Interpreting Residence under Indian Tax Law: The ITAT's decision in Binny Bansal

The author is Runit Rathore, a Fourth Year Student from Hidayatullah National Law University, Raipur.

INTRODUCTION 

The Income Tax Appellate Tribunal (Tribunal) has delivered a significant ruling in Binny Bansal v. DCIT (Binny Bansal), on the determination of residential status under the Income Tax Act, 1961 (Act). In its decision, the tribunal held that Mr. Binny Bansal (Assessee), former co-founder of Flipkart, qualified as a resident in India for the relevant assessment year, thereby rendering income of approximately Rs. 1,081 crores taxable in India. The ruling adopts a substance-oriented approach to the issue of residence and underscores the importance of complying with the quantitative thresholds prescribed under the Act when determining residential status.

Section 6(1) of the Act governs the residential status of individuals and prescribes two alternative tests for determining residency. An individual is treated as a resident in India if he satisfies either of the following conditions: (a) he is in India for 182 days or more during the relevant previous year or (b) he has been in India for an aggregate period of 365 days during the four years preceding the relevant previous year and for at least 60 days during that previous year. In the present case, the assessee was physically present in India for 141 days during the relevant previous year and therefore, did not satisfy the first condition. However, he fulfilled both limbs of the second condition, thereby prima facie qualifying as a resident under Section 6(1).

The assessee contended that Explanation 1(b) to Section 6(1)(c) ought to apply in his favor, as it extends the 60-day requirement to 182 days in cases where an Indian citizen or a person of Indian origin, being outside India, comes on a visit to India. The Tribunal, however, rejected this contention and held that the benefit of Explanation 1(b) was not available to the assessee, consequently affirming his residential status in India. 

This piece analyses the Tribunal’s ruling and critically examines the legal reasoning adopted therein. It further considers the broader implications of the decision, including its significance for the determination of tax residence and the limits of its precedential value. The discussion concludes by suggesting possible ways for clarification through appellate review or legislative amendment. 

THE TRIBUNAL’s RULING 

The Tribunal upheld that the assessee was a resident in India for the relevant assessment year under section 6(1)(c) of the Act. It noted that the assessee had been physically present in India for more than 365 days during the four preceding previous years and for more than 60 days during the relevant previous year, thereby satisfying the statutory conditions for residence.

The Tribunal rejected the assessee’s reliance on Explanation 1(b) to section 6(1), concluding that the benefit of the extended 182-day threshold was unavailable to him. It laid down that the expression “being outside India” refers to expression “being a non-resident”. Accordingly, the Tribunal affirmed the assessee’s residential status in India and held that the income in question was taxable in India. It held that the Explanation is for the individuals who undertake substantial economic activities in India to remain non-resident for tax purposes in perpetuity and not to be required to declare their global income in India. Therefore, it concluded that the provision is meant for non-residents. 

CRITICAL ANALYSIS OF THE DECISION 

1. Interpretation of the “Being Outside India” under Explanation 1(b)

   
   

The Tribunal reads the phrase “being outside India” as synonymous with “already a non-resident”, an interpretation that rewrites the statutory language. The Act consciously employs the expression “being outside India” and not “being a non-resident”. The established principles of tax interpretation require courts to give effect to the plain and ordinary meaning of statutory words, particularly in the context of residence provisions, which are intended to operate through mechanical and objective tests. By importing an additional requirement of prior non-residency, the Tribunal engages in judicial legislation, contrary to the settled principle that tax statutes must be strictly construed. 

Further, where two plausible interpretations of a taxing provision exist, the view favourable to the taxpayer must be adopted, as authoritatively held by the Supreme Court (SC) in CIT v. Vegetable Products Ltd. Applying this principle, the ambiguity surrounding the scope of Explanation 1(b) ought to have been resolved in favour of the assessee rather than by imposing additional unstated conditions.

2. The Scope of “Visit to India” and the Nature of Residence Tests under Section 6

   
   

The Explanation 1(b) hinges on whether a person “comes on a visit to India”, not on the number, frequency or purpose of such visits. The Tribunal introduces qualitative considerations such as business meetings, repeated travel etc., which find no express basis in the statutory text. The residency tests under Section 6 are designed to be quantitative as well as objective and importing subjective or purposive elements risks undermining statutory certainty. This position has been clearly affirmed in precedent in CIT v. Suresh Nanda, wherein it was held that the sole test for determination of residential status is number of days of physical presence in India. Similarly, in ADIT v. Sudhir Choudhrie, the court ruled that the determination of residential status must be strictly on the basis of day spend in India, making economic or legal presence immaterial for the purposes of Section 6. 

