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Rambhai Lakhabhai Patel (Huf) Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1984)7ITD439(Ahd.)
AppellantRambhai Lakhabhai Patel (Huf)
Respondentincome-tax Officer
Excerpt:
.....the non-resident (external) accounts maintained in rupees or in designated foreign currency (non-resident account) will be free of indian income-tax,' the income-tax authorities were not justified in holding that the interest earned by the assessee on the fixed deposit was not exempt from taxation. the learned counsel for the assessee wanted to impress upon us that the very basis of the credibility of the government was at stake, as according to him, it was unthinkable for the rbi to have issued notification/circulars without the consultation of the income-tax department. relying on the following observations of the hon'ble gujarat high court in the case of taiyabji lukmanji v. cit [1981] 131 itr 643 : ...whether or not it amounted to promissory estoppel and created a legal right.....
Judgment:
1. These two appeals involving a common point of dispute are being heard and disposed of together, for the sake of convenience.

2. The assessee is a HUF and its residential status under the Income-tax Act, 1961 ('the Act') is 'resident but not ordinarily resident'. The assessment years involved are 1977-78 and 1975-79 and the relevant previous years ended on 31-3-1977 and 31-3-1978, respectively.

3. When the assessee was 'non-resident' as per the provisions of the Act, he opened an account with Central Bank of India. The said account was a fixed deposit and was treated as non-resident (external) account as per the provisions of the Foreign Exchange Regulations Act, 1947.

During the year under appeal, the assessee earned interest of Rs. 22,710 in the first year and Rs. 52,629 in the second year and claimed the same as exempt from taxation under the provisions of Section 10(4A) of the Act. In respect of the assessment year 1977-78, the ITO accepted the assessee's contention while in respect of the assessment year 1978-79, he rejected the same. For the second year, namely, in the assessment year 1978-79, the ITO did not grant exemption to the assessee as the assessee's residential status under the Act was no longer 'non-resident'. Since in the assessment year 1977-78, the assessee's residential status was also not 'non-resident' under the Act, the Commissioner passed an order under Section 263 of the Act and directed the ITO to include Rs. 22,710 in the total income of the assessee which was earlier not so included by virtue of the provisions of Section 10(4A). In the second year, namely, the assessment year 1978-79, the AAC upheld the action of the ITO not granting exemption to the assessee under Section 10(4A) in respect of interest income of Rs. 52,629.

4. Being aggrieved by the orders of the Commissioner as well as the AAC, the assessee has come up in appeal before the Tribunal. The learned counsel for the assessee was fair enough to state that on the proper reading of the provisions of Section 10(4A) as they stood at the relevant time, he cannot possibly dispute the orders of the Commissioner as well as the AAC. However, he hastened to state that since the assessee had acted upon certain notifications/circulars issued by the RBI under the Foreign Exchange Regulations Act, 1947, wherein it was specifically mentioned that 'the interest accruing on the balances held in the non-resident (external) accounts maintained in rupees or in designated foreign currency (non-resident account) will be free of Indian income-tax,' the income-tax authorities were not justified in holding that the interest earned by the assessee on the fixed deposit was not exempt from taxation. The learned counsel for the assessee wanted to impress upon us that the very basis of the credibility of the Government was at stake, as according to him, it was unthinkable for the RBI to have issued notification/circulars without the consultation of the Income-tax Department. Relying on the following observations of the Hon'ble Gujarat High Court in the case of Taiyabji Lukmanji v. CIT [1981] 131 ITR 643 : ...Whether or not it amounted to promissory estoppel and created a legal right apart, the question was required to be examined from the standpoint of the credibility of the department. Would it not cause greater harm to the department itself if assessees who respond to its appeals and desire to cleanse themselves of the past sins are deterred from doing so In a way, in the long run it might be counter productive to do so. All these questions cannot be elbowed aside. They have to be met squarely in the face by the revenue authorities and the Tribunal by addressing themselves to it and answering the same in the manner considered right by them on policy and principle...(p. 646) The learned counsel for the assessee submitted that the income-tax authorities ought to have accepted the assessee's claim for exemption under Section 10(4A). He, further, submitted that since the assessee had acted in good faith and was under the honest belief that the,interest earned on the non-resident (external) account would be exempt from tax, the income-tax authorities ought to have accepted the assessee's claim for exemption under Section 10(4A). Relying on the following observations made by the Hon'ble Gujarat High Court, in the case of CIT v. Satellite Engg. Ltd. [1978] 113 ITR 208 : ... It is well settled that even if the language of a statute in its ordinary meaning and grammatical construction leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentences... (p.

