My client was a non-resident who kept money in non-resident bank accounts, has now returned to India, and has filed the section 115H declaration. The assessing officer says section 115H is available only to someone who was actually assessed as a non-resident in an earlier year, and my client never filed returns while abroad. Is that a good objection?
No. The Kerala High Court rejected exactly that contention, holding that section 115H is applicable when a person who was a non-resident in a previous year becomes a resident and liable to taxation — there is no additional requirement that he should have been assessed as a non-resident. The Revenue's appeal was dismissed and the concessional 20 per cent rate on the deposit interest was upheld.
Decided by the High Court (J.B. Koshy J and K.T. Sankaran J, High Court of Kerala) on 2005-05-19, reported as (2005) 198 CTR (Ker) 551; [2006] 280 ITR 44 (Ker); 2005 (4) KLT 22; assessment year 1991-92. It bears on section 115H, section 115C, section 115C(f), section 115D, section 115E, section 10(4) of the Income Tax Act 1961, in Residence & Treaty Benefit, Capital Gains Exemptions, How Tax Law Is Read and Assessment & Scrutiny matters.
This removes a threshold objection that is easy for an officer to raise and expensive for a returning NRI to answer, because most people who lived abroad for years have no Indian assessment record at all. The Court's route to the answer is worth having on the file in its own right: section 115H was enacted with the beneficial object of earning and preserving foreign exchange; where a provision is capable of two views in a taxing statute the view in favour of the assessee must be adopted; and an exemption made with a beneficial object, once the doubt about applicability is lifted, is to be given a wider and liberal construction. The Court also reasoned that section 10(4)(ii) exempts interest on money in a Non-Resident (External) Account only so long as the person is a non-resident, and that section 115H is the provision Parliament enacted to carry a concessional rate forward once he ceases to be one — so the two provisions dovetail rather than compete. A second point in the judgment is quietly useful: the Court held that the Department, having accepted the same view for the same assessee in earlier years and for another assessee, should be consistent at least in respect of the same assessee, citing the three-Judge Bench decision in Union of India v. Kaumudini Narayan Dalal. What the case does NOT decide is timing: the assessee here had filed the necessary declaration, and nothing in the judgment addresses a declaration filed late or not filed with the return.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessment year was 1991-92. The assessee had been a non-resident and had deposited money in non-resident accounts with various branches of the State Bank of Travancore, the Central Bank of India, the Indian Bank and others. When he came back to India he claimed the concessional rate of tax under section 115H and filed the necessary declaration to be taxed at 20 per cent on the interest. The Assessing Officer disallowed the claim. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal. The Tribunal dismissed the Revenue's appeal, reasoning that the same benefit had been given to the same assessee for AY 1992-93 by the same Tribunal in I.T.A. Nos. 816 and 817 (Coch)/95 by order dated 30 August 1999 which had become final, and that the point had been decided in favour of the assessee in another assessee's case in I.T.A. No. 462/Coch/95; counsel pointed out that no appeal had been filed by the Revenue for AYs 1988-89 and 1989-90 either although the same issue had been decided in the assessee's favour. The Revenue appealed to the High Court on three questions: whether the assessee was entitled to the benefit of section 115H; whether, the provision being applicable only where the person was assessed earlier as a non-resident, the Tribunal was right in relying on its order for a subsequent year; and whether the Tribunal should have considered the issue on merits for the year in question. In the appeal the Revenue had no dispute that the income in question arose out of a foreign exchange asset as mentioned in clause (f) of section 115C.
The appeal was dismissed and the questions of law were answered in favour of the assessee. Section 115H, enacted with the beneficial object of earning and preserving foreign exchange, plainly covers the assessee's case, and on the section as it stood there is no room for a different interpretation. The Senior Standing Counsel's contention that to apply section 115H the assessee should be a non-resident and should have been assessed as such in the previous year is not tenable, because section 115H is applicable when a non-resident in a previous year becomes a resident and liable for taxation. The Department, having accepted the same view for earlier years in the assessee's own case and in another assessee's case and allowed those orders to become final, should be consistent at least in respect of the same assessee (paragraphs 4 and 5).
