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Residence and Intentions under Tax Laws

Written by: Mehul Gupta - Final Year LL.B (Hons.) Student, Amity Law School, New Delhi
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The question of a person being a resident or not is identifiable after applying the test laid down in section 6 of the Income Tax Act, 1961. The scheme provided under the said section clearly lays down the technical test, for the purposes of the act, to determine territorial connection amounting to residence for all taxable entities; which can be divided as Resident and Ordinarily Resident, a Resident but Not Ordinarily Resident and a Non- Resident. It is correct to say that the above determination is solely based on the physical presence of the person and the duration of the stay in the territory of India; other considerations like intention etc. are not considered in the operation of this section.

Usually, this interpretation is best suited to determine the status of a person staying in any part of India. But the moot question lies in determining the residence status of a non-resident citizen who is compelled to stay in India; against his will and intention to stay.

This writing is limited to compulsion caused due to legal constraints, which can be due to a lis pendence. Halbury’s laws of England states that an ‘Ordinarily resident’ connotes some habit of life, and is to be contrasted with extra-ordinary, occasional or temporary residence. The duration of time does not determine the question.

Also in IRC v Lysaght the court stated that “… that part of the regular order of a man’s life adopted voluntarily and for settled purposes” can be termed as “ordinary”. Well the above interpretation makes it clear that the intention of stay in the territory of India is quite relevant; and whether a person can be forced to live in a country and hence thereby be treated like a resident is still quite debatable.

It is brought to the kind notice of the reader that the scope of this writing is restricted to the income tax treatment of a compulsive residence. Intention of residence otherwise is not endeavored to be dealt with through this writing. An alphabetical reading of section 6 shows that the litmus paper test, in the present question, is indifferent to the relevance of intention. Of course it will be improper to add words to the section. But on the other hand ad nauseam the court always has a duty to see that the law does not lead to injustice.

The following cases show the relevance of ‘intention of stay’ in judging the residence status of a person. In Preece v. C.I.R. a resident was defined as an alien actually present in the United States who is not a mere transient or sojourner is a resident of the United States for purposes of the income tax. Whether he is a transient is determined by his Intentions with regard to the length and nature of his stay. The regulation provides that an alien's residence is determined by examining his intention with regard to the length and nature of his stay. An alien's intention with regard to the length and nature of his stay is determined by considering the facts and circumstances of the case.

Furthermore in Carpenter v. U. S. it was stated that for the purposes of this section, two-fold test to be used in determining whether a taxpayer, whose trip to the United States punctuates a move from one foreign country to another or from one job within a given foreign country to another job within the same country, maintains or relinquishes his bona fide foreign residence during course of his visit to the United States is whether reliable indicia are present that taxpayer's return abroad is reasonably certain as to fact and as to time and whether duration of taxpayer's presence in the United States indicates an overriding intent to reside in the United States.

Similarly in the case of K. Ramullan v. CIT it was brought to light that Section 10(4-A) of FERA gives relevance to the intention of the stay to determine residence of the assessee.

Moreover in CIT v. B.K. Dhote it was held that a person can be said to be a non-resident if his stay is said to be occasional or casual and not relating to any business. Hence it is clear that intention should be given some relevance in determining whether a person stuck in the territory of India should be considered as a resident for tax purposes or not.

[1] P. 635, Para 868, Halbury’s Laws of England, Fourth Edition, volume 23, Butterworths & co (publishers) Ltd., London.
[2] [1928] AC 234 at 243
[3] Jugalkishore Saraf v Raw Cotton Co. Ltd. AIR 1955 SC 376 at 381, Crawford v Spooner (1846) 4 MIA 179 at 181
[4] 1990 WL 191988 Tax Court, 1990.
[5] C.A.5 (Tex.) 1974, 495 F.2d 175
[6] (2000) 8 SCC 246.
[7] (1967) 66 ITR

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