Authority Tribunal
Hari Gopal Chopra vs Commissioner Of Income-Tax on 24 September, 1997
Equivalent citations: [1999]237ITR135(AAR)
RULINGS A.A.R. No. 324 of 1997 Decided On: 24.09.1997 Appellants: Hari Gopal Chopra Vs. Respondent: Commissioner of Income-tax Hon'ble Judges:
S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member Counsels:
For Appellant/Petitioner/Plaintiff: S.B. Garg, chartered accountant and H.G. Chopra, Adv.
For Respondents/Defendant: Anuradha Bhatia, Adv.
Subject: Direct Taxation Acts/Rules/Orders:
Income Tax Act, 1961 - Sections 6(6), 10, 10(15) and 115H Cases Referred:
Monte Harris v. CIT, [1996] 218 ITR 413 (AAR); In Re: Advance Ruling Application No. P-5 of 1995, [1997] 223 ITR 379; CIT v. Sachindramohan Nandy, [1984] 146 ITR 597; N.R. Sirker v. CIT, [1978] 111 ITR 281; Indulal Kanji Parekh v. CIT, [1987] 163 ITR 102 RULING
1. The applicant is a chartered accountant by profession. He left India on October 23, 1989, to take up employment in the Republic of Zambia in a corporation owned by the Government of Zambia. He was paid both in US dollars as well as in the local currency besides other benefits offered to him as per the rules of the corporation. He was allowed to remit his savings in convertible foreign currency to the country of his choice. He visited India for 49 days between February 18, 1991, and April 8, 1991, and for 32 days between December 18, 1994, and January 18, 1995, during his leave and thus, his stay in India never exceeded more than sixty days in any financial year. In support of this information, he has filed a photocopy of his passport. The applicant returned to India on May 24, 1996.
2. By virtue of his employment abroad, he was able to make savings and was maintaining deposits with the Bank of India, NRI branch, Parliament Street, New Delhi, in the form of rupee deposit accounts and US $ foreign currency account. Though these deposits are maintained in the joint names of himself and his wife, according to the applicant, he is the beneficial owner of these deposits as these were made out of his earnings and inclusion of name of his wife was for nomination purposes only.
3. The non-resident non-repatriable (NRNR) rupee deposit accounts with the Bank of India are due to mature in March/May, 1999. The deposits in the foreign currency account in US $ as authorised by the Reserve Bank of India and maintained with the Bank of India matured on various dates in July and August, 1997.
4. The applicant is being assessed in India for the income accruing in India in respect of the dividends, interest, etc., by the Assistant Commissioner of Income-tax, Non-Resident Ward, Delhi. A copy of the assessment for the year 1995-96 has been attached with the application to the authority.
5. The applicant's interpretation of law is as follows : The interest receipts are exempt from income-tax under Section 10(15) of the Income-tax Act, 1961, so long as the assessee remains non-resident. However, Section 115H of the Income-tax Act, extends the benefits of the special provision to the assessee even after he becomes resident subsequently in respect of income derived from deposits made out of foreign exchange assets as defined under Section 115C of the Income-tax Act until the maturity of deposits. Hence, though the applicant would become resident from the financial year 1996-97, the income accruing on these deposits is exempt from income-tax under Section 115H of the Income-tax Act until the maturity of such deposits.
6. According to the applicant, he maintains his NRNR account for his income on receipt basis as permitted by Section 145 of the Income-tax Act. This, according to him, is evident from assessment of his income accrued in India for the year 1994-95 and earlier years while he was non-resident. Therefore, the applicant contends that he is entitled to be assessed on income derived by way of interest on the NRNR deposit in the year of maturity on receipt basis.