The term “visit” has not been defined by the Act and therefore it must be understood in its ordinary and common-sense meaning. Where an individual goes abroad and thereafter comes to India for limited periods, such presence ordinarily constitutes a visit. Any contrary interpretation would render the words “being outside India” effectively meaningless. According to the Tribunal’s reasoning, an Indian citizen could move abroad for work, remain outside India, and nevertheless be denied the benefit of Explanation 1(b) merely because he was resident at the beginning of the year or in the previous years. This outcome amounts to rewriting the statute rather than interpreting it.

3. Legislative History and Prior Jurisprudence on Explanation 1(b)

   
   

The Tribunal accepted the argument by revenue authorities that the legislative intent behind Explanation 1(b) was to extend relief only to those who were already non-residents. However, this reasoning overlooks the fact that Explanation 1(b) has been amended on multiple occasions, yet Parliament has consciously refrained from substituting the phrase “being outside India” with “being a non-resident”. This legislative silence strongly suggests that the benefit was intended to extend to Indian citizens or persons of Indian origin who are outside India and come on a visit, without importing a requirement of prior non-resident status.

In substance, the Tribunal has read into the provision an implicit requirement that the individual must have been a non-resident at the start of the previous year. Such a condition finds no support in the statutory text and constitutes judicial overreach. Notably, even earlier rulings that denied the benefit of Explanation 1(b) did so on a different and narrower basis. In Smita Anand, China [(2014) 42 Taxmann.com 366] and Manoj Kumar Reddy v. ITO, relief was denied because the individuals had returned to India permanently and were therefore not considered to be “on a visit” at all. Those decisions did not hold that prior residency status permanently bars the application of Explanation 1(b) rather, they turned on the nature of the return. By contrast, the Tribunal in the present case does not merely characterise the assessee’s presence as something other than a visit and it treats prior residency itself as disqualifying, thereby expanding the scope of the restriction beyond what earlier jurisprudence contemplated.

Ultimately, the Tribunal’s interpretation imposes a broader and more intrusive residency test not found in the statute. The phrase “being outside India” is transformed into a coded requirement of established non-residency, a condition that legislature has never enacted. The concerns regarding seeming tax avoidance may be understandable, any corrective measures must emanate from legislative amendment rather than from judicial interpretation that effectively rewrites the law. 

WHY THE CASE MATTERS

The Tribunal’s interpretation of Explanation 1(b) has implications that extend beyond the immediate facts of Binny Bansal. It makes prior non-residency a requirement into a provision framed in objective terms, thus the ruling introduces an additional layer of uncertainty into the determination of individual tax residence, an area where predictability is central to cross-border mobility, structuring, and treaty analysis.

If this approach is sustained, it risks shifting residence determinations away from the mechanical day-count test envisaged under section 6 towards a more subjective inquiry based on perceived economic presence or intent. This, in turn, blurs the conceptual boundary between residence rules and anti-avoidance doctrines, without explicit legislative backing. For Indian citizens who relocate abroad but retain professional or personal ties with India, such an interpretation may complicate tax planning and compliance in ways not contemplated by the statutory scheme.

At the same time, it is also pertinent to consider that findings on residential status are often deeply specific to particular facts. The SC has consistently cautioned against treating fact-based determinations as binding precedents. Accordingly, the Tribunal’s ruling should be understood as confined to cases which are similar to the factual matrix in Binny Bansal, rather than as laying down a general proposition on the scope of Explanation 1(b). 

WAY FORWARD AND CONCLUSION 

The Tribunal’s decision in Binny Bansal highlights the continuing tension between concerns over aggressive tax planning and the need for certainty in the application of residence provisions under the Act. Whilst the outcome reflects a purposive reading of Explanation 1(b), the reasoning raises difficult questions regarding the limits of judicial interpretation in an area which was traditionally governed by mechanical and objective tests.

Given the high stakes involved and the wider implications for individuals with cross-border mobility, it is unsurprising that the ruling is likely to be tested before the High Court. An appellate scrutiny will offer an opportunity to clarify whether the expression “being outside India” can legitimately be confined to cases of established non-residency or whether such a limitation amounts to reading words into the statute. In lack of clarification, legislative intervention may ultimately be required to ensure that residence determinations remain predictable, textually grounded and aligned with the statutory framework.