K. RAMULLANversusCOMMISSIONER OF INCOME TAX, COCHIN

                        K.RAMULLAN                                               A
                               v.
              COMMISSIONER OF INCOME TAX, COCHIN

                             AUGUST, 9, 2000

      [S.P. BHARUCHA, SYED SHAH MOHAMMED QUADRI AND                              B
                    N. SANTOSH HEGDE, JJ.]

      Income Tax Act, 1961 : Section 10(4-A).

       Income Tax-Exemption from-Non- resident (External) Account-Inter-
est earned on-AYs I983-84 and 1984-85-Assessee, a foreign citizen, stayed
                                                                                 c
in India for a short period during the AYs with his wife-Assessee claimed
exemption under S. JO( 4-A) in re~pect of the interest accrued in his account-
Entitlement to-Held: Stay contemplated under S.2(p)(iii)(c) of the FERA has
to be of some permanence and not a mere casual stay or stay for a short
period-Hence, assessee is not a person resident in India-There.fore, he is       D
entitled to exemption.

      Foreign Exchange Regulation Act, 1973 :

      Section 2(q)--Person resident outside India-Meaning of-Explained.
                                                                                 E
      Words and Phrases :

     "Staying"-Meaning of-In the context ofSs. 2(p)(iii)(c) of the Foreign
Exchange Regulation Act, 1973.

      "Person resident outside lndia"-Meaning of-In the context of Section       F
2(q) of the Foreign Exchange Regulation Act, 1973.

      The appellant-assessee, though of Indian origin, had settled down in
a foreign country and had acquired its citizenship. For the Assessment
Years 1983-84 and 1984-85, the assessee claimed that the interest accrued
on the credit balance in his Non-Resident (External) Account could not be        G
included in computing his total income in view of the provisions of Section
10(4-A) of the Income Tax Act, 1961. For a short period the said Assess-
ment years the appellant-assessee stayed with his wife in India for under-
going medical treatment.

      The Income Tax Appellate Tribunal held that the appellant-assessee         H
                                    283
    284                  SUPREME COURT REPORTS            (2000] SUPP. 2 S.C.R.
A   was not a person resident in India in terms of the Foreign Exchange
    Regulation Act, 1973 and, therefore, the appellant-assessee was entitled to
    exemption under Section 10(4-A) of the Income Tax Act, 1961. However,
    the High Court, on reference, overruled the Tribunal's decision. Hence this
    appeal.

B           The following question arose before this Court :

          Whether the appellant-assessee is a resident outside India as defined
    in Section 2(q) of the Foreign Exchange Regulation Act, 1973?

            Allowing the appeal, this Court
c         HELD : 1. A plain reading of Section 2(p )(iii)(c) of the Foreign
    Exchange Regulation Act, 1973 (FERA) makes it evident that the stay
    contemplated therein has to be of some permanence and not with the
    intention of returning abroad in some short set period. The word 'staying'
    occurring in Section 2(p)(iii)(c) really mean 'residing with the spouse'.
D   Even the purposes referred to in paragraphs (a), (b) and (d) of Section 2(p)
    of FERA indicate that the term 'stay' does not denote a short or casual
    stay; it has to be a stay for taking up employment or carrying on business
    or a vocation or with the intention of remaining in India for an uncertain
    period. If Section 2(p)(iii)(c) is construed to include a mere casual stay or
E   stay for a short period, it would defeat the purpose of having Non-Resident
    (External) Account. Therefore, the appellant cannot be treated as a person
    resident in India during the relevant period. Consequently, he will be a
    person resident outside India within the meaning of Section 2(q) of the
    FERA. Therefore, the order of the High Court is set aside. (287-C-E]

F           CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1659-1661 of
    1997.

           From the Judgment and Order dated 10.9.96 of the Kerala High Court
    in I.T.R. No. 109, 113 and 114 of 1992.

G           C.S. Vaidyanathan and E.M.S. Anam for the Appellant.

         Ranbir Chandra, Ms. Lakshmi Iyengar and Ms. Sushma Suri for the
    Respondent.

            The Judgment of the Court was delivered by

H           SYED SHAH MOHAMMED QUADRI, J. The short point that arises
        K. RAMULLAN v. C.1.T.[SYED SHAH MOHAMMED QUADRI, J.]                285
for consideration in these appeals is: whether the appellant-assessee is a resi-    A
dent outside India as defined in Section 2 (q) of the Foreign Exchange Regu-
lation Act, 1973?

