In Special Civil Application No. 7636 of 2022 -GUJ HC- Gujarat High Court quashes income tax notices issued to Ugandan residents, says income from NRE accounts is exempt from tax
Justice Biren Vaishnav & Justice Bhargav D. Karia [11-09-2023]

Read Order: Nitin Mavji Vekariya V. Income Tax Officer

Chahat Varma

New Delhi, September 21, 2023: In a recent decision, the Gujarat High Court has quashed the income tax notices issued to several Ugandan residents over investments made in time deposits and mutual funds. The Court held that the investments were made from NRE accounts, and the income from these accounts was exempt from being included in the total income.

In the case at hand, all the petitioners were family members who, as residents and citizens of the Republic of Uganda, had sought directions to quash and set aside the order dated 29.03.2022, which was issued to them, under Section 148A(d) of the Income Tax Act, 1961. The petitioners' counsel had submitted that recently, the Income Tax Officer had issued a notice under Section 148A(b), calling upon the petitioner to show cause as to why a notice under Section 148 should not be issued. This was in view of the investments in time deposits and mutual funds aggregating to Rs. 1,92,00,000. On 21.03.2022, the petitioner had uploaded the reply along with various details and documents, including NRE Savings Bank statements, Uganda citizenship and passport documents. However, on 29.03.2022, the Income Tax Officer had passed the impugned order under Section 148A(d), holding that income amounting to Rs. 1,92,00,000 had escaped assessment for the year under consideration. Therefore, it was deemed a fit case for the issuance of a notice under Section 148 of the Act.

The division bench of Justice Biren Vaishnav and Justice Bhargav D. Karia noted that it was evident from the explanation provided by the petitioner that all the investments in Time Deposits and Mutual Funds had been made from NRE Accounts.

The bench held that it was undisputed that the funds came from NRE Accounts, and the source of these funds was beyond the reach of the authorities. Even upon reading the provisions of Section 10(4) of the Income Tax Act, it was apparent that such incomes were exempt from being included in the total income.

As a result, the court concluded that the orders issued on 29.03.2022 in all these petitions lacked jurisdiction and proceeded to quash and set them aside.