460. Foreign exchange entitlement certificate fee under Ceylon Exchange Control Law – Whether deductible expense under clause (iii)

1. Indians, who have been and are being repatriated from Ceylon under the Ceylon Government’s repatriation policy, cannot bring with them more than a very limited amount of their savings.  The balance has to be left in Ceylon in a bank to the credit of a non-resident blocked account.

2. According to the Ceylon Exchange Control Law, a fee called “foreign exchange entitlement certificate fee” is to be paid before any amount could be remitted outside Ceylon.  Thus the interest on the non-resident blocked account is remitted to the assessees who are repatriates from Ceylon after deducting the foreign exchange entitlement certificate fee. A question has arisen as to whether, for the purpose of income-tax in India, the gross interest income is assessable or whether it could be assessed only after allowing the deduction of the “foreign exchange entitlement certificate fee”, under section 57(iii).

3. The matter has been examined and the Board are advised that the interest on the blocked account has already been earned before the fee under the Ceylon Exchange Control Law is deducted.  It could not, therefore, be said that the  expenditure in question is for the purpose of making or earning the said income.  Hence, the fee under the Ceylon Exchange Control Law is not a deductible expense under section 57(iii).

Circular : No. 156 [F. No. 173/96/72-IT(A-I)], dated 23-12-1974.

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