person of Indian origin; b. he must have earned more
than Rs. 15,00,000 during the relevant previous year; c. he must have travelled to
India during the relevant previous year; and d. he must have spent 120 days in India
(or more but less than 182 days) during the relevant previous year.
 Other Points:
For the aforesaid two exceptions, the following should be kept in view –

How to determine total income for the Rs. 15,00,000 cap - Total income is estimated after
excluding income from overseas sources. Money that is earned or originates outside of India
is referred to as "income from foreign sources" (except income derived from a business
controlled in or a profession set up in India). The calculation of the Rs. 15,00,000 cap
includes income that is presumed to accrue or generate in India.

Liable to tax - "Liable to tax" (in relation to a person and with reference to a country) means
that there is an income-tax liability on that person under the law of that country at the time it
is in effect. This includes a person who has subsequently been exempted from such liability
under the law of that country.

Person of Indian origin - A person is considered to be of Indian origin if they were born in
undivided India, either themselves, their parents, or any of their grandparents.

TAXABILITY:

Resident: A resident will be charged to tax in India on his global income i.e., income earned
in India as well as income earned outside India.

C. NR and RNOR:
They only have to pay taxes on the income they receive from India. On their foreign income,
they are not required to pay any taxes in India. Furthermore, keep in mind that one may turn
to the Double Taxation Avoidance Agreement (DTAA) that India would have joined into
with the other nation to prevent the prospect of paying taxes twice in a situation of double
taxation of income, when the same income is taxed in India and overseas.

CHAPTER - 3

5. CASE LAWS:

1. V.V.R.N.M. Subbayya Chettiar v. C.IT.9" 1951 TTR 168: AIR 1951 SC 101
The fact that Karta has a residence in India where his mother resides, even if he stays there
constantly, does not make that location the centre of authority. There is no change in the
location of the centre of power or a second centre if he travels to India for family litigation.
The assessee, however, was unable to provide proof that the control was entirely outside of
India. As a result, it was decided that the reasonable conclusion was the assumption that a
Hindu undivided family would typically be considered to be a resident in taxable area.

Facts: The head of a joint Hindu family had made Ceylon their home, where he had resided
with his wife, son, and daughters. The Karta ran a company in Colombo and had stakes in
British India as well as a home and other real estate. He travelled to British India seven times
in the accounting year of 1941–1942, spending a total of 101 days there. He personally
handled a family land lawsuit during one of these stays, as well as family income assessment
hearings. On March 25, 1942, he established two partnership companies in India. He
continued to live there for some time following the establishment of those enterprises.

A Hindu undivided family, company, or other association of individuals is deemed to be a

resident of British India under Section 4A(b) of the Income-tax Act of 1922 unless the
control and administration of its operations are located entirely outside of British India.13

13
Goyal, B. K. (n.d.). Taxation Laws.
Issue: Whether in the circumstances of the case, the assessee (a Hindu undivided family) was
resident in British India under Section 4A(b) of the Income-tax Act, 1922 [Section 6(2) of the
Income-tax Act, 1961)]?

Decision of the Tribunal: According to the Income-tax Officer and the Assistant
Commissioner of Income-tax, the appellant qualified as a resident under Section 4A(b) of the
Income-tax Act of 1922. The Appellate Tribunal overturned the rulings of the Assistant
Commissioner and the 1.T.O. Supreme Court decision: A Hindu undivided family, company,
or other association of individuals is deemed to be a resident of British India under Section
4A(b) of the Income-tax Act of 1922 unless the location of the organization's control and
administration of its activities is entirely outside of British India. Where the central
management and control truly adheres, the real business is conducted Explicitly stating
Section 4A's rules (b). In Swedish Central Railway Co. Ltd. v. Thompson, 9 Tax Cases 342
(E), Patanjali Sastry J. stated: "that "wholly" would seem to recognise the possibility of the
seat of such power being divided between two distinct and separated places while "situated"
would seem to imply the functioning of such power at a particular place with some degree of
permanence. Control and management "signify in the present context, the controlling and
directing power, "the head and brain," as it is sometimes called."

According to the Supreme Court, the terms used in Section 4A(b) clearly reveal "First, a
Hindu undivided family would typically be assumed to dwell in the taxable regions, but if the
case can be filed under the second portion of the provision, this presumption will not apply.
Second, we assume that the term "affairs" refers to matters that are pertinent for the purposes
of the Income-tax Act and that somehow relate to income. Lastly, we must determine whether
British India is the family's primary location for management and control of its business in
order to qualify the case for the exemption. Finally, the phrase "wholly" implies that, similar
to how a corporation can, a Hindu undivided family has more than one "resident".

On the case's circumstances, the Supreme Court made the following observations: "The
assessee's home in Danadukathan, where his mother resides, cannot be considered the
family's centre of power or management just because it is there.14 However, given the
circumstances of the current case, we are inclined to place a lot of emphasis on the fact that

14
Goyal, B. K. (n.d.). Taxation Laws.
the assessee was required to spend 101 days in British India within a certain year. He was
obviously interested in the lawsuit surrounding his family's property as well as the income-
tax proceedings, but he cannot be claimed to have formed a second centre for such control
and administration by simply travelling outside of India to participate in these proceedings.
The same caveat must be taken into account while establishing two partnerships since
"simple action cannot be the test of residency."