The Court set out section 10(4)(ii), which exempts interest on money standing to an individual's credit in a Non-Resident (External) Account, and observed that the benefit is available only so long as a person is completely a non-resident and that normally he becomes liable to tax when he comes to India and becomes a resident; it then set out section 115H and section 115E as they stood (paragraph 2). It referred to the Finance Minister's budget speech and the Memorandum explaining the Finance Bill for 1983-84, which described the flat 20 per cent charge on income derived by non-resident Indians from specified investments made through foreign exchange remittances and, as to section 115H, the continuation of the new Chapter XII-A in relation to investment income from debentures of and deposits with an Indian public limited company and Central Government securities acquired in convertible foreign exchange until transfer or conversion into money; from those materials it concluded that the concessional rate under sections 115H and 115E is enacted with a beneficial object, to give a concessional rate on income from investments made while the assessee was a non-resident notwithstanding that he later becomes a resident, provided the foreign exchange is not converted and provided he conforms to the procedure prescribed by section 115H (paragraph 3). Going through the section, the Court saw no room for a different interpretation, and applied the settled principles that where two views are possible in taxation the view in favour of the assessee is accepted (CIT v. Kulu Valley Transport Co. P. Ltd.), that a taxing statute is interpreted strictly and the subject can be taxed only if the case falls strictly within the provisions (A.V. Fernandez v. State of Kerala), that an assessee claiming exemption must establish it (CIT v. Sri Ramakrishna Deo) but that an exemption made with a beneficial object is to be liberally construed and, once the doubt about applicability is lifted, given a wider and liberal construction (paragraph 4). It noted that the Authority for Advance Rulings had considered the same point in Advance Ruling application No. P-5 of 1995 and had answered that even if exemption under section 10(4)(ii) is not available the applicant would be liable at the concessional rate of 20 per cent under sections 115C and 115D read with sections 115E and 115H provided the procedural requirements of section 115H are fulfilled (paragraph 4). Finally it rejected the 'must have been assessed as a non-resident' contention and applied the consistency principle from the three-Judge Bench in Union of India v. Kaumudini Narayan Dalal (paragraph 5).
As far as Section 115H is concerned, it was enacted with the beneficial object of earning and preserving foreign exchange and there is no room for doubt that the subject-matter is clearly covered by Section 115H.
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Handle my notice → Ask a CA on WhatsAppNo. The Kerala High Court rejected exactly that contention, holding that section 115H is applicable when a person who was a non-resident in a previous year becomes a resident and liable to taxation — there is no additional requirement that he should have been assessed as a non-resident. The Revenue's appeal was dismissed and the concessional 20 per cent rate on the deposit interest was upheld. This was decided by the High Court (J.B. Koshy J and K.T. Sankaran J, High Court of Kerala) and bears on section 115H, section 115C, section 115C(f), section 115D, section 115E, section 10(4) of the Income Tax Act 1961. It is reported as (2005) 198 CTR (Ker) 551; [2006] 280 ITR 44 (Ker); 2005 (4) KLT 22; assessment year 1991-92. This removes a threshold objection that is easy for an officer to raise and expensive for a returning NRI to answer, because most people who lived abroad for years have no Indian assessment record at all. The Court's route to the answer is worth having on the file in its own right: section 115H was enacted with the beneficial object of earning and preserving foreign exchange; where a provision is capable of two views in a taxing statute the view in favour of the assessee must be adopted; and an exemption made with a beneficial object, once the doubt about applicability is lifted, is to be given a wider and liberal construction. The Court also reasoned that section 10(4)(ii) exempts interest on money in a Non-Resident (External) Account only so long as the person is a non-resident, and that section 115H is the provision Parliament enacted to carry a concessional rate forward once he ceases to be one — so the two provisions dovetail rather than compete. A second point in the judgment is quietly useful: the Court held that the Department, having accepted the same view for the same assessee in earlier years and for another assessee, should be consistent at least in respect of the same assessee, citing the three-Judge Bench decision in Union of India v. Kaumudini Narayan Dalal. What the case does NOT decide is timing: the assessee here had filed the necessary declaration, and nothing in the judgment addresses a declaration filed late or not filed with the return. If it applies to you, the first step is this: Meet the 'never assessed as a non-resident' objection head on with this decision: the condition in section 115H is that the person WAS a non-resident Indian in a previous year and BECOMES assessable as resident, not that he was assessed as a non-resident.