       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         B
cases were under the Income Tax Act as well as the Wealth Tax Act. Being of
the view that the second question in I.T.R. 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 Section 10(4A) of the       c
Income-tax Act, 1961 ?", is germane and would cover all the other questions
referred to it, t~e 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.

       The appellant, though of Indian origin, has settled down in Malaysia in      D
 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 provis~ons of       E
Section 10(4A) of the Income Tax Act, 1961 (for short, 'the LT.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 resi-
dent in India on the ground that he was living with his wife and children. The
Appellate 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        F
in India in terms of Section 2(p )(iii)(c) of the Foreign Exchange and 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          G
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 Section
10(4A) of the LT. Act and thus answered question No.2 in the negative, against
the appellant.

      Mr. C.S. Vaidyanathan, learned senior counsel appearing for the appel-        H
    286                   SUPREME COURT REPORTS              [2000] SUPP. 2 S.C.R.

A   !ant, invited our attention to paragraph (c) of sub-clause (iii) of Section 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 Section 2(p)(iii)(c) of the FERA and, therefore, erred in treating
    the appellant as a resident for purposes of Section 10(4A) of the LT.Act.
B
           Mr. Ranbir Chandra, learned counsel appearing for the Revenue, con-
    tended that in view of the long stay of the appellant in India he could not but
    be treated as a resident in India and, therefore, the High Court rightly held him
    to be resident in India.
c          In view of these submissions, we shall advert to the point in iss!le. There
    is no dispute that Section 10(4A) of the LT.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 Section 10(4A) of the
D   Act says that for purposes of that clause "person resident outside India" shall
    have the meaning assigned to it in clause (q) of Section 2 of the FERA. Section
    2(q) defines that expression to mean 'a person who is not a resident of India'.
    And that expression is defined in clause (p) of Section 2 of the FERA, which,
    insofar as it is relevant for the present discussion, is extracted as under:

E            "2 Definitions - In this Act, unless the context otherwise requires,-

             (a) to (o) *** *** ***

             (p) "person resident in India" means-

                   (i) to (ii)*** ***
F
                   (iii) a person, not being a citizen of India, who has come to, or
                   stays in India, in either case-

                    (a)   for or on taking up employment in India, or

G                   (b)   for carrying on in India a business or vocation in India, or

                    (c)   for staying with his or her spouse, such spouse being a
                          person resident in India, or

                    (d)   for any other purpose, in such circumstances as would
H                         indicate his intention to stay in India for an uncertain
         K. RAMULLAN v. C.I.T.[SYED SHAH MOHAMMED QUADRI, J.]                287
                     period;                                                         A

               Explanation - A person, who has, by reason only of paragraph (a)
          or paragraph (b) or paragraph (d) of sub-clause (iii) been resident in
          India, shall during any period in which he is outside India, be deemed
          to be not resident in India;"
                                                                                     B
       Paragraph (c) of sub-clause (iii) of the FERA deals with stay with his or
her spouse. Shorn of immaterial words Section 2(p)(iii)(c) will read thus : a
person resident in India means a person, not being a citizen of India, who has
come to or stays in India for staying with his or her spouse, such spouse being
a person resident in India. A plain reading of paragraph (c), extracted above,
makes it evident that the stay contemplated therein has to be of some perma-
                                                                                     c
nence and not with the intention of returning abroad in some short, set period.
The word 'staying' in paragraph really means 'residing with the spouse'. Even
the purposes referred to in paragraphs (a), (b) and (d) indicate that the term
'stay' does not denote a short or casual stay; it has to be a stay for taking up
employment or carrying on business or a vocation or with the intention of            D
remaining in India for an uncertain period. If we construe paragraph (c) to
include a mere casual stay or stay for a short period, it would defeat the purpose
of having Non-Resident (External) Account. This being the position, the ap-
pellant .cannot be treated as a person resident in India during the relevant
period. Consequently, he will be a person resident outside India within the
                                                                                     E
meaning of Section 2(q) of the FERA. We, therefore, set aside the order of the
High Court under challenge, answer question No.2 in favour of the appellant
and against the Revenue and thus allow the appeals. There shall be no order
as to costs.

v.s.s.                                                        Appeals allowed.