INDULAL KANJI PAREKH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, a resident of Africa at the relevant point of time, derived income from house property as well as interest on bank deposits during the asst. year 1973 74. Initially, he submitted a return disclosing a total income of Rs. 4,000 in the status of non resident but revised it to "resident, but not ordinarily resident" subsequently and disclosed an interest income of Rs. 33,410 plus income from house property of Rs. 3,710. The original return was filed on March 23, 1974, and the revised return was submitted on September 10, 1974. In the course of the assessment proceedings, it was noticed that he had received an amount of Rs. 92,958.92, i.e., Rs. 92,959, by way of interest and the same was credited in his accounts maintained with the Bank of India at Rajkot and Bombay as non resident account. The year wise breakup of the interest is as under : Assessment year Status Amount of interest 1970 71 Non resident Rs. 37,744.52 1971 72 Resident but not ordinarily resident Rs. 17,015.54 So far as the payment of tax on the last item of Rs. 31,171.10 is concerned, there is no dispute between the parties. The dispute centres round the taxability of the interest amount in respect of the asst. yrs. 1970 71 to 1972 73 aggregating to Rs. 61,787.82, i.e., Rs. 61,788, out of the total of Rs. 92,959. The assessee's contention throughout has been that the interest amount of Rs. 61,788 was assessable in the respective assessment years between 1970 71 and 1972 73, but the same could not be brought to tax in the assessment year in question, that is, 1973 74. The contention of the Revenue, on the other hand, is that the said amount of Rs. 61,788 plus the amount of Rs. 31,171, that is, the total amount of Rs. 92,959, was received by the assessee in the asst. year 1973 74 and, therefore, the same was liable to tax in the said assessment year.

(2.) THE assessee, a resident of Africa with a view to taking advantage of the National Defence Remittance Scheme remitted certain amounts to India by opening accounts with the Bank of India at Rajkot and Bombay. The assessee mainly operated the Rajkot account. The deposits were kept in his non resident account, but after the amendment of S. 10(4A) of the IT Act, 1961 (hereinafter called "the Act"), the exemption was restricted to interest on moneys deposited in a "non resident (external) account" only. In view of this change in law, the assessee requested his bankers to convert his non resident account into a non resident (external) account w.e.f. April 1, 1968. However, as the assessee's bankers entertained some doubt in this behalf, the issue was referred to the Reserve Bank of India and in the meantime, with the consent of the assessee, the interest amount was transferred to a suspense account with the bank with a view to obviating the bank's liability to deduct income tax at source from the interest amount in the assessee's non resident account. In a communication addressed by the bankers to the assessee, he was informed that since the legal position was not clear and a reference was made to the Reserve Bank of India, the interest in the non resident account would be liable to income tax and the bank would be obliged to make a deduction there from which would only create difficulties for the assessee to obtain refund from the income tax authorities and in order to obviate such a situation, it was desirable to transfer the interest amount to a suspense account till instructions were received from the Reserve Bank of India. On December 7, 1972, the Reserve Bank informed the Bank of India that it could convert the assessee's non resident account into a non resident (external) account with retrospective effect from April 1, 1968. It was also clarified by the Reserve Bank that the amount held by the bankers in the non resident account of the assessee may be deemed to have been held in the non resident (external) account of the assessee from April 1, 1968. In view of these developments, the assessee, while crediting the interest amount relating to the asst. yrs. 1970 71 to 1972 73 amounting to Rs. 61,788 in his account books, carried the same to the capital account after adjusting his income and expenditure account. To put it differently, he credited Rs. 31,171 towards interest whereas the balance of Rs. 61,788 was carried to the capital account de hors the profit and loss account. In view of these book entries, the ITO held that the entire amount of Rs. 92,959 was taxable in the asst. year 1973 74. On appeal, the AAC concurred with the view of the ITO. In further appeal, the Tribunal after referring to the decision of the Supreme Court in Raghava Reddi vs. CIT (1962) 44 ITR 720 (SC) and after perusing the correspondence on record, concluded that the bank had not parted with the domain over the funds in question in the relevant years, 1970 71 to 1972 73, and the entire amount of Rs. 61,788 was received by the assessee in the asst. year 1973 74 and was, therefore, rightly brought to tax by the authorities below. The Tribunal, therefore, dismissed the appeal. The assessee sought a reference under S. 256(1) of the Act. The question referred for our opinion reads as under : 1972 73 Non resident Rs. 7,027.76 1973 74 Resident but not ordinarily resident Rs. 31,171.10 . . Rs. 92,958.92 . Say Rs. 92,959.00

(3.) AT the hearing of this reference, Mr. Shelat, the learned advocate for the Revenue, raised a doubt on a question of fact, namely, whether the interest amount was in fact credited to the non resident account of the assessee before the same came to be transferred to the suspense account. In this connection, he invited our attention to the letter, annexure "B", dated October 5, 1974, written by the Bank of India to the ITO , Rajkot. In paragraph (ii), it was stated that the interest amount was kept in suspense account pending approval from the Reserve Bank of India to convert the account into non resident (external) account. In paragraph (iii) of the letter, the bank indicated the circumstances under which it became necessary to transfer the interest amount to the suspense account. In the said paragraph, it was further pointed out that the Reserve Bank had granted approval by its communication of December 7, 1972, to designate the non resident account of the assessee as "non resident (external) account" w.e.f. April 1, 1968. It is, therefore, explained that in view of this change in status, no tax was required to be deducted from the interest amount credited to the account of the assessee in view of the amended S. 10(4A) of the Act. This communication does not indicate that before the interest amount was placed in the suspense account of the assessee, it was not deposited in his non resident account. However, in the statement of the case submitted by the Tribunal to this Court, the following statement appears :