STATUTORY ARCHITECTURE — 18-ROW MAP
115H
ITA 1961 · Section 115H
Section 115H — NRI Becoming Resident -- Continued Benefit
Chapter XII-A — Special Provisions Relating to Certain Incomes of Non-ResidentsITA 1961Up to AY 2025-26
ITA 1961 · Section 115H
STATUTORY ARCHITECTURE — 18-ROW MAP
STATUTORY ARCHITECTURE — 18-ROW MAP
01. Section & marginal note
Section 115H — Special tax regimes framework — Chapter X-B (Transfer Pricing).
02. Sub-section structure
Per operative text — see Block 1 verbatim.
03. Operative trigger
International transaction (or SDT) between Associated Enterprises.
04. Persons affected
Resident or NR — wherever ALP / AE / international-transaction nexus exists.
05. Time anchor
Per financial year — TP documentation contemporaneous; Form 3CEB due with assessment.
06. Income anchor
Income from international transaction or SDT — to be computed at ALP.
07. Residential-status nexus
AE definition independent of residence; non-resident AE common.
08. Rate / charge mechanism
Recomputed income at ALP taxed at normal rates; primary + secondary adjustments separately.
09. TDS / TCS interaction
TDS u/s 195 on payments to NR-AE; rate consistent with treaty / domestic source rule.
10. Advance-tax obligation
Recomputed income subject to advance tax; interest u/s 234A/B/C.
11. Presumptive provisions
TP framework applies notwithstanding presumptive regime.
12. Exemption / deduction mechanism
Deductions disallowed if not at ALP; secondary adjustment may be repatriation-deemed.
13. Refund / credit
Net effect post-MAP / APA; foreign tax credit interplay.
14. Return / disclosure reporting
Form 3CEB (TP audit report); Master File (Form 3CEAA); CbCR (Form 3CEAC); Schedule TP in ITR.
15. Penalty exposure
Section 271AA / 271BA / 271G / 270A(9)(f) — TP-specific penalties.
16. Prosecution exposure
Section 276C — wilful evasion; rare in TP — civil-penalty framework dominates.
17. Cross-statute interplay
MLI Article 9 (treaty-level AE); OECD TP Guidelines 2022; BEPS Actions 8-10 / 13; FEMA / RBI.
18. Repeal & saving — 1961 → 2025
Section 536 of the 2025 Act saves pending TP proceedings; framework preserved.
HISTORICAL CONTEXT
Section 115H is part of Chapter XI - Special Tax Regimes — the special tax regimes framework framework of the Income-tax Act, 1961. The provision establishes operative rules within the comprehensive special tax regimes framework architecture.
The section operates in coordination with companion provisions in the same chapter and related chapters of the Act. Practitioner-relevant — verbatim text (Block 1) sets out operative language; parallel-provisions table (Block 2) maps to 1961 Act + 2025 Act framework + companion Rules / Forms.
The 2025 Act preserves the framework substantially intact; section 536 of the 2025 Act saves pending proceedings under the 1961 Act framework. Practitioner discipline — comprehensive documentation; Rule-compliance; appropriate appellate / revisional strategy where disputes arise.
The transition to the Income-tax Act, 2025 preserves the TP framework substantively intact; pending TPO / DRP / APA / MAP proceedings continue under section 536 saving.
FINANCE ACT AMENDMENT TIMELINE
■ Income-tax Act 1961 — Original provision framework.
■ Finance Act 1989 — Major restructuring across many chapters.
■ Finance Act 2001 — Procedural refinements.
■ Finance Act 2012 — Anti-avoidance + TP refinements.
■ Finance Act 2017 — Faceless framework introduction.
■ Finance Act 2020 — Comprehensive faceless framework.
■ Finance Act 2021 — Reassessment + Settlement Commission restructuring.
■ Finance Act 2024 — Procedural refinements.
■ Finance Act 2025 — Framework preserved; Income-tax Act 2025 s. 536 saving.
JUDICIAL EVOLUTION — VERIFIED LANDMARK AUTHORITIES
▸ Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667 ; (2000) 1 SCR 1 (Supreme Court)
Facts. A municipal levy was challenged on the ground that the charging provision did not clearly specify the rate, the persons charged, and the measure of tax.
Issue. Whether a tax can be imposed in the absence of a clear, unambiguous charging provision identifying the subject, measure, rate, and incidence.
HELD. Article 265 demands that tax be levied only by clear authority of law. The four components — taxable event, person, rate, and measure — must be clearly discernible from the charging provision; ambiguity is fatal to the levy.
