Section 115H

Section 115H — the law in short

What the courts have decided on section 115H, 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.
• 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.
• CIT v. Mathew (Kerala High Court) — s.115H applies wherever a person who was a non-resident Indian in a previous year becomes assessable as resident; he need not have been ASSESSED as a non-resident in an earlier year High CourtHelps taxpayerValidity unconfirmed
  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.
• Hari Gopal Chopra v CIT Advance RulingHelps taxpayerValidity unconfirmed
  I have come back to India after seven years working abroad and my NRNR rupee deposits and foreign currency deposits are still running. Do the non-resident concessions stop the day I become resident, and when is the interest taxed?
  No, they do not stop automatically. The Authority ruled that Hari Gopal Chopra, who returned to India on 24 May 1996 after employment in Zambia, remained entitled to the Chapter XII-A benefits under s.115H after becoming resident, provided he filed the written declaration that section requires with his return. It also ruled that interest on his non-resident non-repatriable rupee deposits was taxable only in the year the deposits matured, because nothing had been credited to his account before then, and that interest on his foreign currency deposits with a scheduled bank was exempt under s.10(15)(iv)(fa) for assessment year 1997-98 and later years for which he was found resident but not ordinarily resident. The ruling binds only the applicant.
• 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.
• Statutory position — s.115-I: the non-resident Indian's annual election OUT of Chapter XII-A, made in the return itself CBDT Circulars & InstructionsCuts both ways
  Chapter XII-A gives my NRI client a flat twenty per cent with no deductions, but on his numbers the ordinary slab rates with Chapter VI-A relief come out cheaper. Can he simply not use the chapter, and does he have to commit for good?
  He can, and the election is for one assessment year at a time. Section 115-I lets a non-resident Indian elect not to be governed by Chapter XII-A for any assessment year by furnishing his return for that year under section 139 and DECLARING THEREIN that the chapter shall not apply to him for that year; if he does so, his total income for that year is computed and taxed in accordance with the other provisions of the Act.
• Statutory position — s.115H: continuation of the Chapter XII-A benefit after the assessee becomes resident, and the two things it does not cover CBDT Circulars & InstructionsCuts both ways
  My client has returned to India for good and is now assessable as a resident. He holds shares and public-company debentures bought in foreign exchange while he was abroad. Can he keep the twenty per cent rate, and on what?
  He can, but only on part of it, and only if he files the declaration on time. Section 115H lets a person who was a non-resident Indian in a previous year and becomes assessable as resident in a subsequent year furnish a declaration in writing ALONG WITH his return under section 139 for that assessment year, and the chapter then continues to apply to him until the asset is transferred or converted into money — but the continuation extends only to INVESTMENT INCOME, and only from assets of the nature in sub-clauses (ii), (iii), (iv) and (v) of section 115C(f). Shares in an Indian company, which are sub-clause (i), are not in the list.
• Statutory position — s.115G: no return need be furnished where the only income is investment income or long-term capital gains and tax has been deducted at source CBDT Circulars & InstructionsCuts both ways
  My NRI client's only Indian income for the year was interest on debentures of an Indian public company subscribed to in foreign exchange, and the company deducted tax at source. He did not file a return and has now had a notice. Was he obliged to file?
  If both conditions in section 115G are satisfied, no. It is not necessary for a non-resident Indian to furnish a return under section 139(1) if his total income assessable under the Act during the previous year consisted ONLY of investment income or long-term capital gains or both, AND the tax deductible at source under Chapter XVII-B has been deducted from that income.

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.