Non-resident: Section 6(1)(a) – A. Ys. 2007-08 and 2008-09: Assessee will not lose non-resident status due to forced stay in India due to invalid impounding of passport

In the relevant years, the assessee was forced to stay in India for more than 182 days in a previous year due to impounding of passport. Such impounding was found by courts to be wrongful. The assessee was fighting court cases to get his passport released so that he could travel outside India to maintain his NRI status. If such forced stay was excluded then the assessee’s stay in India was less than 182 days and his status would have been that of non-resident. The assessee claimed that such forced stay should be excluded and the asessee should be treated as non-resident. The Assessing Officer rejected the claim and treated the assessee as resident. The Tribunal held that the assessee continued to enjoy the status of nonresident and, thus, not amenable to be held accountable under the Income-tax Act for income not earned here.

In appeal by the Revenue, the following question was raised:

“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?”

The Delhi High Court upheld the decision of the Tribunal and held as under:

“i) Where assessee was forced to stay in India for more than 182 days in a previous year due to impounding of passport found by courts to be wrongful and he was fighting court cases to get passport released so that he could travel outside India to maintain his NRI status, the period of such forced/unwilling stay in India cannot be counted for determining his residential status u/s 6. If assessee’s stay in India without counting such forced stay is for less than 182 days, he retains his NRI status for tax purposes.

ii) 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.”