THE COMMISSIONER OF INCOME TAX vs. SRI.ABRAHAM KOSHY

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ITA/145/2009HC KeralaKLHC01024906200907 September 2009Author: HONOURABLE MR.JUSTICE V.K.MOHANAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that Section 115H of the Income Tax Act does not stipulate a condition that an assessee claiming the concessional rate of tax under Chapter XIIA in respect of income from specified assets, earned for the first time after becoming a resident in India, must have been assessed on such income in an earlier assessment year while they were non-residents. The Court reasoned that the purpose of Section 115H is to extend the benefit of concessional rates to non-resident Indians who return to India and become residents, encouraging them to invest their foreign exchange savings in India. The primary conditions for eligibility under Section 115H are that the assessee must have been a non-resident Indian prior to becoming a resident, and they must retain the specified asset without converting it into money. The Court agreed with the findings of the CIT(A) and the ITAT. Consequently, the departmental appeals were dismissed.

What were the facts?

The appeals were filed by the Commissioner of Income-tax against two assessees, Shri Abraham Koshy and others, concerning assessment years not explicitly stated but implied to be subsequent to the assessees becoming resident Indians. The assessees, previously non-residents, had made investments falling under Section 115C(f) of the Income Tax Act. During the relevant previous years, they became residents in India and claimed the benefit of a concessional tax rate under Section 115E by filing declarations under Section 115H. The Assessing Officer denied this benefit, arguing that the assessees were not previously assessed in India on their investment income while they were non-residents. The CIT(A) and the Income Tax Appellate Tribunal (ITAT) ruled in favour of the assessees, holding that prior assessment as a non-resident was not a prerequisite for claiming the concessional rate under Section 115H.

What were the issues?

1. Whether the respondents-assessees are entitled to the benefit of concessional rate of tax under Section 115E in respect of income from specified assets referred to in Section 115C(f) of the Income Tax Act, even if they became resident in India in the previous year in which they started earning income from such assets for the first time and were not assessed on such income as non-residents. Assessee's Contention: The assessees, having been non-residents and made investments in specified assets, were entitled to the concessional rate under Chapter XIIA even after becoming residents, provided they filed the necessary declaration under Section 115H. They argued that prior assessment as a non-resident was not a condition precedent for claiming this benefit. Reliance was placed on a Circular issued by the Central Board of Direct Taxes, which prompted one assessee to file a rectification application. Revenue's Contention: The Assessing Officer contended that the benefit of Chapter XIIA, extended by Section 115H, was only available to non-resident Indians who were already being assessed in India on their investment income from specified assets. Therefore, if an assessee became a resident and earned income from such assets for the first time in that year, they were not entitled to the concessional rate.

Which sections of the Income-tax Act were involved?

Section 115C,Section 115E,Section 115H,Section 139,Section 154

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 7TH SEPTEMBER 2009 / 16TH BHADRA 1931 ITA.No. 145 of 2009() --------------------- ITA.159/COCH/2001 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ---------------------------------------- THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT: -------------------------- SHRI.ABRAHAM KOSHY, KARIPPAL HOUSE, KALATHIPADY, KOTTAYAM. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ALONG WITH ITA NOS.303 & 338/2009 ON 07/09/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. .................................................................... I.T. Appeal Nos.145, 303 and 338 of 2009 .................................................................... Dated this the 7th day of September, 2009.

JUDGMENT Ramachandran Nair, J. The common question raised in the three connected appeals filed by the department against two assessees is whether the respondents- assessees are entitled to the benefit of concessional rate of tax under Section 115E in respect of income from specified assets referred to in Section 115C(f) of the Income Tax Act. We have heard Senior Standing Counsel appearing for the appellants and have gone through the orders of the Income Tax Appellate Tribunal and that of the lower authorities.

2.

Respondents-assessees were non-residents and admittedly the investments made by them fall under clause (ii),(iii),(iv) and (v) of clause (f) of Section 115C of the Income Tax Act. However, during the previous year relevant for the assessment years assessees were resident in India and therefore, they claimed benefit of concessional rate by filing declaration in terms of Section 115H of the Income Tax

2 Act. In fact, in one case it is seen that declaration was filed along with rectification application under Section 154 of the Income Tax Act after assessee came to know about the benefit based on Circular issued by the Central Board of Direct Taxes. The Assessing Officer found that the respondents-assessees were never assessed in respect of their Indian income on investments while they were non-residents. Therefore, according to him, they are not entitled to the benefit of Chapter XIIA as the assessment is made for the first time on investment income after they became resident Indians. In other words according to the officer, non-resident assessees who were being assessed in India in respect of income from specified assets falling under Section 115C(f) of the Act only are entitled to the continued benefit of concessional rate under Section 115H after the assessees became residents in India. The C.I.T. (Appeal) held that there was no need for any prior assessment of the assessee as a non-resident for the purpose of claiming concessional rate of tax under Section 115H in respect of income from specified assets falling under Section 115C(f) of the Act. On further appeal, the Tribunal confirmed the order of the C.I.T.(Appeal) and hence the department has filed these appeals before us.

3

3.

Since the question relates to interpretation of Section 115H, we extract hereunder the said Section for easy reference: “S.115H. Benefit under Chapter to be available in certain cases even after the assessee becomes residents Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of clause (f) of Section 115C; and if he does so, the provisions of this Chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets.” The concessional rate of income tax on various investments categorised under specified assets under Section 115C(f) provided under Chapter XIIA is essentially to encourage non-residents to bring in their savings in foreign exchange for investment in India. Concessional rate of tax at varying rates provided in respect of income from several specified assets are covered by Section 115E of the Act. In fact, it may happen that the non-residents who have made investments in specified assets

4 continue to be non-residents and during such period they are entitled to the concessional rate provided under Chapter XIIA for the income from specified assets received in India. The purpose of Section 115H is to extend the benefit of concessional rate on income from specified assets even after the non-resident Indians return to India and become residents in India. The department does not dispute the entitlement of concessional rate of tax on income from investments in specified assets made while assessees were non-residents, even after they become residents in India. However, the objection raised by the Assessing Officer is that a non-resident returning to India and making investment in specified assets is not entitled to benefit under Section 115H, if he becomes a resident in India in the previous year in which he starts earning income from the specified asset for the first time. We do not think Section 115H stipulates a condition that the assessee claiming concessional rate in respect of income received from specified asset for the first time after he becomes a resident in India should have been assessed on such income for any earlier assessment year. We are of the view that the benefit of Chapter XIIA can be claimed for the first time on income received from specified assets, even if the assessee becomes

5 a resident in India in the previous year in which he started earning income from such specified assets. In other words, an assessee claiming benefit for the first time under Section 115H need not have been assessed earlier under the Income Tax Act on the income from the same specified asset for any preceding year. All what is required for eligibility for concessional rate under Section 115H is that assessee should have been a non-resident Indian prior to his becoming a resident in India and in that event, he will be entitled to the concessional rate under Chapter XIIA on the investment referred to therein so long as the asset is retained by him and is not converted into money. We, therefore, agree with the view expressed by the C.I.T.(Appeal) confirmed by the Tribunal. Consequently the departmental appeals are dismissed. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms

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