7. The applicant further contends that by virtue of his remaining out of India for the past six years or so, his residential status relevant to the previous year 1996-97 would be resident but not ordinarily resident in India in terms of section 6 of the Income-tax Act as he does not satisfy two additional conditions laid down in Sub-section (6) of that section. According to the applicant, the accounts are authorised by the Reserve Bank of India to be maintained with any scheduled bank even after the non-resident becomes resident in India and the income derived on these deposits in foreign currency is exempt under Section 10(15)(iv)(fa) of the Income-tax Act so long as the applicant retains status as resident but not ordinarily resident in India.
8. In the aforesaid background, the applicant has sought a ruling of this authority on the following questions :
(i) Whether the applicant is eligible for benefits under Section 115H of the Income-tax Act, 1961, after becoming resident in India in subsequent years in relation to his investment income derived from foreign exchange assets, viz., non-resident non-repatriable (NRNR) rupee deposit account.
(ii) As the applicant maintains an account of his income on cash basis, whether the investment income derived by way of interest accrued on NRNR rupees deposit account would be taxable in the year of maturity of the deposits.
(iii) As the applicant would become resident but not ordinarily resident in India under section 6 of the Income-tax Act during the previous year 1996-97, whether his income by way of interest derived from foreign currency account maintained with the bank during the relevant period and subsequent years would be exempt under Section 10(15)(iv)(fa) of the Income-tax Act.
9. From the facts placed before us, it is clear that the applicant was a nonresident during the financial years 1990-91 to 1995-96. He was resident during the financial year 1996-97 when the application was made. However, the present application is maintainable in view of the ruling of this Authority in the case of Monte Harris v. CIT [1996] 218 ITR 413 (AAR).
10. Chapter XII-A of the Income-tax Act, 1961, contains special provisions relating to certain incomes of non-residents. Section 115C in this Chapter defines various expressions such as "foreign exchange asset", "investment income", "non-resident Indian", "specified asset", etc. Section 115H provides that benefit under Chapter XII-A is available in certain cases even after the assessee becomes resident. It reads as under :
"115H. Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under Section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in Sub-clause (ii) or Sub-Clause (iii) or Sub-clause (iv) or Sub-clause (v) of Clause (f) of Section 115C ; and if he does so, the provisions of this Chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets."
11. Regarding the applicability of Section 115H of the Income-tax Act, it was contended by the Department in its written report that in order to avail of such benefit, the assessee has to furnish a declaration in writing along with the return of income for the subsequent years to that effect. On such declaration being filed, the provisions of Chapter XII-A shall continue to apply in relation to such income for such subsequent years until transfer or conversion of the assets into money. The Department also took the stand that the applicant was not entitled to the benefit of Section 115H since the applicant could not be said to have invested in a "specified asset" as envisaged in Section 115C(f) of the Act. However, during the hearing before the authority, Smt. Anuradha Bhatia, Deputy Commissioner of Income-tax, conceded that Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, made a specific provision to the effect that every corresponding new bank indicated in the First Schedule to the Act is deemed to be an Indian company and, as such, this objection to the applicability of Section 115H in the instant case was not sustainable. This controversy had also come up for consideration before the authority in Advance Ruling Application No. P-5 of 1995, In re [1997] 223 ITR 379, and it was held that every nationalised bank was deemed to be an Indian company for the purposes of the Income-tax Act and that the assets deposited in such a bank, would attract the provisions of Section 115C read with Section 115H. The applicant will, therefore, be entitled to the benefit of the provisions of Section 115C provided he fulfils the conditions specified in Section 115H in the assessment year 1997-98.
12. As regards question No. 2, the applicant contended that he maintains his accounts on cash basis. In this connection, our attention was drawn to Section 145 of the Income-tax Act which deals with methods of accounting. Section 145 reads as under ;
"145. (1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee :
Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine :
Provided further that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee :
Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year.
(2) Where the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144.
" Section 145 as amended by the Finance Act, 1995, with effect from April 1, 1997, reads thus :
"145. (1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall, subject to the provisions of Sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in Sub-section (1) or accounting standards as notified under Sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144."
