Taxability of foreign bank deposits of a non-resident requires proof of nexus with Indian income; presumptions are insufficient.

A non-resident is taxable only on income received in India or income accruing, arising, or deemed to accrue or arise in India under section 5(2) of the Income-tax Act. Where the assessee had shown non-resident status, no Indian business connection, and no transfer of funds from an Indian account to the foreign account, deposits in a foreign bank account could not be added merely on the basis of a base note and presumptions. The burden remained on the Revenue to show that the foreign deposits had a nexus with taxable Indian income. In the absence of independent enquiry or supporting material, the addition was deleted.

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Issues: Whether the addition made on account of deposits in the foreign bank account of a non-resident assessee was sustainable in the absence of proof that the deposits had a nexus with income received, accrued or deemed to accrue in India.

Analysis: The assessee's residential status as a non-resident was accepted on the record. The Tribunal noted that, under section 5(2) of the Income-tax Act, 1961, a non-resident is taxable only on income received in India or income accruing, arising, or deemed to accrue or arise in India. The assessee had filed his Indian returns in the status of non-resident and produced material showing that he had no Indian business connection and that no funds were transferred from his Indian bank account to the foreign account. The addition was made primarily on the basis of a base note and presumptions, without independent enquiry to establish that the foreign deposits represented income sourced from India. The Tribunal held that the burden to show that the amount fell within the taxing provisions remained on the Revenue, and that the assessee could not be called upon to prove a negative in the absence of supporting material from the Department.

Conclusion: The addition was not sustainable and was rightly deleted.

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