* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: April 22, 2015
Pronounced on: May 27, 2015
+ ITA 715/2014, C.M. No.19243/2014
+ ITA 722/2014
+ ITA 723/2014
COMMISSIONER OF INCOME TAX (C)-I ..... Appellant
Through: Mr. N.P. Sahni, Sr. Standing Counsel
with Mr. Nitin Gulati, Jr. Standing Counsel.
versus
SHRI SURESH NANDA ..... Respondent
Through: Mr. Chetan Sharma, Sr. Advocate with
Mr. Sandeep Kapur, Mr. Karan Kumar Gogna,
Mr. Mayank Datta and Mr. Amit, Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
MR. JUSTICE R.K. GAUBA
%
1. These three appeals under Section 260-A of the Income Tax Act,
1961 (hereinafter referred 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 could be treated as a resident Indian
for purposes of the Act during AY 2007-08 and 2008-09. Whilst the
ITA 715/2014 & conn. Page 1 of 12
Assessing Officer (AO) and CIT(Appeals) treated the assessee as a resident
Indian since he was in India, during the said years for periods amounting in
all to more than 182 days, the ITAT, by the impugned order, upturned the
conclusion reached by the said two authorities and agreed with the assessee
that his presence in India for the said period in the two AYs was under
compulsion of legal process 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 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?"
4. ITA Nos. 722 and 723 of 2014 pertain to AY 2007-08. The first
appeal arises out of the contentions that were urged before the CIT(Appeals)
by the assessee in his appeal against the order of the AO while the second
appeal relates to the contentions of the Revenue in its cross appeal. ITA No.
715 of 2014, on the other hand, pertains to AY 2008-09.
5. Since the above-mentioned appeals 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
ITA 715/2014 & conn. Page 2 of 12
brokering defence deals for Department of Defence Production and Supplies
in the Ministry of Defence of the Government of India against government's
policy, search operations were carried out under Section 132 of the Act on
28.02.2007 against him by the concerned authorities. It appears from the
record that earlier action was taken in the nature of impounding of passport
of the assessee on 10.10.2006 to preclude him from leaving India. It is
claimed that the searches and seizures resulted in evidence coming to the
fore about the assessee having obtained huge amounts of commission from
certain foreign entities which money, though 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 31.07.2007 declaring his income of `8,66,980/-. Notice under
Section 143(2) was issued to him on 30.07.2008. Subsequently on
21.04.2007, a notice under Section 142(1) along with questionnaire was
issued followed by another notice under Section 143(2) issued on
24.09.2009 and yet another detailed questionnaire on 12.10.2009. Finally,
the AO passed the assessment order for AY 2007-08 under Section 143(3)
on 30.12.2009.
8. For AY 2008-09, the assessee filed his return on 31.07.2008 declaring
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
ITA 715/2014 & conn. Page 3 of 12
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 (para 2 of) the impugned
order, it may be noted that the AO had made additions of the sum of
`17,94,15,000/- and `3,96,87,500/- on account of investment in Claridges
Hotel Pvt. Ltd. by Universal Business Solutions Ltd. during AY 2007-08
and AY 2008-09 respectively; the sum of `16,98,38,020/- and
`7,92,19,406/- on account of investment by Palm Technologies in Mauritius
Claridges during AY 2007-08 and 2008-09 respectively; `7,29,000/- and
`23,66,190/- on account 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 order dated 18.03.2013 of CIT(Appeals). Similarly, the appeal
No. 121/11-12 respecting AY 2008-09 was decided by CIT(Appeals) by
order dated 22.05.2013.
11. As mentioned earlier, the AO had treated the assessee as a resident
Indian for the two AYs on account of his presence in India for periods
exceeding 182 days, in terms of Section 6(1)(a) of the Income Tax Act. The
assessee contended before the CIT(Appeals) that he has been assessed as
non-resident consistently since 1985 and his stay in India during the periods
ITA 715/2014 & conn. Page 4 of 12
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 noted here that the additions made on account of investments into
Claridges Hotel Pvt. Ltd. by Universal Business Solution Ltd. were deleted
as legally unsustainable since there was no evidence available to establish
that the money was sourced from the assessee or any entity under his
control. The additions on account of investments by Palm Technologies
Ltd. to Mauritius, Claridges were upheld "on protective basis" as
unexplained investments under Section 69, in the hands of the assessee, with
observation 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
Agreements. The challenge to all the other additions noted above, however,
failed as CIT(Appeals) found the explanations offered by the assessee to be
untenable.
13. It may be added here that for AY 2007-08, the AO had also made
addition of `1,20,73,114/- on account of possession of jewellery of that
ITA 715/2014 & conn. Page 5 of 12
value found in the hands of the assessee's wife. The AO had added the said
amount as taxable income of the assessee for the reasons the wife did not
have an independent source of income. The CIT(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 Israel in contravention of defence purchase
policies. On assessee's application against illegal impounding
of passport, the ld. Special Judge, CBI Court by order dtd,
15.1.2007, directed for release of his passport on the fulfillment
of certain conditions. Before assessee could comply with those
stringent conditions, the CBI challenged CBI judge's order
before Hon'ble Delhi High Court. By order dated 5.2.2007
Hon'ble Delhi High Court reversed this order of Ld Special
Judge, CBI. Against 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 impounding of passport vide order dated 5th
October, 2010 was pleased to order for release of Passport
with a condition that assessee will take permission of the Trial
Court before seeking to travel abroad.
