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TMI Blog1995 (8) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act, 1973, and the rules and orders made thereunder? Whether the interest on the fixed deposit with Lloyds Finance in India [item (e) in paragraph 7 of annexure “I”] will not be exempt from tax in India but the applicant can avail of a concessional rate of 20 per cent. on the gross amount of the interest under sections 115D and 115E read with section 115H on complying with the procedural requirements of section 115H? - Application No 5 of 1995. - - - Dated:- 14-8-1995 - S. RANGANATHAN J. (CHAIRMAN), D. B. LAL AND R. L. MEENA, JJ. RULING The applicant, in this application under section 245Q(1) of the Income- tax Act, 1961 (for short the Act ), is a non-resident Indian citizen. He is stated to have left India in 1970 for employment overseas and, after a sojourn in various African countries he went to the U. K. This application, received by the authority from his address in the United Kingdom, raises certain queries as to his liability to income-tax in India, where he wants to settle down, on retirement, around August/September, 1995. From a photocopy of the entries in the applicant s Indian passport, it is seen that the applicant s stay in India during the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixtyfive days or more, is in India for a period or periods amounting in all to sixty days or more in that year. . . . (6) A person is said to be not ordinarily resident in India in any previous years if such person is (a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or . . . . In view of this definition, if the applicant returns to India before October 3, 1995, he will be non-resident till the financial year 1994-95 (relevant for the assessment year 1995-96) but will become resident in India from the assessment year 1996-97 onwards but this residential status will be deferred by one year if he arrives on or after that date as his stay in India in financial year 1995-96 will then be less than 182 days. Acting on the former assumption and the further assumption that he stays in India continuously after his date of return here, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speech of the Finance Member in the Central Legislative Assembly while introducing the relevant amendment Bill, has been adopted by a circular of the Central Board of Direct Taxes dated December 5, 1962, and also seems to have been broadly accepted, although the alternative view has been touched upon in some judicial dicta: See the discussion in Kanga and Palkivala on the Law and Practice of Income-tax (8th edition), pages 247-248 and Sampath Iyengar s Law of Income-tax (9th edition), pages 869-872 and the cases cited therein. It seems correct to construe the definition as providing that a person will become resident and ordinarily resident only if (a) he has been resident in nine out of the ten preceding previous years, and (b) has been in India for at least 730 days in the seven preceding previous years and that he will be treated as resident but not ordinarily resident if either of these conditions is not fulfilled. The applicant is, therefore, right when he says that he will be having the status of a resident but not ordinarily resident for the assessment years 1996-97 to 2004- 05. It is on this assumption that his questions have to be answered and the answers are restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maturity date Annual income (a) India Development Bond State Bank of India xx,xxx 1997 x,xxx (b) India Development Bond State Bank of India xx,xxx 1997 x,xxx (c) Indian Fund (units) Merryll Lynch/ Baring Brothers 30,000 -- -- (d) Lazard Brila India Investment Trust (shares) Lazard Brothers 12,000 -- -- The India Development Bonds have been issued by the State Bank of India under the Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act (41 of 1991). The terms and conditions are governed by the provisions of that Act and the India Development Bonds Scheme, 1991. It is sufficient to mention for the purposes of the present enquiry that section 7 of the Act makes the provisions of the Income-tax Act inapplicable to the interest accruing from these bonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it repayable on July 7, 1996. The applicant has stated that it is a cumulative deposit which is payable on maturity into the applicant s London bank account. Annexure I to the application also refers to an annual income of xxxx.xx from the deposit but the photocopy of the deposit receipt makes no mention of it. It is only the annual interest worked out at 8.25 per cent but no such annual interest has been paid or is payable to the applicant. The interest on the fixed deposit is, prima facie, income which accrues in the U. K. It is true that such interest will be deemed to accrue or arise in India if the provisions of section 9(1)(v)(c) are attracted but there is no reason to presume or show that the American Express Bank Ltd.-a non-resident company-has borrowed the applicant s funds for the purposes of its business carried on in India. On behalf of the Department, it is said that even foreign income would be assessable in the hands of a resident but not ordinarily resident if it is derived from a business controlled in or profession set up in India. Interest derived by the applicant on his fixed deposit with the American Express can hardly come under this description. There is, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, answered by saying that, on the factual foundations mentioned in the question regarding the time of the transactions, the nature of the companies, the securities in which investment is proposed and the absence of any business connection between them and India, no tax liability will be attracted on the proposed transactions. Question No. 4 relates to the tax liability of the applicant, after he becomes resident but not ordinarily resident, on the income from the following investments, presently held by him as a non-resident: Particulars Bank/Company Expiring on (a) Non-resident external non-repatriable rupee fixed deposit State Bank of India 1995 (b) do. Indian Bank 1996 (c) Non-resident external rupee fixed deposit Indian Bank 1997 (d) Non-resident external repatriable unit Unit Trust of India - (e) Non-resident external repatriable fixed deposit Lloyds Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian company means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes, (i) a company formed and registered under any law relating to companies formerly in force in any part of India other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause; (ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared by the Board to be a company under clause (17); (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; (iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory: Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India; The State Bank and the Indian Bank will fall within the terms of clause (ia) of section 2(26) extracted above. In particular, so far as the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not entitled to exemp-tion under any provision of the Act. However, it has been claimed that this deposit has also been made in convertible foreign exchange . If that be so, the assessee will be entitled to be taxed on the gross amount of interest without any deductions at a concessional rate of 20 per cent. under sections 115D and 115E read with section 115H. The concessional rate under section 115E is available to a non-resident but the benefit thereof can be availed of even after the applicant becomes a resident under section 115H. This exemption is conditional on his furnishing to the Assessing Officer a declaration under the latter section along with his return of income for any assessment year stating that he has income from assets of the nature referred to in sub-clause (ii), (iii), (iv) or (v) of clause (f) of section 115C and opting that the provisions of Chapter XII-A may be made applicable to him in relation to the investment income from such assets. If he does so, then he will be entitled to the benefit of the concessional rate for that assessment year and subsequent assessment years until the transfer or conversion of such assets into money. On the basis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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