Bangalore ITAT denies tax benefit and NRI Status in case of Binny Bansal vs. DCIT (Center of Vital interest and Habitual Abode Explained
- Parul Aggarwal
- May 24
- 8 min read
Introduction
In a recent landmark ruling of Bangalore ITAT in case of Binny Bansal vs DCIT, the Hon'ble Bangalore ITAT has held that an Indian tax resident, despite overseas reclocation and foreign employment, may still be consireded as a Indian resident as per the Income Tax Act, 1961, if such individual maintains significant factutal and economic ties with India. In this article, let's analyse the concepts of center of vital interests and habitual abode, the dual tax treaty concepts that act as tie-breaker in matters of dual residency of individuals.
Background of the case
Binny Bansal (born 1982/83) is an IIT Delhi graduate who co-founded Flipkart in 2007 alongside Sachin Bansal. He served as COO, then CEO and later Group CEO before resigning in November 2018. By the time he resigned, Flipkart had already been acquired by Walmart in a landmark $16 billion deal, one of the largest e-commerce acquisitions in history. After his exit, Bansal relocated to Singapore in February 2019, both professionally and personally.
The Triggering Transaction: Sale of Flipkart Shares
During Financial Year 2019–20, Binny Bansal sold a portion of his shareholding in the Flipkart holding company (a foreign incorporated entity) to various buyers. One of the buyers withheld tax in India on the transaction.
In his Indian income tax return for AY 2020–21, Bansal claimed non-resident status under Indian law Asserted that capital gains from the sale were not taxable in India under Article 13(5) of the India–Singapore DTAA (which provides that residual capital gains are taxable only in the seller’s country of residence). Since he was a Singapore tax resident, he was therefore entitled to treaty protection.
The Income Tax Department rejected this entirely. An assessment was raised treating Bansal as a Resident and Ordinarily Resident (ROR) in India, bringing his global income, including the Flipkart capital gains to tax in India. The total tax demand raised against him was reportedly INR 386 crore, of which he had already paid approximately INR 167 crore.
The Legal Framework: Understanding Indian Tax Residency
Under section 6(1) of the Income-tax Act, 1961, an individual is treated as a resident if they satisfy either of the following conditions in the relevant financial year:
1) Stay in India for 182 days or more during the financial year.
2) Stay in India for 60 days or more during the financial year,
AND
stay in India for 365 days or more during the 4 preceding financial years.
If neither condition is satisfied, the individual is a Non-Resident Indian (NRI).
However, there is an explanation 1(b) to Section 6(1)(c) that provides that for an Indian citizen who is outside India and comes on a visit to India, the 60-day threshold is extended to 182 days. This is designed to protect genuine NRIs who maintain only occasional ties to India. Binny Bansal claimed this exception since he had “gone abroad for employment,” he applied the threshold of number of days stay in India to be 182 days, not 60 days. Since he had stayed in India for only 141 days during FY 2019–20, he believed that he would be a non-resident due to application of the 182-day threshold.
The Dispute Before the ITAT
In this matter, the Taxpayer/ petitioner's Arguments are below:
That Binny Bansal's physical presence in India during FY 2019–20 was only 141 days, which was below the 182 day threshold applicable to persons “being outside India.”
That Binny Bansal had gone abroad for employment purposes, entitling him to the relaxed Explanation 1(b) threshold.
That the petitioner was a Singapore tax resident with a Singapore employment contract, holding Singapore address and family settled there.
That even if dual residency arose, the DTAA tie-breaker rules under Article 4(2) favored Singapore as the country of residence over India.
Consequently, the capital gains arising on sale of Flipkart India's shares were not taxable in India under Article 13(5) of the India–Singapore DTAA.
Income Tax Department’s Arguments
The Petitioner had stayed 141 days in India during FY 2019–20 and over 1,200 days in India during the preceding four financial years, clearly satisfying the 60-day plus 365-day test under Section 6(1).
The 182-day relaxation under Explanation 1(b) was unavailable because Bansal had left India in FY 2018–19, not FY 2019–20. The relaxation applies only in the year of departure.
Under the DTAA tie-breaker, Bansal’s permanent home, economic interests, habitual
abode and Indian nationality all pointed to India as his country of residence.
That the relocation was tax-motivated and lacked genuine substance.
The ITAT’s Findings:
The Basic Residency Test Was Clearly Met
The Tribunal found that the basic statutory conditions under Section 6(1)(c) were indisputably satisfied since during FY 2019-20, the crtiterion of stay in exceeding 60 days was met since the Petitioner's actual stay in India was 141 days. The Tribunal further noted that the period of stay in India during preceding 4 years in this case was over 1,200 days, which further exceeds the second condition of 365-day stay requirement during last four years. This, on its own, was sufficient to establish Indian tax residency, unless the Petitioner could successfully invoke Explanation 1(b).
The 182-Day Relaxation Did Not Apply
This was the central battleground of the case. The ITAT ruled against the taxpayer observing that the Explanation 1(b) benefit (extending the threshold to 182 days) is available only in the year the individual departs India for employment. Bansal left India in February 2019, which falls in FY 2018–19 and the relevant AY 2019–20, not AY 2020–21.
