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S. Murlidharan

S. Murlidharan on the appropriateness of re-defining the not-ordinarily resident norms

THE recent Gujarat High Court verdict, in Pradeep J. Mehta vs CIT (256 ITR 647), fluttered the dovecots of non-residents who alternate their stay in India in such a fashion so as to have one foot in India and one abroad. They and their apologists cried foul when the Gujarat High Court refused to perpetuate a historical mistake and interpreted Section 6(6) of the Income-tax Act, 1961 the way it should have been — strictly as per its letter.

This section lays down the alternative norms for being eligible to be called a not-ordinarily-resident — one should not have been a resident in India in nine out of the ten previous years preceding the relevant previous year or should not have been in India for 730 days or more during seven previous years preceding the previous year.

Curiously, this norm has all along been interpreted by the tax administration as being targeted at ordinarily-resident — one should have been a resident of India in at least nine out of the ten preceding years besides having stayed in India for at least 730 days during the seven preceding previous years.

Thus, taking advantage of this loose and inappropriate interpretation, many a non-resident and wannabe non-resident declared himself a not-ordinarily-resident by ensuring that he was a non-resident in at least two years in a block of ten years. This esoteric status conferred on him practically all the benefits which a non-resident enjoys, the chief among them being immunity from Indian income-tax for the foreign income.

The Gujarat High Court must be commended for bringing to light this historical blunder. It rightly held that if a person were a resident in India in at least two out of the preceding ten years, he would not be eligible for this hallowed status.

In the wake of this seminal verdict, there was an orchestrated campaign to annul it. Many tilted at the windmills by saying that the government cannot go back on its word. Touché. It is a well-known canon of justice that one cannot take excuse behind ignorance of law. Nevertheless, vested interests worked overtime to lobby for retrospective amendment to Section 6(6) so as to legalise the historical mistake.

But the Finance Minister, Mr Jaswant Singh, must be commended for standing by the Gujarat High Court. He has not only not amended the law retrospectively but has prospectively amended the section so as to convey the message emanating from the Gujarat High Court in a sharper language. Any retrospective operation of the Gujarat High Court verdict would have resulted in all-round inconvenience. He has very wisely, therefore, refrained from rocking the boat while at the same time making it clear that non-residents cannot have best of both the worlds.

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