DHIRAJLAL HARIDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference on a case stated under s. 256(1) of the I.T. Act, 1965 -66 (referred to hereinafter as 'the said Act'). The facts giving rise to the reference are as follows :

(2.) THE assessment year with which we are concerned is the assessment year 1965 -66, the previous year relevant to which ended on March 31, 1965. The assessee was a South African national and stayed in India for more than 30 days during the relevant previous year. He came to India some time in April, 1962, and he left India on May 25, 1964. During this period, he and his family, consisting of his wife and children, stayed with his mother and sister in the premises provided free of cost by M/s. Arvind Industries Pvt. Ltd. of which he was a director. It was common ground that the premises were given in the name of the assessee's mother. With effect from September 1, 1964, these premises were transferred to the name of the assessee's sister, Miss Sudhaben Kanji and the said M/s. Arvind Industries Pvt. Ltd. started charging rent at Rs. 250 per month in respect of the said premises. Even after the assessee left India, his family continued to stay in India in the flat allotted to his sister. According to the assessee, he kept his wife and children in India for the purposes of educating his children. The expenses of the family as well as the sister were borne by the assessee even after his departure. The assessee claimed that he was a non -resident during the relevant year. The ITO held that he was a resident, but not ordinarily resident in view of the provisions of s. 6(1)(b) of the said Act. The assessee preferred an appeal against this decision to the AAC. The order of the AAC shows that the AAC found that the assessee was born in Johannesberg, South Africa, where his father had set up a substantial business. According to the AAC, the assessee, his wife, three children, sister and his mother returned to India in April, 1962, and the said M/s. Arvind Industries Pvt. Ltd. allowed the family to stay in the said flat at the request of the mother of the assessee. From September, 1964, the said flat was allotted to the sister of the assessee as aforesaid. On these facts, the AAC came to the same conclusion as of the ITO and held that the assessee was a resident but not ordinarily resident within the contemplation of s. 6(1)(b) of the said Act. This conclusion was challenged by the assessee before the Tribunal, but the appeal of the assessee was dismissed by the Tribunal. There were two other contentions raised by the assessee, one was in respect of the interest received by the assessee from the Bank of India on the money standing to his credit in a non -resident account. In respect of this amount, the assessee claimed exemption under s. 10(a) of the said Act, inasmuch as according to the assessee, he was a non -resident under the said Act. Following upon the conclusion that the assessee was not a non -resident, this claim of the assessee was rejected by the ITO, the AAC, as well as the Tribunal. The third and the last contention of the assessee was regarding the inclusion of a sum of Rs. 4,000 in his total income under s. 2(24)(iv) of the said Act on account of the benefit derived by the assessee from the said M/s. Arvind Industries Pvt. Ltd., by permitting him to stay in its flat free of cost. The Tribunal held, following its order for the assessment year 1963 -64, that the assessee did drive the benefit of free accommodation, but that such benefit was restricted to a period of only six months, because rent was charged from October 1, 1964, which was more or less equal to the value of the benefit. They, therefore, gave relief of Rs. 2,500 to the assessee retaining the addition to the extent of Rs. 1,500. From this decision of the Tribunal, the following three questions have been referred to us for our consideration :

(3.) BEFORE considering the controversy in this regard, we may take a note of the provisions of s. 6 of the said Act and that of s. 6(1)(b) in particular. Section 6 of the said Act deals with the question of resident in India. Sub -section (1) of s. 6 lays down when an individual can be said to be a 'resident' in India in any previous year and cl. (b) therefore runs as follows :