Foreign National on Business Visa is 'Person Resident in India: Karnataka HC Upholds Tribunal Order Quashing FEMA Confiscation [Read Order]

The Karnataka High Court has rejected an appeal by the Enforcement Directorate (ED) and affirmed the verdict of the Appellate Tribunal that dismissed a Confiscation order against a Korean citizen and his partnership firm. The Court concluded that a foreign national who enters India on a business visa and stays for more than 182 days during the previous financial year is a “person resident in India” within the meaning of Section 2(v) of FEMA unless he is covered by the particular exclusion clauses.

The Division Bench of Justice Jayant Banerji and Justice T.M. Nadaf held that the respondents were “persons resident in India” at the time of purchase of immovable property and hence not in breach of the Foreign Exchange Management Act (FEMA), 1999.

The case stems from a show-cause notice issued to Joy of India Partnership Firm by the ED claiming FEMA violations in relation to the acquisition of immovable property by a person living outside India. The Adjudicating Authority had passed an order of confiscation of the property and also levied penalties. However, the Appellate Tribunal set aside the verdict and the ED challenged the order before the High Court.

The Court examined Section 2(v) of FEMA which specifies a “person resident in India”. The criteria covers a person resident in India for more than 182 days in the prior financial year but excludes individuals coming to India "otherwise than" for job, business or an uncertain period.

The Court observed that the respondents had come to India on a legitimate business visa and had stayed for more than 182 days in the relevant financial year (2008-09). As they had come solely to do business, they did not fall within the scope of the exclusion provision (Section 2(v)(i)(B)) which relates to people coming for purposes other than business or employment.

The Court therefore decided that the respondents may purchase immovable property without prior approval of the RBI, as suggested by the RBI itself. The Court further observed that the sale consideration was obtained through lawful banking channels (as demonstrated by FIRC certifications) and the respondents were liable to income tax assessment in India.

The Court noted that the ED failed to furnish the original records of the case despite several efforts. On the day of the hearing a Deputy Director showed up and said they were “unable to trace out the records.” The court proceeded on the basis of the records available and found that the ED's appeal has no validity.

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