1159. Whether non-deduction of tax is only in respect of interest credited to Non-resident (External) Account and not to all types of non-resident accounts
Circular No. 43 was issued by the Central Board of Direct Taxes on 20 June 1970. Its subject is 1159. Whether non-deduction of tax is only in respect of interest credited to Non-resident (External) Account and not to all types of non-resident accounts.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Narrows the earlier instruction that no tax was to be deducted from interest credited to any non-resident account. Section 10(4A), as it stood from 1 April 1965, exempted interest on a non-resident account, and the Board's circular letter of 1 June 1965 had told officers not to deduct from any such interest. The Finance Act, 1968 substituted the words Non-resident (External) Account for Non-resident Account with effect from 1 April 1969, so the exemption now runs only to that designated type of account as defined under the Foreign Exchange Regulation Act, 1947 and the rules, the scope of the term having been fixed by the Department of Economic Affairs notification dated 10 February 1970. The direction not to deduct therefore applies only to interest credited to a Non-resident (External) Account and not to all types of non-resident accounts. The Board adds that the general question whether tax is deductible under sections 192, 193, 194, 194A or 195 from income exempt under section 10 is still under its consideration.
The amendment of section 10(4A) with effect from 1 April 1969 materially changed the position, and the 1965 instruction had to be brought into line so that officers did not continue to treat all non-resident accounts alike.
1159. Whether non-deduction of tax is only in respect of interest credited to Non-resident (External) Account and not to all types of non-resident accounts
1. Attention is invited to the Board’s Circular Letter F.No. 12/29/65-IT(B), dated 1-6-1965 [Annex] instructing that there should be no deduction of tax at source from interest income credited to the account of any non-resident. This instruction was issued on the basis of the provisions of section 10(4A) as introduced from April 1, 1965 which exempted from tax interest falling within this category.
2. With the amendment of section 10(4A) by the Finance Act, 1968, the position has materially changed. The amendment, which is effective from April 1, 1969 has substituted the words "Non-resident (External) Account" for the words "Non-resident Account". The change means that the exemption from tax, will now be available only in respect of a particular type of non-resident account designated as "Non-resident (External) Account", which has been defined in accordance with the Foreign Exchange Regulation Act, 1947, and the rules made thereunder.
3. The Ministry of Finance, Department of Economic Affairs issued a Notification, dated 10-2-1970, defining the scope of the term "Non-resident (External) Account" [See Non-resident (External) Accounts Rules, 1970—vide [1970] 77 ITR (St.) 1]. A copy of the Notification was forwarded to the Commissioners of Income-tax with the Board’s Circular F.No. 1(10)/69-TPL, dated 2-4-1970.
4. In view of the amendment of section 10(4A) with effect from April 1, 1969 the instructions regarding the non-deduction of tax at source will apply only to interest credited to Non-resident (External) Accounts and not to all types of non-resident accounts.
5. A general question whether tax is deductible at source under the provisions of section 192, 193, 194, 194A or 195, from any income which is exempt from tax under section 10, is under the Board’s consideration. As soon as a decision is reached on this question necessary instructions will be issued.
Circular: No. 43 [F.No. 12/98/69-ITJ], dated 20-6-1970.
ANNEX - CIRCULAR, DATED 1-6-1965 REFERRED TO IN CLARIFICATION
1. A question has been raised whether interest accruing in a "non-resident account" on the money transferred from abroad through recognised banking channels and invested in any bank in India will be exempt from tax?
2. In this connection, it is clarified that in the case of a non-resident, any income from interest on moneys standing to his credit in a non-resident account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1947 and any rules made thereunder, will not be included in the total income in view of section 6(i ) of the Finance Bill, 1965. As such no tax is to be deducted at source from such interest with effect from April 1, 1965.
A default proceeding against a bank for not deducting from interest credited to a non-resident's ordinary account after 1 April 1969.
Source: the Income Tax Department’s own published text — its page for this instrument.
