According to section-5, the incidence of tax depends upon, and is determined with reference to the residential status of an assessee in the previous year. The incidence of tax as mentioned in section 5 for Resident ordinarily residing in India (ROR), Resident not ordinarily residing in India (RNOR), and Non resdient NR are as follows-

ROR (5) a) received or deemed to be received in India; or
b) accrues or arises or deemed to accrue or arise in India; or
c) accrues or arises to him outside India.

RNOR (5)(1) a) received or deemed to be received in India; or
b) accrues or arises or deemed to accrue or arise in India; or
c) accrues or arise outside India from a business controlled in or profession setup in India.
NR (5)(2):
a) Received or deemed to be received in India; or
b) accrues or arises or deemed to accrue or arise in India.

Assessee can either be

1. Resident in India, or
2. Non- Resident.

Resident in India can further be divided into-

1. Resident ordinarily residing in India, or
2. Resident not ordinarily residing in India

Individual (Section 6(1))
An assessee needs to fulfill any of the following conditions (basic conditions) to be a resident in India-

1. The assessee has resided in India for at least 182 days or more in the previous year (Sec-6(1)(a)), OR
2. If he has resided in India for a total of 365 days or more in 4 years preceding the previous year (now referred as PY) and at least 60 days in the PY (Sec-6(1)(d)).[1]

If an assessee doesn’t fulfill any of the basic condition, then he is non-resident. However, if he fulfills anyone of the basic conditions, then we have to check whether he ordinarily residing in India or not ordinarily residing in India. The assessee is ordinarily residing in India if he fulfills all of the following conditions (Additional conditions) (Section-6(6)(a))-

1. That he has been resident in India for at least 2 out of 10 years preceding relevant PY, and
2. That his total stay in India is at least 730 days in 7 years preceding relevant PY.

Hindu Undivided Family (Section 6(2))
HUF is “resident” in India in relevant previous year (RPY) unless its control and management is situated wholly outside India during the said PY.

In Swedish Central Railway v. Thompson, the court explained the phase “control and management” as the controlling and directing power, the real head and brain, and the term “situated” signifies a particular place with some degree of permanence.

For an HUF to be ordinarily residing India, it has to fulfill following condition (Section 6(6)(d))

1. That the Karta is the resident in India in 2 out of 10 years preceding relevant PY, and
2. That he fulfills Add. Condition (2) i.e. he stays in India for at least 730 days in 7 years preceding relevant PY.

In Subbayya Chettar v. CIT, it was held that

1. Normally a HUF will be taken to be resident in India unless the CnM of its affairs is proved to be situated wholly outside India.
2. The word “affairs” must mean affairs which have some relation to income.
3. The word “wholly” suggests that HUF may have more than one residence.

Company (Section 6(3))
Company can either be a resident or a non-resident in India. A company can be resident if-

1. It is an Indian company, or
2. If the POEM of the company is situated wholly in India in RPY.

POEM- Place of effective management. The place of work or income are not relevant. What is relevant is the place or the seat from where all important decisions are taken, or in other words, the place from where the business is controlled.

In Narottam & Prakash ltd. V. CIT, the court held that it is entirely irrelevant where the business is done and where the income is carried. What is relevant is from which place has that business been controlled and managed. What has to be considered is not the power or capacity to manage and control, but the actual control and management, or in other words, the de-facto CnM and not the de-jure CnM.

End-Notes:

1. In the case where citizen of India leaves India as a member of Indian ship crew or for the purpose of employment; or any citizen who lives outside India and has come to visit India, in order to fulfil basic condition 2, the minimum stay in the PY has to be 182 days instead of 60 days.