Relocation to India not a deciding factor to establish residential status

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INCOME TAX APPELLATE TRIBUNAL,KOLKATA

ITA NO. 1035/Kol/2011 Assessment year 2006-07

Dr Sarmishtha Mukherjee

Vs.

Income Tax Officer

Date of pronouncing the order : May 31 , 2012

We find that there is no dispute about the fact that the assessee was a ‘resident but not ordinarily resident’ for the relevant assessment year. The mere fact that she relocated to India on 29th May 2005 does not alter her residential status, so far Income Tax Act is concerned, with effect from that date. Quite fairly, learned Commissioner has also not specifically disputed this position even as he has laid lot of emphasis on the fact that she returned to India on 29th May 2005 and the fact that sale was concluded after that date i.e. 31st May 2005, but then nothing really turns on these facts because whether sales took place after assessee’s relocating to India or not, her residential status continues to be of the ‘resident but not ordinarily resident’ throughout the relevant previous year. It is also not in dispute, as a plain reading of section 5(1)(a) would show, that so far as resident and not ordinarily resident assessee’s are concerned, only such income accruing or arising outside India can be brought to tax in their hands in India as is (i) received or is deemed to be received in India in such year by or on behalf of such person; or (ii) which is derived from a business controlled in or a profession set up in India. The assessee’s case, according to the learned Commissioner, falls in first category i.e. income received in India. However, what the stand so taken by the learned Commissioner overlooks is the fundamental principle that it is the place of first receipt of income which is material for the purposes of applying the test in Section 5(1)(i). The place of receipt of an income is the place where it is received by the  assessee in its character of income; a mere transfer of money from one bank account to another bank account cannot be considered a receipt of income because one cannot receive income from himself. Income is what comes in from outside sources. Therefore, first time an assessee receives it- whether directly or even through the agent, it is income, but any transfers subsequent to such receipts will not even result even in receipt, much less an income. In the cases of non-residents, as also in the cases of ‘resident but not ordinarily resident’ – subject to exceptions which are not relevant for the present purposes, unless, at the time money is received in India, it is received as income from an outside source, such receipt will not be an income receipt . What an assessee does to such receipt subsequently does not govern the situs of its taxability; its only the place of initial receipt, as income character, will be relevant for these purposes. In the light of this legal position, let us examine the facts of the present case. It is not even in dispute that the amounts were first received in United Kingdom and credited to assessee’s bank account in National Westminster Bank plc there. The assessee has also filed copies of the bank statements which clearly establish this fact. The income was thus received in United Kingdom and it is only subsequent remittance, which is wholly irrelevant for taxability purposes, which was received in India. In this view of the matter, learned Commissioner was clearly in error in holding that the capital gains on sale of house property in UK was received in India, and, for this short reason, taxable in India. The very foundation of learned Commissioner’s impugned revision order is thus unsustainable in law.