As previously noted, the "The onus was on the assessee to establish the circumstances
necessary to qualify the case for the exemption set out in the later portion of Section 4A(b).
The assessee was required to present evidence to demonstrate that the family's control and
management of its affairs were located entirely outside the taxable territories, but neither the
file correspondence to which the Assistant Commissioner of Income Tax refers nor any other
substantial evidence that could have demonstrated that the family's affairs in India were also
ordinarily and regularly managed from Colombo were produced. Hence, this is the situation.
On the one hand, there is the fact that the assessee's family's head and karta, who oversees
and supervises its business continuously, resides in Colombo and that the family is registered
in Ceylon. On the other hand, there are certain things that the karta himself did in British
India that, although they don't prove that there isn't more than one place where the family's
business are managed, are nonetheless important to the question at hand and can't be fully
disregarded when deciding it. The Assistant Commissioner's conclusion that the assessee had
not met his burden of proving the facts that would have brought his case within the exception
and that the normal presumption must be given effect in this situation and in the absence of
relevant evidence to which reference has been made seems to us to be a legitimate conclusion
". As a result, the appeal was denied by the Supreme Court.

2. Narottam and Parekh Ltd. v. C.I.T. AIR 1954 Bom 67

(In order to argue that the firm was resident throughout the year of account, it must be shown
that the company de facto controlled and managed its activities in Bombay. This means that
the actual control and management, rather than the de jure control and management, must be
taken into consideration.15 In this instance, it was determined that the assessee corporation

15
Goyal, B. K. (n.d.). Taxation Laws.
not only de facto controlled and managed its businesses in Bombay, but also de facto
controlled and managed them there.)

Facts:

The assessee firm operated as a stevedoring company in Ceylon as a division of Scindia

Steam Navigation Co. Ltd. Both its registered office and place of registration were in
Bombay. Both the shareholders' meeting and the board of directors' meeting were held in
Mumbai. The assessee company's business in Ceylon were handled by two managers acting
under two powers of solicitor, and these managers were given the greatest amount of power
and authority. But, the directors in Bombay have retained and are using the central
management and control.

Issue: Whether the assessee company was a resident company?

Decision: A corporation must have its whole control and management in the taxable areas in
order to be considered a resident of India. It is important to understand the difference between
doing business and controlling and managing it when interpreting the phrase "control and
management." Even if a company may be conducted entirely outside of India, it may yet be
fully controlled and managed there. Where the business is conducted and where the revenue
was produced is wholly unimportant. The location from which a firm is handled and managed
is significant and important.

According to the Bombay High Court, "the test to be applied is where the controlling and
directing power is, or rather, where does the controlling and directing power function, or to
put it in another language, there is always a seat of power or the head and brain, and what has
to be ascertained is, where is this seat of power, or the head and brain? A business,
corporation, or unbroken Hindu family must function via servants and agents, but the seat of
authority or the directing and controlling power does not reside in the servants and agents.
The corporation is located where the central authority does its business. The central authority
is the authority to whom the servants, workers, and agents are subject, the authority that
governs and regulates them.16 A company may have a dozen local branches in various
countries outside of India, send out agents who are fully authorised to deal with and conduct

16
Goyal, B. K. (n.d.). Taxation Laws.
business at these branches, and still maintain its central management and control in Bombay.
The High Court noted that given the facts of the case, "it is perfectly true that these two
managers conduct all of the company's business from Bombay and at Bombay." But, the
sheer act of doing business does not give these managers the authority to lead and govern.
They have the right to revoke their powers of solicitor at any time. They are required to
follow any instructions provided to them by Bombay, to provide Bombay with an explanation
of what they have been doing, and to keep a careful check on their job while they are working
in Ceylon from the directors' board room in Bombay. Directors have sometimes given
managers instructions on how to handle certain situations.

The High Court agreed with the assessee company's solicitor that what was important to
consider in this case was not the ability or capacity to manage and control, but rather the
actual control and management, or, to put it another way, not the de jure control and
management, but the de facto control and management, and that it was necessary to prove
that the company de facto controlled and managed its affairs in Bombay in order to hold that
the company was resident during the year of account in The High Court concluded, based on
the evidence, that the assessee corporation not only de facto controlled and managed its
business in Bombay, but also de jure controlled and managed them there.

As a result, the High Court came to the judgement that Bombay, rather than Ceylon, was
where the company's business was managed and held the firm to be "resident in the year of
account."17

6. CONCLUSION:
Origin, nationality, place of birth, and residence are not important factors in determining
income tax. If a person who is an Indian citizen may be a non-resident and if that person is
living in India, if they meet the requirements for residency, and if they are taxable in nature in
the eyes of the income tax, then they can be considered residents of India.

A resident will be subject to taxation in India on his worldwide income, which includes both,
the money generated within and outside the country.

17
Goyal, B. K. (n.d.). Taxation Laws.
While determining a person's residence status, we consider their physical stay in India, which
is determined by their physical stays in the preceding years. Nonetheless, a person's residence
status varies from year to year.

If a person does not meet the residency requirements for this year, they cannot meet the
requirements for the next year either. Because of this, a previous taxpayer cannot return for
the next year.18

18
-, U. A. K., By, -, Khan, U. A., & here, P. enter your name. (2022, January 11). What are
the different types of residential status under Income Tax Act and what is their
relevance? iPleaders. Retrieved March 27, 2023, from
https://blog.ipleaders.in/residential-status-income-tax-act/