Promissory estoppel and tax exemption for non-resident account interest protected depositor assurances against later revenue objection.

Interest earned on non-resident external accounts was treated as exempt under section 10(4A) for the assessment year 1981-82, because the depositors had acted on assurances that the interest would be tax-free. The Revenue's reliance on the later amendment effective from 1 April 1982 was rejected as not defeating the promised exemption for the relevant year. The Tribunal applied promissory estoppel against the Government and held that the Revenue could not interpret the provision so as to negate the assurance on which the assessee had relied.

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Issues: Whether interest earned on non-resident external accounts was exempt from tax under section 10(4A) of the Income-tax Act, 1961 for the assessment year 1981-82, and whether the Revenue could deny the exemption despite the assurance held out to depositors.

Analysis: The exemption claim was rejected by the Revenue on the basis that the amendment to section 10(4A), effective from 1 April 1982, enlarged the scope of the provision and therefore did not apply to the relevant assessment year. The assessee relied on the assurances given by the Reserve Bank of India and on the principle that the Government was bound by its promise where deposits were invited on the representation that the interest would be tax-free. The Tribunal accepted that promissory estoppel applied against the Government and that the Revenue could not interpret the provision so as to defeat the assurance on which the assessee acted.

Conclusion: The interest from the non-resident account was directed to be exempted in computing the assessee's total income, and the claim was allowed.

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