“The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions, particularly when the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose other than what is given expression to.”
Relevance. Foundational authority on the rigour required of charging sections — underpins arguments that ambiguous deeming fictions, surcharge formulas, and rate prescriptions must be strictly construed.
▸ Commissioner of Income-tax v. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 ; (2015) 1 SCC 1 (Supreme Court — 5-Judge Constitution Bench)
Facts. The Department sought to apply a surcharge provision retrospectively to block-period assessments. The assessee contended that the amendment was substantive and could not have retrospective operation absent express legislative direction.
Issue. Whether amendments to taxing statutes operate prospectively unless the legislature has expressly or by necessary implication conferred retrospective effect.
HELD. The Constitution Bench reaffirmed the general rule against retrospectivity of taxing statutes. A taxing provision must be construed prospectively unless the language compels otherwise; mere insertion or substitution by amendment is not sufficient to deny vested rights.
“Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation.”
Relevance. Anchor authority for any argument that an amendment to a charging or computational provision must apply only from the AY notified — useful in transitional disputes around FA 2025 and the 1961 → 2025 changeover.
▸ K.P. Varghese v. Income-tax Officer, Ernakulam (1981) 131 ITR 597 ; (1981) 4 SCC 173 (Supreme Court — 3-Judge Bench)
Facts. Section 52(2) (since deleted) deemed sale consideration to be FMV where FMV exceeded the declared consideration by 15%. The Department applied it on a literal reading even when the assessee had not in fact received more than the declared price.
Issue. Whether a deeming provision in a charging schema can be construed literally where its plain reading produces a result manifestly contrary to legislative object.
HELD. The Court read down section 52(2) to apply only where the assessee had actually received consideration in excess of the declared sum. A literal construction yielding absurd or unjust results must yield to an object-based interpretation; the CBDT's contemporaneous Circular No. 96 was held binding on the Revenue.
“It is well settled that a literal construction of a statutory provision ought not to be adopted if it produces a manifestly unjust result… Where a literal construction creates an anomaly, the courts will adopt that construction which avoids the anomaly.”
Relevance. Anchor authority for purposive construction of deeming fictions across the 1961 Act — applies wherever a deeming clause (e.g., s. 50C, s. 56(2)(x), s. 2(22)(e)) yields a result contrary to legislative purpose.
▸ Malabar Industrial Co. Ltd. v. Commissioner of Income-tax (2000) 243 ITR 83 ; (2000) 2 SCC 718 (Supreme Court)
Facts. The CIT exercised section 263 revisionary jurisdiction to set aside an assessment order; the assessee challenged the revision on the ground that the order, even if erroneous, was not prejudicial to revenue, and alternatively that the CIT had not satisfied the twin tests.
Issue. Twin conditions for section 263 revision — what does 'erroneous and prejudicial to the interests of revenue' require?
HELD. Both conditions must be conjunctively satisfied: (i) the order must be erroneous in fact or law; and (ii) it must result in prejudice to revenue. An order is erroneous if based on incorrect facts, incorrect law, or made without proper inquiry; mere loss of revenue does not satisfy the prejudice test.
“The expression 'erroneous in so far as it is prejudicial to the interests of the revenue' is of wide import and is not confined to loss of tax. Both the elements must be conjunctively present.”
Relevance. Operative anchor for section 263 revision challenges — the twin-condition test is the universal yardstick for revisionary jurisdiction.
▸ Commissioner of Income-tax v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 ; (2010) 11 SCC 762 (Supreme Court)
Facts. The assessee claimed deduction of interest on borrowings used for investment in shares yielding tax-free dividend. The deduction was disallowed under section 14A. The Department levied penalty under section 271(1)(c) for concealment / inaccurate particulars.
Issue. Whether a mere disallowance of a deduction — without any falsehood in the particulars furnished — attracts penalty under section 271(1)(c).
HELD. Penalty under section 271(1)(c) is not attracted merely because a claim for deduction is disallowed. The assessee's claim must be shown to be false, frivolous, or made without bona fides; mere unsustainability does not amount to concealment or furnishing of inaccurate particulars.
“A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to inaccurate particulars.”
Relevance. Cornerstone authority for resisting penalty under section 271(1)(c) / section 270A — applies to disallowed deductions, transfer-pricing adjustments, head-of-income re-characterisations where a bona-fide claim was made.
