Landmark ITAT Ruling on Tax Residency: Substance Over Days Spent Outside India

The norm that moving out of India along with family automatically leads to change in the residential status to “non-resident” has been clarified in a rare judgement. In January 2026, the Bangalore bench of the Income Tax Appellate Tribunal (ITAT) in the case of Mr. Binny Bansal, namely, the co-founder of Flipkart (hereinafter referred to as the ‘assessee’), delivered a useful insight into critical aspects of tax ties of a resident which remain status quo upon relocation to a foreign land.

Factual Matrix of the Case

The case pertained to the assessment year 2020-21 and revolved around the fixation of the residential status of Mr. Binny Bansal for ultimately determining his taxation status. In February 2019, he along with his family shifted to Singapore wherein the spouses took up employment, and their children were enrolled in school. During the concerned assessment year, he stayed in India for 141 days and his total presence in India exceeded 365 days over the preceding four years.

For AY 2020-21, Mr. Bansal filed his return of income treating himself as a non-resident, invoking the benefit of the 182-day threshold applicable to individuals visiting India. He further relied on Article 13(5) of the India-Singapore (DTAA) to contend that capital gains arising from the sale of shares of an Indian company were not chargeable to tax in India.

The Income Tax Department declined to extend the benefit of the DTAA provision thereby regarding his as an Indian resident only. Consequently, his global income including capital gains from the sale of shares became taxable in India. The Dispute Resolution panel confirmed the view of the IT Department, leading to Mr. Bansal appealing before ITAT.

Issues before ITAT

The Tribunal examined the following issues in detail:

1. Whether the assessee satisfied the conditions for being classified as a ‘resident’ under the ambit of Section 6 of the Income Tax Act, 1961;
2. Whether the assessee fulfilled the condition of the 182-day rule, and accordingly could be regarded as resident of India;
3. Whether the assessee is a resident of both India as well as Singapore, or whether DTAA rules would treat him as resident of Singapore; and
4. Whether the assessment proceedings were vitiated because the procedure under Section 144C, meant for non-residents, was applied even though the assessee was treated as a resident of India.

Applicable Provisions

The conditions required for an assessee to be treated as an Indian resident is categorically provided under Section 6 of the Income Tax Act, 1961, viz.: stay in India for 182 days or more during the relevant financial year, or stay in India for 60 days or more in that year along with 365 days or more in total during the preceding four years.

Nevertheless, this 60-day condition is relaxed for Indian citizens leaving India for employment abroad as well as Indian citizens or persons of Indian origin visiting India. In such cases, the 182-day condition applies instead.

Various provisions of DTAA were also read in tandem to arrive at the sound judgement.

1. Article 4 of the DTAA is referred to as the ‘tie-beaker’ rule which determines the residential status of such assessees. Wherein a person qualifies both as a resident of India and Singapore, the following rules apply to determine the single best country of residence:

• Permanent Home Test: The person is considered as a resident of the country where he has a permanent home;
• Centre of Vital Interests Test: Where such person has a home in both countries, he/ she is treated as a resident of the country where their personal and economic ties are closer;
• Habitual Abode Test: If the above cannot be determined, he/ she is treated as a resident of the country where they usually reside; and
• Nationality Test: If the assessee lives in both or neither of the countries habitually, he/ she is treated as a resident of their country of nationality.

2. Further, the clarification that profits from the sale of any property is taxable only in that Contracting State wherein the alienator resides is provided for in Para 5 of Article 13.

3. Lastly, Para 1 of Article 24A of DTAA adds caution that if the assessee being the resident of a Contracting Party arranges their financial or business activities mainly to receive tax benefits under paragraphs 4A and 4C of Article 13 of the Agreement, they can be denied the same.

Tribunal Analysis and Findings

The ITAT examined the following laws in-depth in the instant case before making their decision.

Status of Residence under the Income Tax Act, 1961

The Tribunal observed that the assessee was present for an aggregate period of 141 days during the FY 2019-20, and in addition, remained in India for a period exceeding 365 days in the last four years. Accordingly, the conditions laid under Section 6 were satisfied.

Further, the assessee claimed the benefit of the 182-day rule applicable to individuals leaving India for employment. However, the said contention was rejected by the Tribunal on the grounds that the same could be granted to an assessee only in their year of departure. As the assessee had already relocated abroad in February 2019 – the benefit could not be availed again for the FY 2019-20.

Therefore, the assessee was determined to be a resident of India for that particular year

Tie-breaker Rule as per the DTAA

Firstly, the Tribunal observed that the assessee owned immovable properties in both India and Singapore – hence his permanent home existed in both the countries.

Thereafter, the Tribunal examined the assessee’s financial and economic connections in detail and noted thus:

• In India, the assessee held: immovable properties worth approx. INR 40 crores along with bank balance of INR 7.29 crores. He also held shares and securities amounting to INR 659.67 crores apart from value of loans and other advances of approx. INR 30 crores.
• Globally, the total investment of the assessee amounted to the tunes of INR 878 crores approx., inclusive of a bank balance of INR 121 crores, shares and securities worth INR 741 crores and loans and advances of INR 16 crores. It was also noted that prior to this financial year, the assessee had only minimal investments outside India, and that the majority of the foreign investments were made during FY 2019-20 only.

Based on this, the Tribunal inferred that the assessee’s centre of vital interests had shifted outside India during the year under consideration only. The Tribunal further clarified that the determination of the centre of vital interests must consider the entire assessment year and not merely the position at the end of the year. After considering the assessee’s economic and personal ties, the Tribunal concluded that the assessee’s primary connections remained in India. Accordingly, it was determined that the assessee maintained more closer relations with India in comparison with Singapore.

The Tribunal also observed that in the year under consideration, the assessee stayed in India for 141 days while the balance period was spent in foreign lands. As this was his first year of employment in Singapore, and he continued to visit India frequently – the Tribunal held that the assessee had a habitual place of stay in both the countries. Finally, it remained undisputed that the assessee was an Indian national.

Judgment

Such comprehensive examination of the tie-breaker test finally determined the assessee to be treated as a resident of India. The Tribunal further clarified that Section 144C(1) of the Act applies to the issuance of a draft assessment order at the initial stage of assessment itself. Accordingly, whether a taxpayer qualifies as an ‘eligible assessee’ must first be examined at the time of filing the return, and then again at the stage when the draft assessment order is issued. On this basis, the Tribunal concluded that issuing the draft assessment order under Section 144C was valid and in accordance with law.

Conclusion

The ruling in Binny Bansal underscores the pragmatic view of residential status, that tax residency is not determined solely by relocation – and that personal ties, financial commitments and long-term economic relationships matter in conjunction to the same for a more holistic decision-making.

It is an understatement that this judgment has direct and cautionary impact on global founders, investors and professionals. Establishing tax residency in another jurisdiction requires more than simply moving abroad – it mandates proving that the centre of one’s personal and economic interests has also been legitimately relocated.