13. Counsel for the applicant, Shri S. B. Garg referred to the judgment of the Calcutta High Court in CIT v. Sachindramohan Nandy [1984] 146 ITR 597. In this case, the court observed that while the mercantile system when regularly employed credited income immediately after it became due and recoverable, the cash system permitted the assessee to treat the income as having arisen when it was received. Reference was also made to a decision of the Gauhati High Court in the case of N. R. Sirker v. CIT [1978] 111 ITR 281, where the court held that where the assessee did not indicate the method of accounting followed in that case, in the ordinary course, the receipt should be taxed on the cash system. In the light of these decisions, the applicant argued that since he was maintaining his accounts on cash basis, he could be taxed only when the interest on the deposits was credited at the time of maturity of such deposits. On the other hand, it was argued by Smt. Bhatia that liability to pay tax on the NRNR rupee deposits be assessed on accrual basis and not on the date when the deposits matured. However, it was conceded by Smt. Bhatia that the deposits are repayable with interest only at the end of the stipulated period and that no interest on these deposits was credited to the account of the applicant till the deposits matured. The judgment of the Gujarat High Court in Indulal Kanji Parekh v. CIT [1987] 163 ITR 102, referred to by Smt. Bhatia could not be held to be applicable to the facts of the present case since in Indulal Kanji Parekh's case [1987] 163 ITR 102 (Guj), the interest was credited to the assessee's non-resident account even though temporarily. It is thus clear that in the absence of any interest being credited in the account of the applicant, there could be no liability to pay tax on the basis of accrual of interest. As such, the authority is in agreement with the stand of the applicant that the liability to pay income-tax would arise only when the deposits mature.
14. Lastly, the third question raised for our consideration is whether interest on foreign currency deposits maintained by the applicant with the Bank of India is exempt from payment of income-tax. In this connection, it may be observed that the applicant left India on October 23, 1989, and returned on May 24, 1996. During this period, he was in India for a total period of 81 days. Sub-section (6) of Section 6 of the Income-tax Act which is relevant to determine status of the applicant, reads as under :
"A person is said to be 'not ordinarily resident' in India in any previous year if such person is-
(a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more ; or
(b) a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more."
15. The benefit of Section 10(15)(iv)(fa) of the Act, namely, exemption from payment of tax on interest payable to a person is available in the following circumstances, that is, if it is paid by a scheduled bank to a non-resident or to a person who is not ordinarily resident within the meaning of Sub-section (6) of section 6, on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. If at the time of maturity of foreign currency deposits in a scheduled bank, the applicant continues to be non-resident or a person who is resident but not ordinarily resident within the meaning of Sub-section (6) of section 6, there would be no liability to pay tax as contemplated by Section 10(l5)(iv)(fa), This question is, therefore, answered by saying that this interest income will be exempt for the assessment year 1997-98 and the subsequent assessment years for which his residential status is found to be resident but not ordinarily resident in India.
16. In the light of the aforesaid, the authority pronounces its ruling as follows :
Ruling Questions Answers (1) Whether the applicant is eligible for benefits under section 115H of the Income-tax Act, 1961, after becoming resident in India in subsequent years in relation to his investment income derived from foreign exchange assets, viz., Non-Resident Non-Repatriable (NRNR) rupee deposit account.
Yes, subject to a declaration being filed in accordance with the provisions of section 115H.
(2) As the applicant maintains accounts of his income on cash basis, whether the investment income derived by way of interest accrued on NRNR rupee deposit account would be taxable in the year of maturity of the deposits.
Yes.
(3) As the applicant would become resident but not ordinarily resident in India under section 6 of the Income-tax Act during the previous year 1996-97, whether his income by way of interest derived from foreign currency account maintained with the bank during the period relevant and subsequent years would be exempt under section 10(15)(fa) of the Income-tax Act.
Yes, for the assessment year 1997-98 and subsequent assessment years for which applicant is found to be resident but not ordinarily resident.