COMMISSIONER OF INCOME TAX Vs. M.C. GEORGE

JUDGEMENT

(1.) The question raised in the revenue's appeal is whether the Tribunal was justified in holding that the Respondent Assessee is entitled to concessional rate of tax under Section 115H read with Section 115E on the interest received from the bank deposits maintained by the Assessee. We have heard standing counsel for the department and senior counsel Sri Joseph Markose appearing for the Respondent Assessee.

(2.) Assessee, as a non-resident Indian, made deposits in Indian Bank with convertible foreign exchange under non-resident non-repatriable scheme (NRNR). Later, the Assessee became a resident of India and he transferred the NRNR accounts from the banks in which original deposits were made to other scheduled banks. Even though in the original assessment, concessional rate of tax was allowed, later the Assessing Officer revised assessment under Section 147 holding that Assessee is not entitled to concessional rate under Section 115H read with Section 115E of the Act for the reason that the transferred NRNR deposits has ceased to be foreign exchange assets. The department's case is that once NR deposits are closed from banks, the subsequent deposits are only deposits of Indian rupee made by a resident, which cannot be termed as a foreign exchange asset under Section 115C(b) for availing concession rate under Sections 115E and 115H of the Act. Senior counsel for the Assessee, on the other hand, referred to the specific finding in the 1st appellate authority's order and contended that transfer of deposits from one bank to another does not change the character of deposit from that of foreign exchange asset and so much so, Assessee will continue to get the benefit even if NR deposits are transferred from one bank to another. Since the issue has to be considered with reference to the relevant portions of the Act, we extract hereunder Sections 115C(b) and 115H of the Act.

(3.) Admittedly, in this case, the deposits are made by the Assessee in converted foreign exchange and so much so, the original NR deposits answer the definition of foreign exchange asset in terms of the definition clause contained in Section 115C(b) of the Act. The only question to be considered is whether the transfer of NR deposits from one bank to another will lead to loss of identity of the asset from that of a foreign exchange asset. What is clear from the latter part of Section 115H is that, the foreign exchange asset ceases to be so only when it is transferred or converted into money. The transfer or conversion into money applies only to specified assets like shares, debentures and the like and the same cannot be applied to specified assets in the form of bank deposits. What is made clear in Section 115H is that the transfer of specified assets without affecting its character will not affect its identity as a foreign exchange asset. In this case, the NRNR deposits are transferred by the Assessee from one bank to another. Though this has happened after Assessee ceased to be a non-resident, we feel still the deposits retain character as a foreign exchange asset because, asset, namely the deposit, was acquired with convertible foreign exchange. In other words, so long as the original source of the deposit is convertible foreign exchange, the transfer of such foreign exchange asset, namely the deposit from one bank to another will not affect its identity as a foreign exchange asset. So much so, we feel the finding of the Tribunal that Assessee is entitled to concessional rate of tax on the interest earned from NRNR deposits under Section 115H read with Section 115E is correct. Accordingly, we dismiss the department appeal.