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TMI Blog2008 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ks in India with the help of remittances from Saudi Arabia. He claims that the interest income arising from that account will be 'investment income' under section 115C of the Income-tax Act, 1961 ('the Act'). Accordingly, it will attract income-tax @ 20% under section 115(E) of the Act. However, banks in India do not regard this type of income as 'investment income'. They treat it as other income and deduct tax @ 30%. The applicant had taken up the issue with the HDFC bank which finally took the stand that it will deduct tax @ 30%. 2. In the light of the above facts, the applicant sought advance ruling of this Authority on the following questions:- (a) Can a Non Resident Ordinary (NRO) deposit acquired with convertible foreign exchange (remittances from overseas through Banking Channels) be treated as a "foreign exchange asset" or not under Sec 115 C of the Income Tax Act? (b) Should the interest on these NRO deposits created with overseas remittances be treated as investment income under Sec 115 C or treated as 'other income"? (c) Am I right in assuming that the interest income on such deposits is taxable at 20% as per Sec 115E of the IT Act? (d) Are Banks right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 8. Provisions of Sections 115C, 115D and 115E under Chapter XIIA of the Act, which are relevant for the present consideration, are extracted below:- Special provisions relating to certain incomes of non-residents 115C Definitions . In this Chapter, unless the context otherwise requires, (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b) "foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange; (c) "investment income" means any [income derived other than dividends referred to in section 115-O] from a foreign exchange asset; (d) "long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset; (e) "non-resident Indian" means an individual, being a citizen of India or a person of Indian origin who is not a "resident". Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ten per cent; and (iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b). 9. Chapter XIIA was inserted vide Finance Act, 1983 with effect from 1.6.1983. Its object is to provide certain concessions to non-resident Indians with a view to primarily encourage them to invest their foreign exchange earnings in assets and sources of income in India. This chapter contains special provisions for taxation of investment income and long term capital gains of non-residents. Section 115C is a definition section. Section 115D states that the provisions of this Act with regard to deduction of expenditure and allowances in calculating the total income of an assessee, shall not be applicable in computing the investment income of a non-resident Indian. Section 115E is the charging section. According to this section, investment income of a non-resident Indian shall be charged @ 20%. The expression 'non-resident Indian' has been defined in section 115C to mean a citizen of India or a person of Indian origin who is not a resident. We find that the applicant is covered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act refers to application of this Act to companies governed by special Acts such as banking company. It states- "616. Application of Act to insurance, banking, electricity supply and other companies governed by special Acts .- The provisions of this Act shall apply- (a) x x x x x x (b) to banking companies, except insofar as the said provisions are inconsistent with the provisions of the Banking Companies Act, 1949 (10 of 1949); ." 13. Section 3 of the Companies Act defines a 'private company' and 'public company'. The main attributes of a private company are that there is restriction on the transfer of its shares; the number of members is limited to 50; and invitation to public for subscription is prohibited. A public company is a company, which is not a private company. Thus a deposit made in a banking company which is not a private company, would be regarded as 'specified asset' within the meaning of section 115C(f) of the Act. Since the applicant has not specified the name of the bank in which he will be making deposit, it is not possible for us to ascertain whether that bank will be a private company or a public company. We proceed on the basis that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment income. Since the interest income in question will be in the nature of investment income, in our view clause (b)(i)(A) of Part II of the First Schedule to the Finance Act, 2007 will be attracted. 16. One more question remains. This is regarding Form 15G. This form has been prescribed by Rule 29C of the Income-tax Rules, 1965 in pursuance of sub-section (1A) of section 197A of the Act. The applicant, in his rejoinder, has stated that if this Authority accepts the views of the applicant on other questions, acceptance/non-acceptance of Form 15G makes no difference to him. Hence, we record that this question is unnecessary and not pressed. 17. In the light of the above discussion, we hold that - (i) the NRO deposit to be made by the applicant with convertible foreign exchange in a banking company which is not a private company, shall be treated as 'foreign exchange asset' under clause (b) of Section 115C of the Act; (ii) income by way of interest earned from the said NRO deposit shall be treated as 'investment income' under clause (c) of Section 115C and shall be liable to be taxed at the rate of twenty per cent under section 115E; and (iii) the banks ..... X X X X Extracts X X X X X X X X Extracts X X X X
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