2011 (3) TMI 1322 - HC - Income Tax

Exemption u/s 10(15)(iv)(fa) - interest on the FCNR deposits - Status of individual - Two application for revision is rejected u/s 264 - It was submitted that merely because in the original return filed by him the petitioner has shown certain amount to be his income does not mean that the said error cannot be rectified by the respondent - Held that - Commissioner was not justified in dismissing the said application merely on the ground that it was the petitioner who had shown the said income to be his income for the year under consideration. It may be safely assumed that the said assertion has crept in on account of inadvertent error on the part of the draftsman. In the circumstances the court is not inclined to dismiss the petition on the ground of having made an incorrect statement on oath. The petitioner has set out the details of his stay in India which clearly indicate that the conditions precedent for the petitioner to be said to be resident in India in the year under consideration are not satisfied. From the details given the revision application it is apparent that though the second condition is satisfied viz. the petitioner has been in India for at least 730 days in the previous seven years ; the first condition viz. that the petitioner should have been residing in India in nine out of ten preceding years is clearly not satisfied. Besides as is apparent from the order made by the Commissioner (Appeals) in respect of the preceding two years and the subsequent two years wherein the Commissioner (Appeals) upon appreciation of the evidence on record has as a matter of fact found that the petitioner was not ordinarily resident during the said periods. The present assessment year falls between the said assessment years. Hence it is apparent that the petitioner was not ordinarily resident for the year under consideration. The Commissioner was therefore not justified in rejecting the application under section 264 - Decided in favor of the assessee.

Summary

Issues Involved:
1. Rejection of the petitioner's application under section 264 of the Income-tax Act, 1961.
2. Petitioner's entitlement to exemption of interest on FCNR deposits under section 10(15)(iv)(fa) of the Income-tax Act.
3. Maintainability of the petition filed under articles 226, 14, and 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Rejection of the Petitioner's Application under Section 264 of the Income-tax Act, 1961:
The petitioner challenged the order dated March 26, 2001, made by the Commissioner of Income-tax, Baroda, rejecting the application filed under section 264 of the Income-tax Act. The petitioner had filed a return for the assessment year 1996-97, declaring income that included interest on FCNR deposits. Upon realizing the error, the petitioner filed a revision application under section 264 to exclude the interest income from taxable income. The Commissioner rejected the application, stating that the petitioner had initially disclosed the amount as income, thus proving ineligibility for the exemption. The court noted that the Commissioner failed to apply his mind to whether the income was liable to be taxed under the Act and dismissed the application without examining the merits.

2. Petitioner's Entitlement to Exemption of Interest on FCNR Deposits under Section 10(15)(iv)(fa) of the Income-tax Act:
The petitioner argued that being "not ordinarily resident in India," the interest on FCNR deposits was exempt under section 10(15)(iv)(fa) of the Act. The court referenced prior decisions, such as S. R. Koshti v. CIT, which held that the Commissioner has the power to correct over-assessment regardless of whether it resulted from the assessee's mistake. The court emphasized that tax authorities must ensure only legitimate taxes are collected and assist the assessee in correcting mistakes. The court found that the Commissioner had not considered the period of the petitioner's stay in India and had dismissed the application based on the initial disclosure of income, which was contrary to the principles laid down in earlier judgments.

3. Maintainability of the Petition Filed under Articles 226, 14, and 19(1)(g) of the Constitution of India:
The respondent argued that the petition should be rejected because the petitioner falsely asserted being a citizen of India, which is relevant under article 19(1)(g). The petitioner admitted the error, attributing it to oversight by the draftsman and tendered an unconditional apology. The court accepted the explanation, noting that petitions are generally filed on behalf of Indian citizens, and the error was inadvertent. The court held that while the petitioner might not be entitled to relief under article 19(1)(g), the petition was maintainable under article 14, which covers the grievance.

Conclusion:
The court concluded that the Commissioner was not justified in rejecting the application under section 264 of the Act. The court quashed the impugned order and directed the respondent to revise the assessment order by excluding the interest income on the FCNR deposits. The petition was allowed, and the rule was made absolute with no order as to costs.