The assessment year was 1991-92. The assessee had been a non-resident and had deposited money in non-resident accounts with various branches of the State Bank of Travancore, the Central Bank of India, the Indian Bank and others. When he came back to India he claimed the concessional rate of tax under section 115H and filed the necessary declaration to be taxed at 20 per cent on the interest. The Assessing Officer disallowed the claim. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal. The Tribunal dismissed the Revenue's appeal, reasoning that the same benefit had been given to the same assessee for AY 1992-93 by the same Tribunal in I.T.A. Nos. 816 and 817 (Coch)/95 by order dated 30 August 1999 which had become final, and that the point had been decided in favour of the assessee in another assessee's case in I.T.A. No. 462/Coch/95; counsel pointed out that no appeal had been filed by the Revenue for AYs 1988-89 and 1989-90 either although the same issue had been decided in the assessee's favour. The Revenue appealed to the High Court on three questions: whether the assessee was entitled to the benefit of section 115H; whether, the provision being applicable only where the person was assessed earlier as a non-resident, the Tribunal was right in relying on its order for a subsequent year; and whether the Tribunal should have considered the issue on merits for the year in question. In the appeal the Revenue had no dispute that the income in question arose out of a foreign exchange asset as mentioned in clause (f) of section 115C. The matter was decided on 2005-05-19 by the High Court (J.B. Koshy J and K.T. Sankaran J, High Court of Kerala). On those facts the High Court held as follows. The appeal was dismissed and the questions of law were answered in favour of the assessee. Section 115H, enacted with the beneficial object of earning and preserving foreign exchange, plainly covers the assessee's case, and on the section as it stood there is no room for a different interpretation. The Senior Standing Counsel's contention that to apply section 115H the assessee should be a non-resident and should have been assessed as such in the previous year is not tenable, because section 115H is applicable when a non-resident in a previous year becomes a resident and liable for taxation. The Department, having accepted the same view for earlier years in the assessee's own case and in another assessee's case and allowed those orders to become final, should be consistent at least in respect of the same assessee (paragraphs 4 and 5).
