Mr. Patel, originally from India, has been employed for the past few years at a big consultancy firm’s Uganda (East Africa) branch. However, he faced his worst nightmare when the income tax (I-T) department issued him a notice regarding Rs 20 lakh of “unexplained income” in his Non-Resident External (NRE) bank account. Patel had been depositing his overseas salary savings into his NRE bank account in India and used the money in his NRE bank account to invest in funds, time deposits, and other approved investment options.
Patel did not file any income tax return (ITR) in FY19, the financial year (FY) for which the tax department issued the notice. He maintained that he had no obligation to file an ITR, as a non-resident’s overseas income is not taxable in India under Section 9 read with Section 5 of the Income Tax Act, 1961. However, on February 6, 2023, he received a tax notice under Section 148A(a) of the Income Tax Act, 1961, concerning FY 2018-19 (Assessment Year 2019-20), stating that the tax department is in possession of information that despite carrying out transactions of Rs 20 lakh (Rs 20,93,65,261), he failed to file any ITR.
In response, he filed his reply on the e-filing ITR portal on February 13, 2023. In his submission, he stated that, as per Section 10(4)(ii), any income earned by way of interest on money held in a Non-Resident External account is exempt from tax.
He also mentioned that he qualifies as a Non-Resident Indian (NRI) under the provisions of the Foreign Exchange Management Act (FEMA). Even his bankers have classified him as a Person Resident outside India under the FEMA regulations.
Also read: 53% interest to be paid by Income Tax dept to an individual’s tax refund of Rs 6.42 lakh; Delhi High Court order
On September 15, 2025, the Gujarat High Court ruled in his favour, and he won the case.
Read the story to know how he won the case and the legal reasonings behind the Gujarat High Court’s verdict.
Arguments of his lawyers
According to the judgement order (R/SPECIAL CIVIL APPLICATION NO. 7816 of 2023) of the Gujarat High Court, here’s what arguments his lawyers raised:
Income tax department said this
The Senior Standing Counsel for the income tax department was not in a position to counter the contention raised by the petitioner (taxpayer). He submitted that a notice under Section 148A(d) was issued on the basis of the information that the assessee was identified as a ‘non-filer’ on the Insight Portal under the Non-Filer Monitoring System. It was further submitted that the petitioner (taxpayer) has failed to prove that no income was taxable in India despite carrying out high-value transactions. The proceedings under Section 148A and under Section 148 of the Act are carried out in accordance with law.
Also read: Employee with ‘Highly Valued’ rating in appraisal got termination letter with words ‘malicious conduct’, he fights back and wins case in Delhi High Court
Gujarat High Court said this
The Gujarat High Court said that it is noticed that the status of the assessee as a Non-Resident Indian and having settled in Uganda is not in dispute.
In response to the notice under Section 148A(a) of the Act, the assessee (taxpayer) had filed its reply dated February 13, 2023, in which the source of income was explained. The respondent (income tax department) has not considered the response given by the petitioner (taxpayer).
Also read: Claimed Section 87A tax rebate on STCG? Expect a tax demand notice from I-T dept; Here’s what you can do
The Gujarat High Court said: “From the facts of the case, it is evident that the remission was from the overseas savings to NRE accounts in India. The petitioner (taxpayer) has furnished the tax residency certificate issued by the Uganda Revenue Authority to substantiate that he is a tax resident in Uganda.”
Gujarat High Court cites legal precedents set by other judgements
The Gujarat High Court said that they held in the case of Nitin Mavji Vekariya v. Income-Tax Officer, reported in [2024] 461 ITR 18 (Guj) that, the income earned by the assessee since was received from non-resident (external) accounts, the same was exempt under Section 10(4)(ii) and therefore there was no question of escapement of income.
Also read: Tax Dept gives relief to income taxpayers regarding Section 87A tax rebate claim
The Gujarat High Court also said that in the case of Nitin Mavji Vekariya (supra), they have held as under: “5. Undisputedly, the funds came from non-resident (external) accounts, and the source therefore was beyond the reach of the authorities. Even on reading the provisions of section 10(4), it is apparent that such incomes are exempt from being included in the total income.”
The Gujarat High Court said: “Thus, on both the counts, the income earned in the NRE account is exempt under Section 10(4)(ii) of the Act, and the source of income is explained by the assessee, and the Certificate of Tax Residency is also provided by the Uganda Revenue Authority. We do not find any justification for the issuance of notice under Section 148, as also for passing of order under Section 148A(d) of the Income Tax Act, 1961.”
Judgement: “In view of the above, the present petition is allowed. The notice under Section 148 of the Tax Act dated 20.3.2023 and the order under Section 148A(d) of the Act dated 18.3.2023 are hereby quashed and set aside. Rule is made absolute. No order as to costs.”
