1993 (12) TMI 91 - AT - Income Tax

Summary

Issues:
1. Interpretation of provisions of section 9(1)(v) and section 9(1)(i) of the Income-tax Act.
2. Taxability of interest income earned by a non-resident company on a deposit with a bank in the U.K.
3. Application of specific provisions over general provisions in determining tax liability.
4. Examination of conditions under section 9(1)(v) for taxability of interest income.
5. Analysis of the nature and source of the deposit in relation to tax liability.

Analysis:
The appeal involved a dispute regarding the taxability of interest income earned by a non-resident company on a deposit with a bank in the U.K. The Income-tax Officer contended that the interest income should be taxed under section 9(1)(v) as it was related to the business connection in India. However, the CIT(A) upheld the assessment under the head 'Other sources' based on specific Supreme Court decisions. The assessee argued that section 9(1)(v) should apply as it specifically deals with taxing interest income of non-residents. The Tribunal noted the legislative changes post-1976, emphasizing the introduction of the 'source rule' under section 9(1)(v) for interest income. It highlighted that specific provisions should prevail over general ones, as established by previous court decisions.

The Tribunal rejected the CIT(A)'s view that section 9(1)(i) applied, emphasizing the legislative intent behind the enactment of section 9(1)(v) for interest income. It clarified that the interest income in question did not fall under the conditions of section 9(1)(v), thereby relieving the assessee from tax liability. The Tribunal also refuted the Department's argument regarding the interpretation of sub-section (c) of section 9(1)(v), emphasizing the relevance of the source of income over the recipient's business operations in India.

Moreover, the Tribunal dismissed the Department's contention regarding the nature and source of the deposit, stating that the taxability of interest income should be determined based on section 9(1)(v) conditions. It emphasized that the nature and source of the deposit were irrelevant in this context. Ultimately, the Tribunal accepted the appeal, ruling that the interest income should be excluded from the assessment based on the application of section 9(1)(v) and the failure to meet the taxability conditions under that provision.