Section 115C(e)

Section 115C(e) — the law in short

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

• CIT v. N. Sundarraman (Madras High Court) — deposits funded by convertible foreign exchange routed through NRE accounts later redesignated as NRNR keep the s.115E rate, and a wrong 'resident' description in the return does not alter the assessee's real status High CourtHelps taxpayer
  My client remitted his overseas salary into NRE accounts, later had them redesignated as NRNR deposits, and described himself as 'Resident' in his return by mistake while claiming section 115H. The assessing officer says he is a resident, that no valid section 115H declaration was filed with the return, and has denied the twenty per cent rate. Is there anything in this?
  Yes, on two grounds the Madras High Court accepted. First, on the facts found by the Tribunal the redesignation of the NRE accounts into NRNR accounts had been made only out of the convertible foreign exchange lying to the assessee's credit in accounts opened with the inflow of the original foreign exchange transferred to India as approved by the Reserve Bank of India, so the deposits remained foreign exchange assets. Second, the Court held that the assessee's real status cannot be denied merely because he made a wrong declaration when he satisfied all the conditions, and that being 'not ordinarily resident' he was not a 'resident' and so fell within the definition of non-resident Indian in section 115C(e) and was entitled to section 115E in its own right, with no obligation to file any declaration under section 115H.
• 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.