Remittances in Foreign Exchange (Immunities) Scheme, 1991 and Indian Development Bonds Scheme, 1991, framed under the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991--Regarding - Income Tax - 611/1991

Remittances in Foreign Exchange (Immunities) Scheme, 1991 and Indian Development Bonds Scheme, 1991, framed under the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991--Regarding Circular No. 611 Dated 30/9/1991 In the speech while presenting the Union Budget for 1991-92, the Finance Minister had, inter alia, announced introduction of two schemes to attract larger inflow of foreign exchange. For this purpose, the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Bill, 1991, was introduced in Parliament during the just concluded Budget session. The Bill, as passed by both Houses of Parliament, received the assent of the President on 18th September, 1991, and has since been enacted as Act No.41 of 1991. The two schemes, viz., the Remittances in Foreign Exchange (Immunities) Scheme, 1991, and the India Development Bonds Scheme, 1991, have also been notified by the Reserve Bank of India and published in the Gazette of India, Extraordinary, Part II, Section 3, sub- section (i), dated 20th September, 1991, and 21st September, 1991, respectively. 2. Apprehension has been expressed in some quarters that the Income-tax Department would prejudicially view the remittances received under the Remittances in Foreign Exchange (Immunities) Scheme, 1991, and the gifts of India Development Bonds from an overseas subscriber/holder. Fears have been expressed of hardship to recipient of remittances and donees of the India Development Bonds at the hands of the Assessing Officers during the course of assessment for the assessment year 1992-93 and subsequent years. 3. Sub-section (1) of section 3 of the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1991, [the Act] provides that notwithstanding anything contained in any law for the time being in force,-- (i) no recipient of remittance of foreign exchange from a person resident outside India and claiming immunity under that Act will be required to disclose for any purpose whatsoever, the nature and source of the remittance, (ii) no inquiry or investigation will be commenced against the recipient under any law on the ground that he has received such remittance, and (iii) the fact that the recipient has received a remittance will not be taken into account and will be inadmissible as evidence in any proceedings relating to any offence or the imposition of any penalty under any such law. 4. Section 4 of the said Act further provides that any remittance of the nature referred to above will not be taken into account for the purpose of any proceeding under the Income-tax Act, 1961. 5. Similar immunities and exemptions are provided under sections 6 and 7 of the Act in relation to non-resident Indians or overseas corporate bodies owning the foreign exchange bonds and persons resident in India to whom the said bonds have been gifted by non-resident Indians or overseas corporate bodies. 6. The immunities and exemptions, referred to above, are however not available with regard to any foreign exchange which is required to be brought into India under any provisions of the Foreign Exchange Regulation Act, 1973, or the Income-tax Act, 1961, read with that Act and the period (including extended period, if any) within which such foreign exchange to be brought into India has not expired as on 18th September, 1991. These immunities are also not available to, in relation to, any prosecution under the Indian Penal Code for offences relating to public servants and offence against property (theft, robbery, etc.), offences under the Narcotic Drugs and Psychotropic Substances Act, the Terrorist and Disruptive Activities (Prevention) Act, the Prevention of Corruption Act and for enforcement of any civil liability. 7. The relevant provisions of the Act, as briefly explained above, make it very clear that the Assessing Officers, in any proceedings under the direct tax laws, will not make any enquiry with regard to remittances in foreign exchange received under the Remittances in Foreign Exchange (Immunities) Scheme, 1991, or gift of any India Development Bond from a non-resident Indian/overseas corporate body. There should, therefore, be no apprehension of any prejudice against the persons in receipt of remittances under the scheme or donees of India Development Bonds. There should also be no fear of any harassment by the tax authorities. 8. Certain questions have also been raised with regard to immunities and exemptions under the various direct tax laws as provided under the Act and the two schemes framed thereunder. These are clarified below: Question No.1: Section 3(1)(a) of the Act provides that the nature and source of the remittances need not be disclosed by the recipient. However, can the tax authorities at any stage contend that the remittance is in the nature of gift as defined in section 2 of the Gift-tax Act, 1958, and liable to tax under that Act? Answer: Section 3(1)(b) of the Act provides that no inquiry or investigation will be commenced under any law against the person in receipt of any remittance in foreign exchange in accordance with the scheme notified for this purpose, viz., the Remittances in Foreign Exchange (Immunities) Scheme, 1991. Accordingly, it is not possible for any tax authority to contend, at any time, that the remittance was a gift and initiate proceeding under the Gift-tax Act, 1958. Question No.2: Whether the non-resident donor of any India Development Bond will be exempt from gift-tax? Answer: Yes, the non-resident donor will be exempt from gift-tax. Section 6(1)(a) of the Act provides that the non- resident Indian or the overseas corporate body owning the Bonds as well as the person resident in India to whom a gift of such Bond is made, will not be required to disclose the source of the investment in such Bonds. For this reason, and in view of the specific provision in section 6(1)(b) of the Act barring any inquiry or investigation under the direct tax laws merely on the ground of owning such Bonds, the tax authorities cannot initiate any proceedings for levy of gift-tax on the non-resident owner of such Bonds. Question No.3: If a cumulative India Development Bond is transferred and the price paid is exactly the nominal value of bond and interest accrued thereon till the date of transfer, would there be any liability to capital gains tax in India? Answer: No taxable capital gains are computed by deducting from the full value of consideration for the transfer of an asset, its cost of acquisition to the transferor and expenditure incurred in connection with such transfer. Where a cumulative India Development bond is transferred, the asset transferred consists of (a) right to receive the nominal value of bond on maturity and (b) the right to the interest accrued thereon till the date of transfer. The cost of acquisition of these two rights is the aggregate of (i) the amount paid by way of subscription to the bond and (ii) the amount of interest accrued but not collected. Hence, where the price received at the time of transfer of a cumulative India Development Bond is exactly equal to the nominal value of the bond and the interest accrued thereon, there will be no capital gain chargeable to income-tax in India. (Sd.) K.M. Sultan, Director (TPL).