CBDT CIRCULARS — ECOSYSTEM
▸ CBDT Circular No. 14(XL-35) of 1955 dated 11 April 1955
Subject. Duty of officers to assist assessees in claiming and securing relief
Substance. Foundational circular directing that the AO should not exploit assessee ignorance to deny legitimate reliefs; officer is required to draw attention to refunds or reliefs to which the assessee is entitled. The circular has been judicially noted in several appellate decisions and remains operative for first-appellate practice.
▸ CBDT Circular No. 549 dated 31 October 1989
Subject. Explanatory notes — Finance Act 1989 amendments (incl. PY unification)
Substance. Explained the FA 1987 / FA 1989 amendments unifying the previous year with the financial year preceding the AY, including transitional provisions for assessees with different accounting years. Useful in any controversy on the timing of accrual / chargeability for early post-1989 AYs.
▸ CBDT Circular No. 5 of 2014 dated 11 February 2014
Subject. Section 14A — dis-allowance even where no exempt income earned (since modulated)
Substance. Initially directed AOs to apply Rule 8D disallowance under section 14A even where no exempt income was earned in the year; subsequently modulated by Cheminvest (Del HC) and Maxopp (SC). FA 2022 amendment to section 14A re-asserted the position but remains under litigation.
▸ CBDT Circular No. 6 of 2019 dated 20 March 2019
Subject. Withdrawal of low-tax-effect appeals — monetary thresholds
Substance. Revised monetary thresholds for departmental appeals — ITAT (Rs 50L), HC (Rs 1 Cr), SC (Rs 2 Cr); subsequently further revised. Operates as a non-statutory limitation on the Revenue's appellate engagement, binding under section 119.
▸ CBDT Circular No. 5 of 2024 dated 15 March 2024
Subject. Procedure for transitional reassessment notices post-Ashish Agarwal / Rajeev Bansal
Substance. Procedural guidance for AOs handling transitional reassessment notices for AYs 2013-14 to 2017-18 affected by Ashish Agarwal and Rajeev Bansal. Sets out the form of section 148A inquiry, time-bar calculation under TOLA, and JAO/FAO jurisdiction in faceless cases.
WORKED EXAMPLES
Illustration — Illustration 1 — Standard 115H application
Facts. Standard scenario invoking section 115H.
Computation.
Operative provision applied per bare-Act framework.
Section 115H invocation; companion-section coordination per Chapter XI - Special Tax Regimes.
Result. Standard framework operative.
Illustration — Illustration 2 — Bona-fide-difficulty defence
Facts. Assessee establishes bona-fide difficulty in section 115H compliance.
Computation.
Document supporting circumstances; section 119(2)(a) CBDT discretion; bona-fide-difficulty mitigation framework.
Result. Mitigation framework available.
Illustration — Illustration 3 — Appeal pathway
Facts. Disputed assessment under section 115H.
Computation.
Section 246A appeal → CIT(A); section 253 ITAT; section 260A HC.
Standard appellate route preserved.
Result. Full appellate framework available.
Illustration — Illustration 4 — Section 264 revision alternative
Facts. Alternative pathway via Commissioner.
Computation.
Section 264 — CIT revisional review; lower-cost alternative to formal appeal.
Result. Revisional alternative available.
Illustration — Illustration 5 — Documentation discipline
Facts. Practitioner discipline for section 115H.
Computation.
Comprehensive documentation: relevant deeds, forms, correspondence, computational working papers.
8-year preservation.
Result. Documentation = defence strength.
PRACTITIONER PLANNING NOTES
■ Comprehensive analysis of section 115H operative scope.
■ Documentation discipline — 8-year preservation.
■ Form / Schedule compliance per applicable framework.
■ Section 119(2)(a) CBDT relief — hardship cases.
■ Section 154 rectification — computational errors.
■ Section 246A appeal — substantive disputes.
■ Section 264 revision — alternative pathway.
■ Article 226 writ — jurisdictional defects.
■ Bona-fide-explanation framework throughout.
■ Reliance Petroproducts ratio for genuine claims.
■ Vatika Township prospectivity protection.
■ Mathuram Agrawal strict-construction defence.
■ KP Varghese purposive interpretation.
■ Time-bar / limitation awareness.
■ Cross-section coordination within chapter.
LITIGATION DEFENCE
■ Mathuram Agrawal — strict construction of penal / charging provisions.
■ Vatika Township — prospective amendments; retrospective treatment disfavoured.
■ KP Varghese — purposive construction within statutory text.
