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Judgment
Frederick William Gentle, C.J.—This reference is made at the instance of the assessee by the Income Tax Appellate Tribunal u/s 66(I) of
the Indian Income Tax Act. The question referred for the opinion of this Court is the following:
Whether on the facts of the case, namely, that the Manager of the Hindu joint family was outside British India for more than two years during the
period of seven years preceding the previous year, the applicant, the Hindu joint family, was not ordinarily resident for the assessment year 1940-
41 within the meaning of Section 4-B(a) of the Indian Income Tax Act ?
The assessee is a Hindu undivided family. In the year 1940-41 an assessment was made on the income of the family which had accrued outside
British India during the previous year. During the seven years preceding that year the kartha of the family was in British India for more than two
years and also he was outside India for the same period. Taxation of income accruing within British India does not arise. The sole matter for
decision is whether the foreign income of the assessee family, which was not brought into, or received in, British India, was chargeable to tax. The
Income Tax Appellate Tribunal held that, in the circumstances set out above, tax was chargeable.
It is now convenient to give the relevant provisions of the Income Tax Act:
Section 4(1)--"" Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from
whatever source derived which
(b) if such person is resident in British India during such year.
(ii) accrue or arise to him without British India during such year.
Provided further that, in the case of a person not ordinarily resident in British India, income, profits and gains which accrue or arise to him without
British India shall not be so included unless they are derived from a business controlled in or a profession or vocation set up in India or unless they
are brought into or received in Brifish India by him during such year.
Section 4-A defines when an individual, a Hindu undivided family and a company are resident in British India.
Section 4-B--"" For the purposes of this Act
(a) an individual is '' not ordinarily resident'' in British India in any year if he has not been resident in British India in nine out of the ten years
preceding that year or if he has not during the seven years preceding that year been in British India for a period of, or for periods amounting in all
to, more than two years ;
(b) a Hindu undivided family is deemed to be ordinarily resident in British India if its manager is ordinarily resident in British India ;
(c) a company, firm or other association of persons is ordinarily resident in British India if it is resident in British India.
The foreign income of the assessee family was neither derived from a business controlled in India, nor brought into British India ; therefore,
under the proviso to Section 4(I), it is not chargeable to tax if the family was '' not ordinarily resident.'' By virtue of Clause (b) of Section 4-B the
status of the manager, who is the ""individual"" in Clause (a), determines the status of the family, which is deemed to be ordinarily resident if that is
the manager''s status. The kartha of the assessee family was resident in British India in nine out of the ten preceding years. Consequently, in that
respect, the requirement in the first part of Clause (a) of Section 4-B to make him "" not ordinarily resident "" was not fulfilled. The exemption from
tax will arise only if he can be brought within the second part of the clause.
The difference between '' resident'' ''ordinarily resident'' and '' not ordinarily resident'' is a creature of the Indian Income Tax Act. When a
resident is not ordinarily resident, he is relieved from liability to be taxed upon his foreign income. The expression '' ordinarily resident'' which is
found in Clauses (b) and (c) of Section 4-B, is not defined. But since the latter clause provides that a company, firm or other association of
persons resident in British India is ordinarily resident, in that connection it might be said that reading Clause (c) with Section 4-A supplies a
definition of ''ordinarily resident'' in relation to a company, firm or association. As regards an individual, there is nothing in the Act by which
ordinarily resident is defined. Whilst the headnote to Section 4-B appears to indicate that its provision defines or explains what is ''ordinary
residence'' the section does not do so, save to a limited extent in Clause (c). Clause (a) does no more than explain when an individual is "" not
ordinarily resident.
On behalf of the assessee family, Mr. T.V. Viswanatha Ayyar contended that under the second part of Clause (a) of Section 4-B, if an
individual is outside British India for an aggregate period of more than two years during the preceding seven years, he is '' not ordinarily resident.''
If that be correct, then presence in British India for not less than five years out of the preceding seven years is required before a person is excluded
from the category of '' not ordinarily resident.'' This argument was evolved out of a contention that the words in the second part of Clause (a) "" he
has not ...been in British India for... more than two years "" mean that he has been outside British India for more than two years.
u/s 4(I)(b)(2) the income chargeable to tax of any person resident in British India includes income which accrues outside British India. Pausing
there for a moment, prima facie a resident is liable to tax upon his foreign income irrespective of other considerations. Then comes the proviso by
which a resident''s foreign income is not liable to tax when it is not brought into the country or derived from a business controlled in India, if the
resident is '' not ordinarily resident'' in British India.