The Court set out section 10(4)(ii), which exempts interest on money standing to an individual's credit in a Non-Resident (External) Account, and observed that the benefit is available only so long as a person is completely a non-resident and that normally he becomes liable to tax when he comes to India and becomes a resident; it then set out section 115H and section 115E as they stood (paragraph 2). It referred to the Finance Minister's budget speech and the Memorandum explaining the Finance Bill for 1983-84, which described the flat 20 per cent charge on income derived by non-resident Indians from specified investments made through foreign exchange remittances and, as to section 115H, the continuation of the new Chapter XII-A in relation to investment income from debentures of and deposits with an Indian public limited company and Central Government securities acquired in convertible foreign exchange until transfer or conversion into money; from those materials it concluded that the concessional rate under sections 115H and 115E is enacted with a beneficial object, to give a concessional rate on income from investments made while the assessee was a non-resident notwithstanding that he later becomes a resident, provided the foreign exchange is not converted and provided he conforms to the procedure prescribed by section 115H (paragraph 3). Going through the section, the Court saw no room for a different interpretation, and applied the settled principles that where two views are possible in taxation the view in favour of the assessee is accepted (CIT v. Kulu Valley Transport Co. P. Ltd.), that a taxing statute is interpreted strictly and the subject can be taxed only if the case falls strictly within the provisions (A.V. Fernandez v. State of Kerala), that an assessee claiming exemption must establish it (CIT v. Sri Ramakrishna Deo) but that an exemption made with a beneficial object is to be liberally construed and, once the doubt about applicability is lifted, given a wider and liberal construction (paragraph 4). It noted that the Authority for Advance Rulings had considered the same point in Advance Ruling application No. P-5 of 1995 and had answered that even if exemption under section 10(4)(ii) is not available the applicant would be liable at the concessional rate of 20 per cent under sections 115C and 115D read with sections 115E and 115H provided the procedural requirements of section 115H are fulfilled (paragraph 4). Finally it rejected the 'must have been assessed as a non-resident' contention and applied the consistency principle from the three-Judge Bench in Union of India v. Kaumudini Narayan Dalal (paragraph 5). In the words reproduced by the source cited on this page: "As far as Section 115H is concerned, it was enacted with the beneficial object of earning and preserving foreign exchange and there is no room for doubt that the subject-matter is clearly covered by Section 115H." The decision followed or applied CIT v. Kulu Valley Transport Co. P. Ltd. (SC) — applied, on adopting the view favouring the assessee where two views are possible; A.V. Fernandez v. State of Kerala (SC) — applied, on strict construction of a taxing statute; Union of India v. Kaumudini Narayan Dalal (SC, three-Judge Bench) — applied, on the Department being consistent between years and between assessees; In re Advance Ruling application No. P-5 of 1995 (AAR) — referred to with approval on the section 10(4)(ii) and section 115H interaction.
It was decided by the High Court on 2005-05-19 and is reported as (2005) 198 CTR (Ker) 551; [2006] 280 ITR 44 (Ker); 2005 (4) KLT 22; assessment year 1991-92. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 115H, section 115C, section 115C(f), section 115D, section 115E, section 10(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed and the questions of law were answered in favour of the assessee. Section 115H, enacted with the beneficial object of earning and preserving foreign exchange, plainly covers the assessee's case, and on the section as it stood there is no room for a different interpretation. The Senior Standing Counsel's contention that to apply section 115H the assessee should be a non-resident and should have been assessed as such in the previous year is not tenable, because section 115H is applicable when a non-resident in a previous year becomes a resident and liable for taxation. The Department, having accepted the same view for earlier years in the assessee's own case and in another assessee's case and allowed those orders to become final, should be consistent at least in respect of the same assessee (paragraphs 4 and 5). It arises in Residence & Treaty Benefit, Capital Gains Exemptions, How Tax Law Is Read and Assessment & Scrutiny matters, on section 115H, section 115C, section 115C(f), section 115D, section 115E, section 10(4) of the Income Tax Act 1961, and was decided by J.B. Koshy J and K.T. Sankaran J, High Court of Kerala. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Prove the earlier non-resident status factually — passport, visa, employment records, days of presence — rather than by producing an assessment order, which the section does not require. File the declaration in writing ALONG WITH the return under section 139 for the first assessment year in which the client is assessable as resident. This case does not help an assessee who files it late. Confine the claim to investment income from assets within sub-clauses (ii) to (v) of section 115C(f). The judgment records that in this appeal the Revenue had no dispute that the income arose out of a foreign exchange asset within clause (f); that concession will not be repeated in your case. Where the Department has accepted the same claim for the same assessee in earlier years and not appealed, take the consistency point on Union of India v. Kaumudini Narayan Dalal as the Court did. Do not quote the version of section 115E set out in this judgment. It is the pre-1998 flat twenty per cent form and is not the current text.
