A Dubai-based woman and her husband faced separate tax notices from India’s Income Tax Department after investing Rs 3.41 crore in Foreign Currency Non-Resident (FCNR) term deposits. The deposits, held in Japanese yen (JPY), were funded through a jointly held Non-Resident External (NRE) account. Despite the funds being transferred from Dubai, the tax authorities alleged the money was unexplained under Section 69A of the Income-tax Act.
The woman, originally from Beawar, successfully challenged the notice before the Income Tax Appellate Tribunal (ITAT) Jaipur. The tribunal found that the tax officer had mistakenly treated the amounts in JPY as Indian rupees, leading to an incorrect assessment. The ITAT also noted that the bank had confirmed the source of the funds, and the husband’s explanation had already been accepted by the same tax officer.
The ITAT ruled that the woman, as the second holder of the deposits, could not be held liable for unexplained income since the primary holder had already provided a valid explanation. The tribunal also corrected the woman’s residential status to non-resident, noting that her income from the NRE account was exempt from Indian tax under Section 5(2) of the Income-tax Act.
Rahul Jain, Partner at Khaitan & Co, explained that non-resident Indians (NRIs) are generally taxed only on income earned or received in India. Interest from NRE accounts is specifically exempt from tax. The ITAT upheld the earlier ruling, confirming the deletion of the tax addition related to the alleged unexplained money.