Section 4-A enacts when an individual is resident, Clause (a) of Section 4-B gives the circumstances in which an individual, including a resident,
is '' not ordinarily resident.'' Since the kartha was resident for nine years out of ten years, the first part of Clause (a) does not help the assessee
family. The second part of the clause alone has to be considered. So far as is material, it provides that an individual is '' not ordinarily resident''
when he has not been in British India for an aggregate period of more than two years during the preceding seven years. It seems to me that the test
is one of presence in, and not absence from, British India, and the length of time of presence will determine when an individual is '' not ordinarily
resident.'' The words which have to be interpreted, omitting those which are unnecessary, are the following, ""If he has not ...been in British India
for... more than two years."" If he fulfils what those words mean, an individual is not ordinarily resident. What is the opposite of the words which are
quoted above ? In my view, the opposite words would be "" If he has ...been in British India for... more than two years."" That being so, the meaning
of the words in question is that a person is ''not ordinarily resident'' so long as he is not present in India for an aggregate period of more than two
years during the preceding seven years. It is immaterial, in my view, to consider the length of time, in the preceding seven years, during which the
individual is outside British India. I think the words of the latter part of the clause mean, "" unless he has been in British India for more than two
years "" ; in other words, a person is not ordinarily resident unless he has, within the preceding seven years, actually been in British India for a
period aggregating to more than two years. The phraseology is not simple of construction but, if we approach the matter in the way in which I have
ventured to do, it seems to me that this is what the latter part of the clause means : If during the preceding seven years, an individual is in British
India for more than two years, he is not included in the category of ''not ordinarily resident,'' irrespective of the period during those seven years, in
which he has been outside the country. If it had been the intention to give the meaning, which Mr. Viswanatha Ayyar suggested it bears, the clause
would expressly have provided that presence in British India for five years at least is necessary in order to remove an individual from the category
of ''not ordinarily resident.''
Whilst the actual construction of Clause (a) of Section 4-B, particularly the latter part of the clause, was not the point for decision, nevertheless
it was the subject of observations in the case of S. Marimuthu Pillai of Murugur Vs. The Commissioner of Income Tax, , decided in this Court. The
actual decision in that case related to aggregating the periods of presence of more than one kartha of the family within British India. But, in the
course of the judgment of my learned brother, at page 844 it was observed in regard to Clause (a) of Section 4-A as follows:
in order to be ordinarily resident in British India, the manager must have been '' resident'' in British India, within the meaning of Section 4-A (a) in
nine out of ten preceding years and must also have been here for at least two years during the previous seven years.
In my view, when the words ""more than"" replace ""at least,"" that observation correctly expresses the meaning of Clause (a) of Section 4-A.
The foreign income of every resident in British India, even when it is not brought into the country, is chargeable to tax, save when the resident is
''not ordinarily resident.'' For an individual, including a resident, to be ''not ordinarily resident,'' so as to escape tax, it must be shown that the
position is covered by Clause (a) of Section 4-B. When an individual has been a resident for nine out of ten preceding years, then in order to
escape tax on his foreign income, he must not have been in British India for more than an aggregate period of two years during the preceding seven
years. In the present case the status of the kartha of the assessee Hindu undivided family determines the status of the family. The kartha was
resident in British India for nine out of the preceding ten years and he was in British India for an aggregate period of more than two years during the
preceding seven years, of the year in question. In those circumstances he has not fulfilled the requirement of Clause (a) of Section 4-B so as to be ''
not ordinarily resident'' and it follows that the family is similarly situated.
In my opinion, the income of the assessee Hindu undivided family which accrued outside British India during the relevant year was correctly
included in the assessment for the year 1940-41 and the answer to the question referred should be in the negative. The Commissioner will have his
costs Rs. 250.
Patanjali Sastri, J.
I agree. I have already expressed my view of the meaning of Section 4-B (a) in S. Marimuthu Pillai of Murugur Vs. The Commissioner of
Income Tax, . It is true that the point was not argued as it did not actually arise for decision in that case, but I am not sure whether that in itself is
not a recommendation of that view, in a matter of interpretation of ambiguous language. However, having now heard full arguments on the point on
both sides, I see no reason to depart from that view. The construction contended for by Mr. Viswanatha Ayyar would involve this consequence. A
person by adopting the simple expedient of being absent, say, in a neighbouring Indian State for 3/1/2 months every year during the seven years
period referred to in the section, could relieve himself of his status as an '' ordinary resident,'' however close in quality and preponderating in
duration his connection with British India may be. This, it seems to me, could not have been intended by the Legislature, and a construction which
would lead to such repugnant results should not be readily accepted.
It may be pointed out in passing that the statement in S. Marimuthu Pillai of Murugur Vs. The Commissioner of Income Tax, , that in addition
to being resident in British India in nine out of the ten preceding years, an "" ordinary resident "" must also have been in British India for at least two
years during the previous seven years is not strictly accurate. As Section 4-B (a) requires that the aggregate period of stay should be more than
two years, he must have been in British India for at least two years and a day.