Validity check could not be completed. Validity could not be established to a conclusion this pass and the label is used honestly. The words of section 115H that the Court construed are identical to the words on the current departmental page read this pass (incometaxindia.gov.in/w/section-115h-45, Year: 2026), so the section itself has not moved under the decision. But NO LATER TREATMENT OF THIS JUDGMENT WAS LOCATED and no check was made for an appeal to the Supreme Court; the indiankanoon queries run this pass are recorded in NOTES-B84.md and none of them was directed at citations of this judgment by name. The section 115E text reproduced in the judgment is the pre-1998 flat twenty per cent version and is superseded by amendment with effect from 1 April 1998; nothing in the ratio turns on the rate. Note also that the judgment does not address a declaration furnished late or not furnished with the return, and that a different Madras High Court decision read this pass, Dr. M. Manohar v. ACIT (11 July 2011), confines section 115H to income with a direct nexus to the foreign exchange asset — the two are not in conflict but they pull in different directions on how liberally the section is to be read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment was read in full from the plain document URL https://indiankanoon.org/doc/1799393/ and the sentence relied on was re-fetched independently through https://indiankanoon.org/docfragment/1799393/?formInput=%22enacted%20with%20the%20beneficial%20object%20of%20earning%20and%20preserving%20foreign%20exchange%22, which returned it in the same words. A first docfragment attempt using a longer phrase from paragraph 5 returned 'PHRASE NOT PRESENT'; that is the indiankanoon phrase-index length limit the brief warns about and not evidence that the sentence is absent — the same passage is in the full text. PARAGRAPH STRUCTURE, established by transcribing the whole judgment: numbered paragraphs 1 to 5 with no gaps, paragraph 5 ending 'we are in full agreement with the views of the Tribunal and therefore the question of law referred are to be answered in favour of the assessee and the appeal is dismissed.' There is nothing after paragraph 5. CAUTION ON QUOTATION: paragraph 2 reproduces section 10(4)(ii), section 115H and section 115E, and paragraph 3 reproduces the Finance Minister's budget speech and the Memorandum explaining the Finance Bill 1983; paragraph 4 reproduces a passage from A.V. Fernandez v. State of Kerala and, at the end, an extract from Advance Ruling application No. P-5 of 1995. None of those are the Kerala High Court's own words. The sentence used as the key_quote is the Court speaking in its own voice in paragraph 4 and was verified verbatim on two routes. The section 115E text reproduced at paragraph 2 is the PRE-1998 version — 'Where the total income of an assessee, being a non-resident Indian, consists only of investment income or income by way of long-term capital gains or both, the tax payable by him on his total income shall be the amount of Income-tax calculated on such total income at the rate of twenty per cent of such income' — correct for AY 1991-92 and not the current text; the departmental Year 2000 page read this pass carries footnote 24, 'Substituted by the Finance Act, 1997, w.e.f. 1-4-1998', which independently dates the change. Section 10(4)(ii) as reproduced refers to the Foreign Exchange Regulation Act 1973, again correct for the year in issue. The equivalent citations printed on the page are (2005) 198 CTR (KER) 551, [2006] 280 ITR 44 (KER) and 2005 (4) KLT 22. The Revenue's second and third questions, about the Tribunal relying on its own order for a subsequent year, were not separately answered; the Court dealt with the appeal as a whole. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed and the questions of law were answered in favour of the assessee. Section 115H, enacted with the beneficial object of earning and preserving foreign exchange, plainly covers the assessee's case, and on the section as it stood there is no room for a different interpretation. The Senior Standing Counsel's contention that to apply section 115H the assessee should be a non-resident and should have been assessed as such in the previous year is not tenable, because section 115H is applicable when a non-resident in a previous year becomes a resident and liable for taxation. The Department, having accepted the same view for earlier years in the assessee's own case and in another assessee's case and allowed those orders to become final, should be consistent at least in respect of the same assessee (paragraphs 4 and 5).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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