Patel did not file any income tax return (ITR) in FY19, the financial year (FY) for which the tax department issued the notice. He maintained that he had no obligation to file an ITR, as a non-resident’s overseas income is not taxable in India under Section 9 read with Section 5 of the Income Tax Act, 1961. However, on February 6, 2023, he received a tax notice under Section 148A(a) of the Income Tax Act, 1961, concerning FY 2018-19 (Assessment Year 2019-20), stating that the tax department is in possession of information that despite carrying out transactions of Rs 20 lakh (Rs 20,93,65,261), he failed to file any ITR.
In response, he filed his reply on the e-filing ITR portal on February 13, 2023. In his submission, he stated that, as per Section 10(4)(ii), any income earned by way of interest on money held in a Non-Resident External account is exempt from tax.
He also mentioned that he qualifies as a Non-Resident Indian (NRI) under the provisions of the Foreign Exchange Management Act (FEMA). Even his bankers have classified him as a Person Resident outside India under the FEMA regulations.
Also read: 53% interest to be paid by Income Tax dept to an individual’s tax refund of Rs 6.42 lakh; Delhi High Court order
On September 15, 2025, the Gujarat High Court ruled in his favour, and he won the case.
Read the story to know how he won the case and the legal reasonings behind the Gujarat High Court’s verdict.
Arguments of his lawyers
According to the judgement order (R/SPECIAL CIVIL APPLICATION NO. 7816 of 2023) of the Gujarat High Court, here’s what arguments his lawyers raised:
- It was submitted by learned advocate Mr. Manish Shah for the petitioner (taxpayer) that the respondent (income tax department) in its order passed under Section 148A(d) had neither objectively considered the reply furnished by the petitioner nor furnished any reason for disagreement with the stand taken by the petition.
- In spite of the same, the respondent (income tax department) passed the impugned order in a mechanical manner without applying mind to the information furnished, ignoring the factual contention put forward by the petitioner (taxpayer).
Income tax department said this
The Senior Standing Counsel for the income tax department was not in a position to counter the contention raised by the petitioner (taxpayer). He submitted that a notice under Section 148A(d) was issued on the basis of the information that the assessee was identified as a ‘non-filer’ on the Insight Portal under the Non-Filer Monitoring System. It was further submitted that the petitioner (taxpayer) has failed to prove that no income was taxable in India despite carrying out high-value transactions. The proceedings under Section 148A and under Section 148 of the Act are carried out in accordance with law.
Also read: Employee with ‘Highly Valued’ rating in appraisal got termination letter with words ‘malicious conduct’, he fights back and wins case in Delhi High Court
Gujarat High Court said this
The Gujarat High Court said that it is noticed that the status of the assessee as a Non-Resident Indian and having settled in Uganda is not in dispute.
In response to the notice under Section 148A(a) of the Act, the assessee (taxpayer) had filed its reply dated February 13, 2023, in which the source of income was explained. The respondent (income tax department) has not considered the response given by the petitioner (taxpayer).
Also read: Claimed Section 87A tax rebate on STCG? Expect a tax demand notice from I-T dept; Here’s what you can do
The Gujarat High Court said: “From the facts of the case, it is evident that the remission was from the overseas savings to NRE accounts in India. The petitioner (taxpayer) has furnished the tax residency certificate issued by the Uganda Revenue Authority to substantiate that he is a tax resident in Uganda.”
Gujarat High Court cites legal precedents set by other judgements
The Gujarat High Court said that they held in the case of Nitin Mavji Vekariya v. Income-Tax Officer, reported in [2024] 461 ITR 18 (Guj) that, the income earned by the assessee since was received from non-resident (external) accounts, the same was exempt under Section 10(4)(ii) and therefore there was no question of escapement of income.
Also read: Tax Dept gives relief to income taxpayers regarding Section 87A tax rebate claim
The Gujarat High Court also said that in the case of Nitin Mavji Vekariya (supra), they have held as under: “5. Undisputedly, the funds came from non-resident (external) accounts, and the source therefore was beyond the reach of the authorities. Even on reading the provisions of section 10(4), it is apparent that such incomes are exempt from being included in the total income.”
The Gujarat High Court said: “Thus, on both the counts, the income earned in the NRE account is exempt under Section 10(4)(ii) of the Act, and the source of income is explained by the assessee, and the Certificate of Tax Residency is also provided by the Uganda Revenue Authority. We do not find any justification for the issuance of notice under Section 148, as also for passing of order under Section 148A(d) of the Income Tax Act, 1961.”
Judgement: “In view of the above, the present petition is allowed. The notice under Section 148 of the Tax Act dated 20.3.2023 and the order under Section 148A(d) of the Act dated 18.3.2023 are hereby quashed and set aside. Rule is made absolute. No order as to costs.”
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