2006 (5) TMI 79 - HC - Income Tax

Summary

Issues:
1. Interpretation of the proviso to section 5(1)(c) of the Income-tax Act, 1961.
2. Application of section 10(4)(ii) of the Act to the taxability of income of a person not ordinarily resident in India.

Analysis:

The judgment involved an application filed by the assessee under section 261 of the Income-tax Act, 1961, seeking certification from the High Court for appealing against a previous judgment. The assessee, who had worked abroad and returned to India, was subjected to an assessment under section 158BC for the assessment years 1992-93 to 1997-98. The Assessing Officer treated certain deposits in the NRE accounts as unexplained income, leading to a dispute. The Tribunal later ruled in favor of the assessee, stating that foreign currency brought into India by the assessee was earned outside India and deposited in NRE accounts, thus not constituting undisclosed income.

The Department filed an appeal before the High Court, challenging the Tribunal's decision. In its judgment, the High Court clarified that income accruing or arising to a person not ordinarily resident in India outside the country is exempt from tax under the Act. The court upheld the Tribunal's findings regarding the foreign currency brought into India by the assessee, covered by declarations under the Foreign Exchange Regulations Act. However, the court disagreed with the Tribunal's decision on the remaining foreign currency without declarations, stating that it could not be reasonably maintained as income earned outside India.

Furthermore, the High Court addressed the issue of interest on foreign currency deposits not covered by declarations. It emphasized that only income in NRE accounts in accordance with Foreign Exchange Rules and Regulations is exempt from tax under section 10(4)(ii) of the Act. The court found the Tribunal's deletion of interest on such deposits to be incorrect in law.

The counsel for the assessee argued that the judgment raised substantial questions of law regarding the taxability of income for a non-resident person. The counsel cited previous High Court decisions where certificates for appeal were granted on similar grounds. On the other hand, the Department's counsel contended that the judgment was specific to the case at hand and did not conflict with other High Court decisions.

After considering the submissions, the High Court granted the certificate for appeal, stating that the interpretation of the proviso to section 5(1)(c) and section 10(4)(ii) of the Income-tax Act, 1961, regarding the taxability of non-resident income raised substantial questions of general importance that should be decided by the Supreme Court.