By FY 2019–20 (relevant to AY 2020–21), Bansal had already relocated. He was not “departing” in that year, rather he was visiting India in that year. The Tribunal held that the expression “being outside India” in Explanation 1(b) cannot be read in isolation. It must be read harmoniously with the main charging provision and was intended to protect existing non-residents, not to convert a long-standing resident into a non-resident. Managing day counts in subsequent years after departure does not revive or reset the relaxation benefit.
Since the 182-day threshold was inapplicable, the 60-day test applied in this case and since Bansal’s actual stay during FY 2019-20 was 141-days in India, this 60 days test was failed since his stay far exceeded the permissble stay limits in India.
No “Coming on a Visit” to India
The Tribunal further noted that Bansal could not be characterized as a person merely “visiting” India. During FY 2019–20, he came to India multiple times for business and personal reasons and spent the 141 days staying in India, i.e. nearly 5 months. Accordimgly, he continued to hold significant economic interests in India and was not merely a casual visitor in any meaningful sense.
DTAA Tie-Breaker Favored India
The Tribunal observed that even if it is assumed that the Petitioner could claim Singapore residency, the Tribunal applied the tie-breaker rules under Article 4(2) of the India–Singapore DTAA seciting the below interpretations:
a) Permanent Home: The ITAT found that Bansal had a permanent home available in India (ownership of residential properties). Accordingly, the Singapore residency was not sufficiently established.
b) Centre of Vital Interests: The Tribunal assessed Bansal’s personal and economic relations holistically and found that he continued ownership of Indian real estate. Apart from this, he held significant investment and business interests centered in India during the year in question. Above all, his business travel back to India and stay in India of 141 days established that his Indian economic identity remained predominant India and hence hos center of vital interest was in India.
c) Habitual Abode: Given 141 days spent in India versus the time in Singapore, this test was also found to favor India too (or was at least inconclusive, leading to the next test).
d) Nationality: As an Indian national, this final test was decisive in India’s favor. The ITAT applied nationality as a tiebreaker, as allowed under Article 4(2).
Final Outcome
Hon'ble Bangalore ITAT held that Binny Bansal was held to be a Resident and Ordinarily Resident (ROR) in India for AY 2020–21. Accordingly, the DTAA benefit under Article 13(5) was denied and the Capital gains from the Flipkart India share sale were taxable in India. The appeal was partly allowed only to the extent of verifying a pending tax refund and the substantive issues were decided against Petitioner entirely.
Key takeaways from This Case - Implications for HNIs, Founders, and NRIs
The most significant takeaway from this ruling is that merely calibrating days of stay in India below the statutory threshold is insufficient, especially for individuals who were previously long-standing residents. The year of departure is critical and the 182-day relaxation available under Explanation 1(b) applies only once, in the year in which the individual actually leaves India.
Substance Over Form - Indian tax tribunals are increasingly applying a substance-over-form approach to residency. Bansal’s case involved genuine Singapore employment, family migration and a real relocation, yet India still prevailed because his economic ties, property ownership and business connections remained rooted in India. This posed as a deterent in proving the Singapore residence and breaking the tie-breaker clause in Petitioner's favour in this case.
Treaty Protection Is Not Automatic - Even if an individual qualifies as a resident of both India and another treaty country (creating “dual residency”), the DTAA tie-breaker will be applied and nationality is one of the deciding factor too. Accordingly, for many Indian founders and HNIs who remain Indian citizens, this is a significant exposure point.
The DTAA Is a Shield, Not a Sword - The India–Singapore DTAA was designed to prevent double taxation, not to enable zero taxation. The ITAT’s ruling reinforces that treaty benefits cannot be claimed by those who have not genuinely severed their Indian tax residency under both domestic law and the treaty’s own tie-breaker tests.
Signal to Indian Startup Ecosystem - This ruling is being closely watched across India’s startup and VC ecosystem. Many founders who have relocated to Singapore, UAE or other jurisdictions while continuing to manage significant Indian business interests may face similar scrutiny, particularly around exit events involving shares of Indian or foreign holding companies.
Article 4(2) tests - The Tribunal adopted a substance-based approach that overrides the traditional day-count framework when economic ties to India remain significant. The ruling signals that the 182-day exception is a one-time, year-specific benefit. The tie-breaker analysis was particularly rigorous, requiring holistic assessment of all factors.
Accordingly, individuals relocating for employment should seek professional advice on residency planning before the departure year, not after.
Conclusion
The Binny Bansal case is now a landmark ruling in Indian international tax jurisprudence. It does not mean that founders cannot relocate abroad or that Indians working overseas are automatically tax residents of India. What it does mean is that intention alone and a foreign address are not sufficient to escape Indian tax residency when economic roots remain firmly planted in India. For the thousands of Indian HNIs, startup founders and professionals who have relocated to Singapore, UAE or beyond while maintaining substantial Indian business interests. This judgment is a wake-up call for them. Genuine tax residency change requires genuine economic and personal disconnection from India, not just a change in mailing address.
Even though Bansal retains the right to appeal before the Karnataka High Court. Whether he does so and how the higher court rules will be watched closely by India’s tax and startup communities.
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