ITAT Bangalore’s Binny Bansal Ruling on Tax Residency: Key Lessons for HNIs Relocating Overseas
Emigration of HNIs is often linked to favourable tax laws. This article attempts to analyse the implications of the recent ITAT ruling in the Binny Bansal case for them.
Recently, the Income Tax Appellate Tribunal (Bangalore Bench) delivered an extensive ruling in the tax residency dispute of assessee Binny Bansal, co-founder of the e-commerce giant Flipkart. The Bench was presided over by Prashant Maharishi (Vice President) and Keshav Dubey (Judicial Member). The ruling may prove to be of significance for high-net-worth individuals moving...
Recently, the Income Tax Appellate Tribunal (Bangalore Bench) delivered an extensive ruling in the tax residency dispute of assessee Binny Bansal, co-founder of the e-commerce giant Flipkart. The Bench was presided over by Prashant Maharishi (Vice President) and Keshav Dubey (Judicial Member). The ruling may prove to be of significance for high-net-worth individuals moving abroad.
While the controversy arose from the taxability of capital gains on offshore transfers, the ruling carries key takeaways on how Indian taxation law determines residential status and applies provisions of bilateral treaty relief under DTAA (Double Tax Avoidance Agreement).
Statutory Framework Governing Residential Status
Residential status of individuals is determined under Section 6 of the Income Tax Act, 1961. Under Section 6(1), an individual is said to be the resident of India, if he/she -
- is in India in that year for a period or periods amounting to one hundred and eighty-two days or more; or
- having within the four years preceding that year been in India for a period or periods amounting to three hundred and sixty-five days or more, is in India for a period or periods amounting to sixty days or more in that year
The Madras High Court in CIT v. R.M. Muthaiah held that residential status depends entirely on satisfaction of statutory conditions, making an individual’s intention to settle abroad or any belief regarding residency irrelevant. This principle formed the foundation of the Tribunal’s approach in the present ruling.
Meaning of “Being Outside India” and Frequent Visits
A key issue examined by the Tribunal was the interpretation of the phrase “being outside India” under Explanation 1(b) to Section 6(1)(c). The assessee argued that once an individual moves abroad, the threshold when counting the number of days is relaxed.
Rejecting this interpretation, the Tribunal held that the provision must be read in line with the legislative intent. The intention is to extend the protection to non-residents visiting India, and not individuals who were long-term residents (before moving abroad) and continue to maintain substantial ties with India even after relocation.
This reasoning aligns with the Gujarat High Court’s ruling in Pradeep J. Mehta v. CIT, where the Court observed that frequent and substantial presence in India can negate claims of non-resident status.
Residency and Application of DTAA Tie-Breaker Tests
The ruling also examined the applicability of the India-Singapore Double Taxation Avoidance Agreement, particularly Article 4. Article 4 lays down the criteria of how the residential status of a person is to be determined, in case he/she is a resident of both the contracting states. The Tribunal emphasised the importance of scrutinising treaty benefits from the lens of domestic law.
A key Supreme Court ruling in CIT v. P.V.A.L. Kulandagan Chettiar held that treaty provisions must be applied keeping in mind facts such as residence and economic nexus, rather than just formal documentation.
Capital Gains Taxability and Nexus with India
Once residential status was affirmed, the assessee became taxable in India under global income. This led the Tribunal to decide the taxability of capital gains arising from the sale of shares held by assessee in Flipkart, a company incorporated in Singapore.
The Supreme Court, in Vodafone International Holdings BV v. Union of India, held that offshore share transfers could not be taxed in India merely because the underlying assets were located in India. The Court emphasised the importance of transaction structure, territorial nexus, and legislative intent, which are central to the ITAT ruling.
Key Takeaways for HNIs Planning to Move Abroad
The ruling highlights certain risk factors that high-net-worth individuals should be mindful of while relocating overseas:
- Merely taking up employment or residence abroad does not automatically result in non-resident status under Indian tax law
- Frequent visits to India after relocation can weaken claims of non-residency
- Residential property, family presence, or active business involvement in India can influence residency determination
- Once an individual is treated as a resident, global income, including offshore capital gains, becomes taxable in India
Conclusion
For high-net-worth individuals moving abroad, this ruling serves as a reality check that residency under Indian tax law is determined by statutory tests and factual matrix. Hence, careful planning and sustained compliance are essential to avoid unintended global tax exposure in India.
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