9911796707
TMI Blog1995 (8) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to maintain the present application. The queries raised by the applicant relate to his future taxability in India after he returns and settles down here. Basically, he requires to be reassured that, for nine assessment years after his return to India, he will be a resident but not ordinarily resident ("RNOR") and that as such the income derived by him from investments made by him in U. K. will be exempt from income-tax and that those derived from his Indian investments will be exempt from tax or liable to tax at a concessional rate. As the application is from one who is broadly familiar with the outlines but not with the details of the Indian tax legislation, it became necessary to seek several clarifications from the applicant. The questions set out in annexure "A" to the application have been considered and this ruling given on the facts stated in relation to these questions in annexure "I" to the application, the contentions raised by the applicant in annexure "II" to the application, the clarifications contained in the applicant's letters dated February 28 and July 18, 1995, and the report of the Commissioner of Income-tax in this matter. At the outset, it is necessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who can be treated as "ordinarily resident" in India or as the definition of a person who should be treated as "resident but not ordinarily resident". The ambiguity arises as a result of the use of the double negative used in the sub-section. The two interpretations possible are (1) An individual is resident and ordinarily resident in any pre-vious year only if (a) he has been a "resident" [as per section 6(1)] in nine out of ten previous years preceding that year; and (b) he has been in India for period or periods amounting in all to 730 days or more during the seven years preceding that year. (2) An individual, though resident, is "not ordinarily resident" in any previous year (a) either where he has not been resident, i.e., has been a non-resident in nine out of ten previous years preceding that previous year; (b) or where he has not been in India (i.e., has been absent from India) for 730 days or more during the seven previous years preceding that year. It will be seen that, if we apply the first of the above two interpretations, the applicant will be resident but not ordinarily resident for the assessment years 1996-97 to 2004-05 as he will have been a "resident" in ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n remitted to India to be treated as income and charged under the Indian income-tax (a) Investments in India Development Bond, marketed by State Bank of India in U. K. and U. S. A. where interest paid in sterling or United States dollars, paid in foreign bank. (b) Investments in units of India fund, marketed by Merryll Lynch/Baring Brothers (Guernsey) U. K., in conjuction with the Unit Trust of India and dividend, if any, payable in U. K. in a British bank account. (c) Investments in shares of Lazards Birla India Investment Trust, U. K., market by Lazard Trust, U. K., in conjuction with Birla Brothers of India and dividend, if any, payable in U. K. in a U. K. bank account. 2. For an individual resident but not ordinarily resident, whether interest on fixed deposit of foreign exchange non-resident external account payable in foreign currency by a foreign bank operating in India in a foreign bank account (U. K.) to be treated as Indian income and chargeable under the Indian income-tax. 3. For an individual resident but not ordinarily resident whether any foreign income by way of interest and dividends from foreign ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income derived by him from investments floated by foreign companies. It is stated that Meryll Lynch and Baring Brothers of U. K. have, in collaboration with the Unit Trust of India marketed units of India Fund and that Lazard Trust, U. K. has in conjunction with Birla Brothers of India, floated the Lazard-Birla India Investment Trust. From the photocopies supplied, it is seen that the applicant has invested in xxxxx.xxxx India Fund "B" shares issued by Meryll Lynch International Capital Management (Guernsey) Ltd. and in xxxx shares in the Lazard Birla India Investment Trust PLC and is entitled to annual dividends in respect of these shares which are payable to him in U. K. in the applicant's foreign bank account. In other words, the applicant has invested in shares of British companies which have, in their turn, made investments in various shares and securities including several in India. The dividends received by the applicant on these shares will be income accruing or arising in U. K. These receipts will not fall within the scope of clause (iv), (v), (vi) or (vii) of section 9(1) because they cannot be described as dividends paid by an Indian company or as payments in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has connection with one of the items referred in question No. 1. By the first part, the applicant seeks to know whether if, before leaving for India, he invests as a deposit in a foreign bank, to purchase some foreign units having no business relationship with India, the income derived from such units would be liable to Indian income-tax. The answer is simple. If it is found that all the premises set out in the question are fulfilled, this question has to be answered in the negative. The second part of question No. 3 is in regard to the tax liability in India that may result on the following proposed transactions: "I propose to liquidate my investment in India Fund of Merryll Lynch (U. K.) as stated above and buy units (in other Merryll Lynch funds) having no business relationship with India, and hold these units as resident but not ordinarily resident." The two counts on which tax liability could be attracted in such a transaction are: (a) in respect of capital gains on the liquidation of the existing units, and (b) in respect of income-tax on the income derived from the freshly purchased units. As already po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of above interest income only if the account is maintained in accordance with the provisions of the Foreign Exchange Regulation Act, the rules and orders made thereunder and the Reserve Bank of India permits the applicant to continue the aforesaid accounts. The applicant, however, claims that even if the above interest income is not exempt, he is entitled to be taxed at a concessional rate in respect of the same, because the assets in question are "foreign exchange assets", i.e., assets acquired out of "convertible foreign exchange". If the assets acquired are foreign exchange assets as claimed by the applicant, the benefit of the concessional rate of 20 per cent. under section 115E will be available only if the asset in question falls under one of the categories of assets specified in section 115C. The only provision which can at all cover the fixed deposits in the bank is sub-clause (iii) of clause (f) of section 115C. That clause will be attracted only if the bank in which the deposit has been made is an "Indian company which is not a private company as defined in the Companies Act, 1956. Neither of the banks answers the description of a private company in the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (external) account with any bank in India or it has been made out of funds remitted in foreign exchange, in accordance, in either case, with the provisions of the Foreign Exchange Regulation Act or any rules and orders made thereunder. The applicant has stated in annexure "II" to the application that all these investments have been made out of "convertible foreign exchange" but this does not necessarily mean that the two conditions set out above are also fulfilled. The question can, therefore, be answered only by saying that complete exemption will depend on the fulfillment of either of the conditions mentioned above. The applicant claims that if he is not entitled to exemption in respect of the above income, he will be entitled to be charged at a concessional rate under section 115AC. In the first place the assets held by the assessee do not fall in the category of assets for which relief is available under sub-section (1)(a) of section 115AC. Also the relief under section 115AC is available only to a non-resident assessee and the present query relates to the applicant's tax liability at a point of time when he will be, not a non-resident but, a resident but not ordinarily residen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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