223) The learned counsel for the assessee further submitted that it would be just and proper to interpret Section 10(4A) in such a manner so as to modify the hardship or injustice done to the assessee. Finally, relying on the decision of the Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326, the learned counsel for the assessee submitted that this is a fit case in which the doctrine of promissory estoppel should be invoked.

He, therefore, urged the inclusion of the interest earned by the assessee on the non-resident (external) account should be deleted from its total income.

5. The learned representative for the revenue, on the other hand, strongly relied on the orders of the Commissioner as well as the AAC and justified their action. In this connection, he stated that under the Act, the residential status of a person could be of three types, viz., (i) 'Resident'- Section 6(1) to (4) of the Act, (ii) 'resident but not ordinarily resident'- Section 6(6) and (iii) 'non-resident'- Section 2(50) of the Act and the exemption granted under Section 10(4A) related to the 'non-resident' and not to the other two categories.

Since in the instant case, the assessee's residential status was 'resident but not ordinarily resident', the assessee was not entitled to claim exemption under Section 10(4A), in respect of the interest earned by it in the non-resident (external) account. Relying on the decision of the Hon'ble Supreme Court in the case of Jit Ram Shiv Kumar v. State of Haryana AIR 1980 SC 1285, he further submitted that the doctrine of promissory estoppel cannot be invoked against the legislative power of the State. So also, the said doctrine cannot be invoked for preventing the Government from acting in discharge of its duty under the law. He, further, submitted that the Government would not be bound by the act of its officers or agents who had acted beyond the scope of their authority and a person dealing with the agent of the Government must be held to have noticed the limitations of his authority. In this view of the matter, he submitted that the notifications/circulars issued by the RBI cannot bind the income-tax authorities/department, i.e., the Government. Inviting our attention to page 3 of the paper book of the assessee containing Circular No. 104 issued by the RBI, Exchange Control Department, he highlighted the fact that the said circular was issued for the guidance of the authorised dealers and not for the guidance of the people in general. It was, therefore, the duty of the assessee to have ascertained from the concerned relevant authority as to whether, even if it was not 'non-resident' under the Act, it would still be entitled to exemption under Section 10(4A). He also invited our attention to the other circulars notifications issued by the RBI with a view to impress upon us that the RBI was issuing circulars not under the Act, but under the Foreign Exchange Regulations Act. Therefore, according to him, such circulars/ notifications cannot bind the revenue, as the revenue has to implement the provisions of the Taxation Acts as passed by the Parliament. According to the learned representative of the department, the plea of hardship or injustice cannot be taken up before a body like the Tribunal, as the Tribunal has to give its decision on the true interpretation of the taxation laws as passed by the Parliament.

Inviting our attention to Section 6(ii) of the Wealth-tax Act, 1957 ('the 1957 Act') the learned representative of the department highlighted the fact that there is a marked difference between the language used in that section and that used in Section 10(4A).

There-fore, it is not for the forum like the Tribunal to substitute certain words in the section which are not there. He, therefore, urged that we should uphold the orders of the Commissioner as well as the AAC.6. We have carefully considered the rival submissions of the parties and we did not find any merit in the appeals preferred by the assessee.