44. The assessee then filed application for permission to travel
abroad for two months which was dismissed by the Trial Court
vide its order dated 25th October, 2010. Against this order, the
ITA 715/2014 & conn. Page 6 of 12
assessee again approached Hon'ble Delhi High Court and
Hon'ble Court vide order dated 21.9.2011 directed the Trial
Court to permit the assessee to go to London for a period of
two weeks on furnishing of security of Rs. 50 crores. ... passport
was never handed over to assessee prior to 21-9-2011 order ...
XXX
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 claimed that in order to maintain his non
resident status in accordance with the Income Tax
Act, he has to remain out of India for more than 182
days and that continued seizure of his passport
jeopardized his NRI status and resulted in irreparable
loss. He also alleged that for more than three months
since 10.10.2006 he had to postpone visits abroad and
reschedule business meetings but such indefinite
postponement could not be continued forever."
47. ...it is very clear that assessee made every 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
dispute needs to be noted. It reads as under:-
"6. Residence in India:- For the purposes of this Act,--
(i) An individual is said to be resident in India in any previous
year, if he--
ITA 715/2014 & conn. Page 7 of 12
(a) is in India in that year for a period or periods amounting in
all to one hundred and eighty-two days or more"
16. The ITAT, in the initial part of the impugned order, noted that the
assessee has been treated as non-resident during the period 1985-2006. It is
admitted that his presence in India in the said earlier period 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 21.09.2011. Thus, the assessee was in India continuously and
uninterruptedly from 28.09.2006 to 21.09.2011. This would mean that he
was on Indian soil for 185 days during the financial year 2006-07
(corresponding to AY 2007-08) and throughout during financial year 2007-
08 (corresponding to AY 2008-09).
18. By above account, a strict interpretation and enforcement of the rule
contained in Section 6(1)(a) of the Income Tax Act would render the
assessee a resident. The plea raised, however, is that this would 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
ITA 715/2014 & conn. Page 8 of 12
rationality, it is permissible, even in the field of taxation, to prefer such
construction as results in equity over such literal meaning as is unjust. In
taking this view, we draw strength from law laid down by the Supreme
Court, inter alia, in the cases reported as CIT v. JH Gotla (1985) 156 ITR
323 and CWS (India) Ltd. CIT (1994) 208 ITR 649 (SC).
20. As is clear from the factual matrix, it has been a conscious decision
taken, and choice made, by the assessee to be a non-resident consistently
since 1985. It appears that he has been visiting India routinely but was
never present in India (till the financial year 2005-06) 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 CBI.
21. As noted at length by ITAT, the assessee made repeated pleas not
only for removal of all restraints against his movement, but more
importantly, for release of his passport so that he could go abroad and retain
the NRI status he had been enjoying all along. In such fact situation, there
can be no doubt whatsoever that his presence in India from 10.10.2006
onwards was not by his own choice or volition till the day (21.09.2011)
shackles on his movement were removed upon the passport being restored 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
ITA 715/2014 & conn. Page 9 of 12
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 India and be treated as a resident for purposes of taxation or
be not in India so as to avail the status of a non-resident. The simple test the
muster of which is to be passed is the minimum prescribed period of
presence in India in a particular financial year. It naturally follows that the
option to be in India, or the period for which an Indian citizen desires to be
here is a matter of his discretion. Conversely put, presence in India against
the will or without the consent of the citizen, should 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. Equally, if the record discloses materials that the stay (to qualify as
resident Indian) lacked volition and was compelled by external
circumstances beyond the individual's control, she or he cannot be treated as
a resident Indian.
24. We do not agree with the contention of the Revenue that Section
6(1)(a) of the Income Tax Act shall be a strictly constructed or that it does
not permit exceptions. The case at hand itself is a good example why a
literal interpretation of the relevant statutory clause is not commended for
ITA 715/2014 & conn. Page 10 of 12
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 excluded for
calculating the period under Section 6(1)(a) of Income Tax Act.
26. For the foregoing reasons, we answer the question of law in the
affirmative against the Revenue.
27. We must, however, add a caveat here. The conclusion reached by us
on the facts and in the circumstances of the case at hand cannot be treated as
a thumb rule to the effect that each period of involuntary stay must
invariably be excluded from computation for purposes of Section 6(1)(a) of
Income Tax Act. The view taken by us 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 will have to be examined on its own merits in the light of facts and
circumstances leading to "involuntary" stay, if any, in India.
28. Coming to other issues, the ITAT allowed the appeal of the assessee
with regard to the addition made on account of deposit in Deutche Bank,
Singapore (in AY 2007-08) and foreign remittance (in AY 2008-09), and
ITA 715/2014 & conn. Page 11 of 12
rightly so, in the wake of conclusion that the assessee continues to be a non-
resident for purpose of the said AYs. It directed the AO to further inquire
and verify the facts with regard to the investment made in Sonali Farms and
recovery of what is described as unexplained cash (both relevant for AY
2007-08). Since such directions turned more on facts, the result of the
appeal before the ITAT in Claridges Hotels Pvt. Ltd., Mauritius Claridges.
As noted above, the AO has not gathered any evidence showing nexus
between the assessee, on one hand, and the entities from the coffers of which
such investments came, on the other. At any rate, ITAT has not interfered
with inquiries for which CIT(Appeals) had given certain directions.
Addition on account of jewellery, in the given circumstances, was unfair
since, as noted by the ITAT, the value of the jewellery was also added in the
case of the wife (of the assessee) in whose possession the said asset was
discovered.
29. The question of law is answered against the Revenue. Thus, no
further question of law arises on the above contentions of the Revenue.
30. Consequently, the appeals are dismissed. Both the parties are left to
bear their own cost.
R.K.GAUBA
(JUDGE)
S. RAVINDRA BHAT
(JUDGE)
MAY 27, 2015
ik
ITA 715/2014 & conn. Page 12 of 12
|
