The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that mere relocation of family members and fresh investments abroad will not, by themselves, displace an individual’s “centre of vital interests” from India when personal and economic relations continue to be substantially closer to India. The Tribunal clarified that for determining economic relations under the Double Taxation Avoidance Agreement (DTAA), greater weight must be given to active involvement in business and commercial activities rather than passive investments.
The Tribunal noted that under Section 6(1)(c) of the Income Tax Act, the assessee had stayed in India for 141 days during the relevant previous year and for more than 365 days in the four preceding years, thereby satisfying the statutory conditions for being treated as a resident. It rejected the assessee’s claim for the benefit of Explanation 1(b) to Section 6(1)(c), holding that the expression “being outside India” is intended to apply to individuals who are already non-residents and not to those who were residents in the earlier years. The Tribunal also denied the benefit of Explanation 1(a), observing that the relaxation applies only to the specific year in which an individual leaves India for employment, and not to subsequent years.
Having concluded that the assessee was a resident under the Income Tax Act, the Tribunal proceeded to examine residency under the India–Singapore DTAA by applying the tie-breaker test contained in Article 4(2). The Division Bench comprising the Vice President and the Judicial Member observed that the tie-breaker test must be applied sequentially, beginning with the availability of a permanent home. On facts, it found that the assessee had a permanent home available in both India, in the form of owned properties, and in Singapore, where he resided in rented accommodation.
In determining the “centre of vital interests”, the Tribunal emphasised that both personal and economic relationships must be examined together. It explained that while personal relations such as family and social ties are relevant, economic relations must focus on factors like place of business, administration of property, and source of earnings. The Tribunal observed that investments in securities, mutual funds, and bank accounts do not necessarily move with the residence of the taxpayer, as such investments are often driven by expected returns rather than physical presence. For this reason, greater importance must be given to active business involvement than to passive investments.
The Tribunal also examined the criterion of habitual abode and noted that the assessee had stayed in India for 141 days during the relevant year and had spent the rest of the time in other countries, including Singapore. It observed that this was the first year in which the assessee had gone abroad for employment and that he continued to visit India frequently. Given that he had spent most of his life in India and continued to maintain a house there, the Tribunal concluded that he had a habitual abode in both India and Singapore, which again necessitated consideration of nationality. As the assessee was an Indian national, this factor also weighed in favour of treating him as a resident of India under the DTAA.
On the procedural issue relating to Section 144C of the Income Tax Act, the Tribunal held that the phrase “in the first instance” in Section 144C(1) requires the Assessing Officer to determine the procedure based on the declaration made by the assessee in the return of income. Since the assessee had claimed non-resident status in the return, he was an eligible assessee at that stage, and the Assessing Officer was duty-bound to issue a draft assessment order. The Tribunal observed that this procedure safeguards the taxpayer’s appellate rights in the event that a higher judicial forum later overturns the finding on residential status. It therefore held that there was no procedural violation and that the final assessment order was not barred by limitation .
In the result, the Tribunal upheld the findings of the Assessing Officer and the Dispute Resolution Panel on the issue of residential status, holding that the assessee was to be treated as a resident of India for the relevant assessment year, both under the Income Tax Act and under the India–Singapore DTAA.
Cause Title: Shri Binny Bansal V. The Deputy Commissioner of Income Tax, International Taxation Circe 1(1), Bangalore.
Case No: IT(IT)A No.571/Bang/2023
Coram: Keshav Dubey, Judicial Member & Prashant Maharishi, Vice President