It is an undisputed fact that the assessee is not 'non-resident' as defined in the Act. The exemption granted under Section 10(4A) is applicable to a 'non-resident' only. The learned representative for the department has rightly pointed out that the assessee could have one of the three residential status as prescribed under the Act. Section 2(30) delines 'non-resident' to mean a person who is not a 'resident'. In the instant case, it is not disputed that the assessee was 'resident' in India. However, by virtue of Section 6(6), he was also 'not ordinarily resident'. Therefore, once the assessee ceases to be 'non-resident', the interest earned in its non-resident (external) account would cease to be exempt under Section 10(4A). As regards the plea regarding hardship and injustice, we would simply refer to the decision of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345. In that decision, the Supreme Court has held that when the provisions of law are clear and unambiguous, there is no scope for importing into the statute the words which are not there. Such importation would be not to construe, but to amend the statute. Even if, there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation.

Therefore, once the revenue has successfully shown that the assessee does not come within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. As regards the applicability of the doctrine of the promissory estoppel, we would rely on the decision of the Hon'ble Supreme Court in the case of Jit Ram Shiv Kumar (supra), wherein the Hon'ble Supreme Court itself had an occasion to consider its earlier decision in the case of Motilal Padampat Sugar Mills Co. Ltd. (supra). Further, since the notifications/circulars issued by the RBI were not under the Act, we fail to appreciate how such circulars/ notifications could bind the revenue. We entirely agree with the submissions made on behalf of the revenue that the circulars/notifications issued by the RBI were with a view to explain the provisions of the Foreign Exchange Regulations Act and not the provisions of the 1961 Act. Again we find lot of force in the submissions made on behalf of the revenue that if we compare and contrast the provisions of Section 10(4A) of the 1961 Act with the provisions of Section 6(ii) of the 1957 Act, there is clear omission by the Legislature to give exemption under Section 10(4A) to an assessee like the one before us. It is worthwhile mentioning here that the hardship suffered by the assessees like the one before us, has been recognised by the Legislature and, therefore, certain remedial amendment was made in Section 10(4A), by the Finance Act 1982, with effect from 1-4-1982. In order to complete this aspect of the matter, we reproduce below the relevant portion of the Notes on Clauses sent along with the Finance Bill, 1982, as well as Explanatory notes on the provisions of the Finance Act, 1982.

Sub-Clause (a) seeks to substitute Clause (4A) of the Income-tax Act. Under the existing provisions, any income from interest on moneys standing to the credit of a non-resident in a Non-resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulations Act is exempt from income-tax. This provision applies to a non-resident as defined in the Income-tax Act. Under the proposed amendment, the above exemption will be available to all assessees who are persons resident outside India as defined in Clause (q) of Section 2 of the Foreign Exchange Regulations Act.

This amendment will take effect from 1st April, 1982. [1984] 134 ITR (St.) 107.

(ii) Exemption from income-tax of interest accruing on credit balances in a Non-resident (External) Account-Section 10(4A).

8.1. Under Clause (4A) of Section 10 of the Income-tax Act, in the case of a non-resident, any income from interest on moneys standing to his credit in a Non-resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulations Act and the rules made thereunder is not included in computing his total income. The benefit of this exemption is available only to a 'non-resident' as defined in the Income-tax Act. Under the Foreign Exchange Regulations Act, 1973, a person 'resident outside India' within the meaning of this expression as defined in Section 2(q) of that Act can open a Non-resident (External) Account; but if he does not satisfy the test of being a 'non-resident' under the Income-tax Act, he does not qualify for this exemption.

8.2. With a view to removing this anomaly, the Finance Act has substituted the present Clause (4A) by a new clause to provide that exemption from income-tax in respect of interest on Non-resident (External) Account shall be available in the case of a 'person resident outside India' as defined in Section 2(q) of the Foreign Exchange Regulations Act, 1973.

For all these reasons, we have no hesitation in upholding the orders of the Commissioner as well as the AAC holding that the interest earned by the assessee was not exempt under Section 10(4A) of the Act.


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