Non-resident External Account exemption upheld where residency status could not defeat relief under the foreign exchange scheme.

Interest on a Non-resident (External) Account was treated as exempt under section 10(4A) where the account was maintained in accordance with the foreign exchange law and RBI scheme. The provision was construed in its statutory and contextual setting, with emphasis on the legislative object of encouraging repatriable foreign currency funds. A CBDT circular and the later amendment were read as consistent with that purpose. On that approach, eligibility for the exemption could not be denied merely because the assessee was not ordinarily resident under the Income-tax Act, if the account was otherwise a qualifying account under the foreign exchange regime.

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Issues: Whether interest earned on a Non-resident (External) Account was exempt under section 10(4A) where the assessee was not ordinarily resident during the relevant assessment years.

Analysis: Section 10(4A), as it stood before the 1982 amendment, granted exemption to a non-resident in respect of interest on moneys standing to credit in a Non-resident (External) Account maintained in accordance with the foreign exchange law and the RBI scheme. The provision had to be read in its statutory and contextual setting, with the legislative object of encouraging repatriable foreign currency funds. The circular issued by the Central Board of Direct Taxes recognised that the exemption was linked to the scheme governing such accounts, and the later amendment was treated as declaratory of that underlying intent. On that construction, a person eligible to open and operate such an account under the foreign exchange regime could not be denied the benefit merely because of the technical status of not ordinarily resident under the Income-tax Act.

Conclusion: The exemption under section 10(4A) was available to the assessee, and the denial of the claim was not justified.

Final Conclusion: The reference was answered in favour of the assessee, holding that the interest income from the qualifying account was exempt.

Ratio Decidendi: Where the statutory exemption is linked to a foreign-exchange-regulated Non-resident (External) Account, the provision must be construed in light of the legislative purpose and the governing scheme, so that eligibility is not defeated by a narrow technical reading of residency status.

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