Interpretation of residency status under FERA and entitlement to exemption under S.10(4A) of the Income Tax Act, 1961.

1. The short point that arises for consideration in these appeals is: whether the appellant-assessee is a resident outside India as defined in S.2(q) of the Foreign Exchange Regulation Act, 1973 (for short, 'the FERA')?

2. These appeals arise from the common order of the High Court of Kerala at Ernakulam passed in Income Tax Reference Nos. 109 and 113-114 of 1992 dated September 10, 1996. The questions referred to the High Court in those cases were under the Income Tax Act as well as the Wealth Tax Act. Being of the view that the second question in ITR No. 109 of 1992, viz., "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee is entitled to exemption of the interest earned on the deposits in Non-resident (External) Account in terms of S.10(4A) of the Income tax Act, 1961?", is germae and would cover all the other questions referred to it, the High Court dealt with and answered that question by the impugned common order in the negative, i.e., in favour of the Revenue and against the assessee.

3. The appellant, though of Indian origin, has settled down in Malaysia in 1941 and acquired Malaysian citizenship. His wife and children reside in India and he owns some agricultural land, house property and investments in banks in India. For the Assessment Years 1983-84 and 1984-85 he claimed that the interest accrued on credit balance in his non-resident (External) Account cannot be included in computing his total income in view of the provisions of S.10(4A) of the Income Tax Act, 1961 (for short, 'the I.T. Act'). During the period June 13,1982 to April 14,1985 he stayed with his wife in India for undergoing medical treatment. The assessing authority treated him as a resident in India on the ground that he was living with his wife and children. The Appellant Authority agreed with that view. On the appellant's appeal before the Income-tax Appellate Tribunal, it was held that he was not a person resident in India in terms of S.2(p)(iii)(c) of the Foreign Exchange Regulation Act, 1973 (for short, 'the FERA'). The High Court, on reference, held, "A bare reference to sub-clause (p)(iii)(c) would show that a person who is not a citizen of India, but has come to or stays in India for staying with his or her spouse, such spouse being a person resident in India would have to be regarded and understood as a person resident in India." In that view of the matter, the High Court held that the appellant was not entitled to the exemption under S.10(4A) of the I.T. Act and thus answered question No. 2 in negative, against the appellant.

4. Mr. C.S. Vaidyanathan, learned Senior Counsel appearing for the appellant, invited our attention to paragraph (c) of sub-clause (iii) of S.2(p) of the FERA and argued that stay of a person with his or her spouse referred to therein postulates not a mere temporary or short-term stay but somewhat permanent stay. The High Court did not consider the nature of the stay for purposes of S.2(p)(iii)(c) of the FERA and has, therefore, erred in treating the appellant as a resident for purposes of S.10(4-A) of the I.T. Act.

5. Mr. Ranbir Chandra, learned counsel appearing for the Revenue, contended that in view of the long stay of the appellant in India he cannot but be treated as a resident in India and, therefore, the High Court has rightly held him to be resident in India.

6. In view of these submissions we shall advert to the point in issue. There is no dispute that S.10(4A) of the I.T. Act excludes any income from interest on moneys standing to the credit of a non-resident in Non-Resident (External) Account in any bank in India, in computing the total income of a person resident outside India. Explanation appended to S.10(4A) of the Act says that for purposes of that clause "person resident outside India" shall have the meaning resigned to it in clause (q) of S. 2 of the FERA. S.2(q) defines that expression to mean'a person who is not a resident of I