Section 115C(b)

Section 115C(b) — the law in short

What the courts have decided on section 115C(b), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Dr. M. Manohar v. ACIT (Madras High Court) — the s.115H benefit does not extend to interest earned on interest that was re-deposited with the original sum; 'derived from' requires a direct nexus with the foreign exchange asset High CourtHelps departmentValidity unconfirmed
  My client, a returned NRI, keeps renewing his bank deposits by rolling the accrued interest back into the principal, and has claimed the concessional rate under section 115H on the whole of the interest each year. The Commissioner has revised the assessment under section 263. Is the claim on the interest-on-interest sustainable?
  No. The Madras High Court held that section 115H does not allow that elasticity: the concessional rate is available only to investment income DERIVED FROM the foreign exchange asset, and unless the interest income has a direct nexus with the foreign exchange asset the benefit cannot be extended. The section 263 revision and the Tribunal's order confirming it were upheld and the assessee's appeal was dismissed.
• Deivanayagam Maruthini v. DDIT (International Taxation), Chennai (ITAT Chennai) — bonus shares issued on original shares subscribed to in convertible foreign exchange are themselves a 'foreign exchange asset', so the s.115E concessional rate applies to the gain on selling them ITATHelps taxpayerValidity unconfirmed
  My NRI client subscribed to shares of an Indian company in convertible foreign exchange, later received bonus shares on them, and has now sold only the bonus shares. The assessing officer says bonus shares were not acquired with foreign exchange, so they are not a foreign exchange asset and the concessional rate under section 115E is not available. Is he right?
  No, on this Tribunal's reasoning. It held that there can be no differentiation between the definition of 'foreign exchange asset' as applied to section 115E and as applied to section 115F, and that bonus shares issued on original shares acquired in convertible foreign exchange are covered by section 115C(b) — so the long-term capital gain on selling the bonus shares takes the concessional rate under section 115E. The orders of the lower authorities were set aside and the Assessing Officer was directed to give the assessees the benefit of the concessional rate.
• Statutory position — s.115E: twenty per cent on investment income throughout, and long-term capital gains at ten per cent before 23 July 2024 and twelve and one-half per cent on or after it CBDT Circulars & InstructionsCuts both ways
  My NRI client sold shares of an Indian company that he had subscribed to in foreign exchange. The transfer was in September 2024. My software has computed the tax at ten per cent under section 115E. Which rate applies, and from when did it change?
  Twelve and one-half per cent, because the transfer took place on or after 23 July 2024. Section 115E(ii) now splits the long-term capital gains rate — ten per cent for any transfer which takes place before the 23rd day of July, 2024, and twelve and one-half per cent for any transfer on or after that date — while the rate on investment income under s.115E(i) remains twenty per cent and has done since 1 April 1998.
• Statutory position — s.115C: the Chapter XII-A definitions, and the convertible-foreign-exchange condition that the whole chapter turns on CBDT Circulars & InstructionsCuts both ways
  My client is a person of Indian origin living in Dubai. He bought shares in an Indian listed company out of rupees lying in his NRO account. The assessing officer says Chapter XII-A does not apply to him at all and has taxed the gain at the ordinary rate. Is he right?
  On these facts, yes — and the reason is the funding, not the status. Section 115C(b) defines a "foreign exchange asset" as any specified asset "which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange", so an asset bought out of rupee funds is not a foreign exchange asset, and nothing in Chapter XII-A — not s.115E, not s.115F, not s.115H — can reach it. Being a non-resident Indian within s.115C(e) is a necessary condition but never a sufficient one.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.