2003 (1) TMI 33 - HC - Income Tax

Non-resident Indian - income from investment deduction - Section 115E, it must be noted only provides for the rate of tax payable on the investment income computed in accordance with the provisions of section 115D of the Act. It does not in any way bar the rebate available under section 88 Hence, assessee who is a non-resident Indian having only income from investment is entitled to get the deduction by way of rebate provided under section 88

Summary

Issues Involved:
1. Eligibility of the assessee for rebate under section 88 of the Income-tax Act, 1961.
2. Correctness of the Tribunal's decision on the computation of tax liability and the prima facie adjustment under section 143(1)(a) of the Act.

Issue-wise Detailed Analysis:

1. Eligibility of the Assessee for Rebate under Section 88:

The primary issue was whether a non-resident Indian (NRI) with only investment income is entitled to claim a rebate under section 88 of the Income-tax Act, 1961. The respondent-assessee, an NRI, filed a return for the assessment year 1994-95, claiming a rebate under section 88 on Public Provident Fund (PPF) and Medical Expense Policy (MEP) investments. The Assessing Officer disallowed this rebate through a prima facie adjustment under section 143(1)(a).

The Department argued that under Chapter XII-A, specifically section 115D(2)(a) and section 115E(1), an NRI with only investment income is not entitled to any deductions or rebates, and the entire investment income should be taxed at a flat rate of 20%. The Department emphasized that the legislative intent was to provide a simplified tax regime for NRIs, which does not include deductions available under other provisions of the Act unless the NRI opts out of Chapter XII-A as per section 115-I.

The assessee's counsel argued that section 115D(1) and clause (a) of sub-section (2) clearly delineate that while deductions under Chapter VI-A are disallowed, other deductions not specifically excluded remain available. The counsel highlighted that section 88, which provides for a rebate, is located in Chapter VIII and is not covered by the exclusions in section 115D. Thus, the rebate under section 88 should be available to the assessee.

The court examined the relevant provisions, including sections 115D, 115E, 115-I, 80C, 87, and 88, and concluded that the legislative framework does not explicitly prohibit the rebate under section 88 for NRIs with only investment income. The court noted that section 115D(1) disallows deductions for computing investment income but does not extend this prohibition to rebates from tax under section 88.

2. Correctness of the Tribunal's Decision on Prima Facie Adjustment:

Given the court's decision on the first issue, the second issue concerning the correctness of the Tribunal's decision on prima facie adjustment under section 143(1)(a) became moot. The court found that since the assessee is entitled to the rebate under section 88, the question of whether the Assessing Officer could make a prima facie adjustment disallowing the rebate did not require further examination.

Conclusion:

The court held that the Tribunal was correct in allowing the rebate under section 88 to the assessee. The first question was answered in the affirmative, in favor of the assessee and against the Revenue. Consequently, the second question was deemed unnecessary to answer, and the tax reference was disposed of accordingly.