TMI Blog2008 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The applicant states that he has opened various Non-Resident Ordinary Rupee Accounts (NRO accounts) with State Bank of India (SBI) and other nationalized banks through convertible foreign currency remittances. He now intends to return to India for indefinite period during the current financial year itself. Even after his return, the applicant will remain a non-resident during the current year. During this period he proposes to extend the maturity of the existing NRO accounts and also to open new NRO accounts, with convertible foreign exchange. But he does not mention the name of the bank in which new NRO accounts will be opened. He also proposes to file a declaration under section 115-H after his return to India. In the light of these facts, the applicant seeks advance ruling on the following points: (1) Whether investment income derived from the NRO deposit with State Bank of India made out of the convertible foreign inward remittances in foreign exchange is liable to be taxed at a concessional rate of 20% + applicable surcharge and cess under the provisions of Section 115-A/115-E read with provisions of Section 115-C, 115D? (2) Whether the above investment in NRO depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould deduct TDS on such income. The present case has some additional dimensions. The nature of deposits and the applicable rate of tax on incomes derived therefrom after the permanent return of the applicant to India, as also the nature of new accounts opened by him during the period he remains a non-resident after his permanent return to India, need to be determined in the light of the provisions of the Act and the relevant RBI circular. 6. The provisions of sections 115C, 115D, 115E and 115H of Chapter XII-A of the Act, which are relevant for the present consideration, are being given below- Special provisions relating to certain incomes of non-residents 115C Definitions . In this Chapter, unless the context otherwise requires,— (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b) "foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange; (c) "investment income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains, the tax payable by him shall be the aggregate of— (i)the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent; (ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and (iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b). 115H Benefit under Chapter to be available in certain cases even after the assessee becomes resident. Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies governed by special Acts.- The provisions of this Act shall apply- (a) x x x x x x (b) to banking companies, except insofar as the said provisions are inconsistent with the provisions of the Banking Companies Act, 1949 (X of 1949); (c) x x x x x x (d) x x x x x x (e) x x x x x x" Section 3 of the Companies Act defines a 'private company' and 'public company'. The main attributes of a private company are that there is restriction on the transfer of its shares; the number of members is limited to 50; and invitation to public for subscription is prohibited. A public company is a company, which is not a private company. Thus a deposit made in a banking company which is not a private company, would be regarded as 'specified asset' within the meaning of section 115C(f) of the Act." We also held in that case that NRO account would be foreign exchange asset and the interest income arising from it would be investment income liable to be taxed @ 20%. 9. Though the applicant in the present case has opened NRO accounts in SBI as well as other banks, he seeks ruling in respect of accounts opened with convertible foreign exchange in SBI only. As SBI is a public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year 2008-09, he would indeed be a non-resident for that year. The other requirement of this section is that the income should be investment income which according to section 115C(c) means income derived from foreign exchange asset. According to Section 115C(b) 'foreign exchange asset' means any specified asset which the assessee has acquired or purchased in convertible foreign exchange. The applicant states that he would open new NRO accounts with remittances from convertible foreign currency. Thus, the second requirement is also satisfied. But the applicant has not mentioned in which bank he will open fresh NRO accounts. If he opens such accounts in SBI or a bank which is a public company, then his case would be fully covered under section 115E. 12. We may at this stage refer to section 6 of the Foreign Exchange Management Act, 1999 (FEMA). This section specifies the powers of the Reserve Bank of India (RBI) to regulate capital account transactions involving foreign currency. The relevant provisions of this section are extracted below: "Capital account transaction 6(1) Subject to the provisions of sub-section(2), any person may sell or draw foreign exchange to or from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns to India for an uncertain period and in such a case, he may not be allowed to open new NRO account. The benefits of Chapter XII-A of the Act, as we have seen, are available only in respect of NRO accounts opened with convertible currency. As is evident from Section 115H, these benefits cease to apply on the transfer or conversion into money of such accounts. What emerges from this is that after the permanent return of the applicant to India, he would be eligible to concessional provisions to Chapter XII-A only so long as his bank account is treated as NRO account by RBI. The moment that account is converted into rupee account by RBI, the provisions of this Chapter would cease to apply. This is a matter of fact to be determined on the basis of RBI instructions at the relevant point of time. 13. In the light of the above discussion, we rule as follows- (1) The income of the applicant arising from the existing NRO deposits with SBI shall be taxed @ 20% plus applicable surcharge and cess. (2) After his return to India, the applicant can invoke the provisions of section 115H until conversion of his NRO account into rupee account as per the extant RBI regulation / inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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