1996 (2) TMI 164 - AT - Income Tax

Summary

Issues:
Interpretation of section 10(4A) of IT Act, 1961 for exemption of interest income on Non-resident External Account.

Detailed Analysis:

Issue 1: Applicability of section 10(4A) in assessment year 1981-82
The case involved a question of law regarding the applicability and interpretation of section 10(4A) of the IT Act, 1961. The Assessing Officer determined that the interest income derived by the assessee from a Non-resident External Account was taxable as the assessee's residential status was considered as "resident but not ordinarily resident" (NOR) for the relevant assessment year. The provisions of section 10(4A) were amended with effect from 1-4-1982, extending the exemption to all persons falling under the definition of "persons outside India" as per the Foreign Exchange Regulation Act, 1973 (FERA). The Assessing Officer held that the exemption under section 10(4A) was not available to the assessee due to their residential status.

Issue 2: Retroactive application of the amendment to section 10(4A)
The Dy. CIT (Appeals) relied on the decision of ITAT, Jaipur Bench, which held that the amendment made to section 10(4A) with effect from 1-4-1982 was clarificatory in nature and should be applied retrospectively. The Dy. CIT (Appeals) concluded that the assessee was entitled to the exemption under section 10(4A) for the relevant assessment year, contrary to the Assessing Officer's decision.

Issue 3: Interpretation of the term "persons resident outside India"
The counsel for the assessee argued that the amendment to section 10(4A) was clarificatory and aimed at removing anomalies in the previous provision. Referring to a decision by ITAT, Ahmedabad Benches, the counsel contended that the term "persons resident outside India" should be interpreted according to the definition in section 2(q) of the Foreign Exchange Regulation Act, 1973. The counsel supported the Dy. CIT (Appeals) decision based on these interpretations.

Judgment:
After considering the submissions and relevant legal provisions, the Tribunal held that the amendment to section 10(4A) was made to remove existing anomalies and should be considered clarificatory in nature. Citing a decision by ITAT, Jaipur Bench, the Tribunal agreed that the amendment aimed to provide tax exemption on interest from Non-resident External Accounts to individuals defined as "persons resident outside India" under FERA. Consequently, the Tribunal upheld the Dy. CIT (Appeals) decision, granting the assessee the exemption under section 10(4A) for the interest income on the Non-resident External Account. The revenue's appeal was dismissed, affirming the assessee's entitlement to the exemption.