Interest Income not to be assessed When Assessee is Non-Resident: ITAT [Read Order]

A Division Bench of the Income Tax Appellate Tribunal (ITAT), Mumbai Bench observed that Interest income not to be assessed when assessee is non-resident.

It came to the notice of the Government that both the assessee’s, Rahul Rajnikant Parikh and Kalpesh R. Jhaveri are holding a bank account jointly in HSBC Bank, Geneva. It was noticed that some deposits have been made in this bank account during the years relevant to A.Y. 2003-04 & 2004-05. In the three years under consideration namely A.Y. 2006-07 to 2008-09 interest has been credited on the deposits so made in the above said bank account.

In the first round, the deposit amounts as well as interest income accrued on the above said deposits were assessed in the hands of the assessee’s dividing the same equally. The above said assessments were challenged by filing appeals before the CIT(A), who deleted the additions.

Hence, the Revenue preferred the appeals before the ITAT and the Tribunal, set aside the orders passed by the CIT(A) and restored the matter back to the file of the Assessing Officer with the direction to make further investigation into the source of deposits made into the bank account. Accordingly, the Assessing Officer passed fresh assessment orders in all the above said year. However, the present appeals are related to A.Y. 2006-07 to 2008-09.

The Assessing Officer assessed the above said interest income equally in the hands of both the assessee’s respectively in these three years on the reasoning that interest income shall be “deemed to have accrued” to the assessee’s in India since the corresponding deposit amount has been assessed in the hands of these assessee’s in A.Y. 2003-04 & 2004-05. The CIT(A) deleted the additions of interest income made in AY 2006-07 to 2009- 10 on the reasoning that the same cannot be brought to tax in India.

A Coram consisting of held that “The interest income has accrued on the deposits kept by the assessee’s in HSBC bank, Geneva and hence the said interest income cannot be said to fall under the definition of “deemed to accrue or arise in India” as given in sec. 9(1)(v) of the Income Tax Act, i.e., the interest income has actually accrued outside India. Hence the said interest income cannot be assessed in the hands of the assessee’s, since they are non-residents.”

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