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Interpretation of section 10(4A) of the Income-tax Act, 1961 regarding exemption for interest earned by a Hindu Undivided Family (HUF) in a non-resident (external) account. Application of the doctrine of promissory estoppel and consideration of hardship and injustice claims. Evaluation of notifications/circulars issued by the Reserve Bank of India (RBI) under the Foreign Exchange Regulations Act, 1947, and their binding effect on income-tax authorities. Analysis: The case involved an HUF with a residential status of 'resident but not ordinarily resident' under the Income-tax Act, 1961. The dispute centered around the exemption claimed by the assessee for interest earned on a fixed deposit in a non-resident (external) account under section 10(4A) of the Act for the assessment years 1977-78 and 1978-79. The Income Tax Officer (ITO) accepted the claim for the first year but rejected it for the second year due to the change in residential status. The Commissioner and the Appellate Authority upheld the decision for the second year, leading to the appeal before the Tribunal. The assessee argued that notifications/circulars issued by the RBI under the Foreign Exchange Regulations Act, 1947, indicated exemption from Indian income tax for interest accruing in non-resident accounts. The counsel invoked the doctrine of promissory estoppel and cited relevant court decisions to support the claim for exemption based on good faith actions and honest belief. However, the revenue representative contended that the exemption under section 10(4A) applied only to 'non-residents' and not to residents or 'resident but not ordinarily resident' individuals. The representative emphasized the legislative language and the distinction between different residential statuses under the Act. The Tribunal, after considering both parties' arguments, ruled against the assessee. It clarified that the exemption under section 10(4A) was specifically for 'non-residents,' and the assessee's residential status as 'resident but not ordinarily resident' made them ineligible for the exemption. The Tribunal rejected the plea for hardship and injustice, citing Supreme Court precedents emphasizing clear statutory interpretation without importing additional words. The Tribunal also dismissed the applicability of promissory estoppel, highlighting that notifications/circulars issued by the RBI under the Foreign Exchange Regulations Act did not bind income-tax authorities under the Income-tax Act. Additionally, the Tribunal noted the legislative amendment made in 1982 to rectify such anomalies and extended the exemption to individuals resident outside India under the Foreign Exchange Regulations Act. The Tribunal upheld the orders of the Commissioner and the Appellate Authority, emphasizing that the interest earned by the assessee was not exempt under section 10(4A) of the Income-tax Act. Consequently, the appeals were dismissed, affirming the decision against the assessee.
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