■ Reliance Petroproducts — bona-fide claim disclosed in return is not concealment.
■ Dilip N. Shroff — mens rea / discretion in disclosure framework.
■ Section 246A appeal — comprehensive substantive review.
■ Section 264 revision — alternative pathway.
■ Section 154 rectification — computational corrections.
■ Section 482 CrPC / Article 226 writ — jurisdictional defects.
■ Section 119(2)(a) — CBDT relief in genuine hardship.
■ Documentation 8 years — comprehensive defence file.
■ Cross-reference to companion provisions in chapter.
■ Procedural compliance check at every stage.
■ Time-bar / limitation defence where applicable.
■ Coordination with Department — bona-fide engagement.
■ Expert / professional opinion reliance — Reliance Petroproducts extension.
STEP-BY-STEP PROCEDURE — 15 STEPS
Step 1. Identify operative framework
Determine section 115H application; companion-section coordination.
Step 2. Documentation discipline
Comprehensive documentation collection and indexing.
Step 3. Form / Schedule compliance
Identify applicable Forms; timely filing.
Step 4. Computational working
Working papers reconciled with bare-Act + Rules.
Step 5. Return filing
Section 139 — appropriate return type; verification.
Step 6. Schedule TR / TP
Tax-credit and TP schedules where applicable.
Step 7. Section 143(1) processing
Department processes; intimation analysed.
Step 8. Scrutiny under section 143(2) (if selected)
Comprehensive response preparation.
Step 9. Order receipt + analysis
Quantum analysis + appellate-strategy.
Step 10. Section 154 rectification (if applicable)
Computational errors corrected.
Step 11. Section 246A appeal (if disputed)
CIT(A) → ITAT → HC → SC.
Step 12. Section 264 revision (alternative)
CIT revisional review.
Step 13. Article 226 writ (if jurisdictional defect)
HC supervisory framework.
Step 14. Section 119(2)(a) CBDT relief (if hardship)
Discretionary framework.
Step 15. Documentation 8 years preserved
Comprehensive file maintained.
PRACTITIONER CHECKLIST — 19 ITEMS
PRACTITIONER CHECKLIST
☐ Section 115H operative framework identified.
☐ Documentation collected.
☐ Forms / Schedules identified.
☐ Computational working prepared.
☐ Return filed timely.
☐ Schedule TR / TP completed.
☐ Section 143(1) intimation analysed.
☐ Section 143(2) response (if applicable).
☐ Order received + analysed.
☐ Section 154 rectification (if applicable).
☐ Section 246A appeal (if disputed).
☐ Section 264 revision (alternative).
☐ Article 226 writ (if jurisdictional defect).
☐ Section 119(2)(a) CBDT relief (if hardship).
☐ Documentation 8 years preserved.
☐ PAN-Aadhaar linkage.
☐ DSC active for e-filing.
☐ Bank-account validated.
☐ Coordination + Department communication.
CROSS-REFERENCES (28+)
CROSS-REFERENCES
▸ Section 115H — Operative framework.
▸ Chapter XI - Special Tax Regimes companion sections.
▸ Section 246A — Appeal framework.
▸ Section 253 — ITAT framework.
▸ Section 260A — HC framework.
▸ Section 264 — Revision framework.
▸ Section 154 — Rectification framework.
▸ Section 119(2)(a) — CBDT relief.
▸ Section 281 — Void transfers (companion).
▸ Section 222 — Recovery (companion).
▸ Section 244A — Refund interest.
▸ Income-tax Rules 1962.
▸ CrPC 1973 — Procedural (where applicable).
▸ Indian Evidence Act 1872.
▸ Income-tax Act 2025 — s. 536 saving.
▸ BNS 2023 — Successor to IPC.
▸ Companies Act 2013.
▸ FEMA 1999.
▸ PMLA 2002.
▸ MLI Article 25 — MAP framework.
▸ DTAA framework.
▸ DPDP Act 2023.
▸ Aadhaar Act 2016.
▸ PAN framework (s. 139A).
▸ DSC framework.
▸ E-Verification framework.
▸ GST Acts (companion).
▸ RTI Act 2005 — Disclosure framework.
Case Laws & Commentary
Section 115H — Benefit Under Chapter to be Available in Certain Cases Even After the Assessee Becomes Resident
Chapter XII-A: Special Provisions Relating to Certain Incomes of Non-Residents
1. Statutory Snapshot
Where a person who was an NRI in any previous year becomes assessable as a resident in a subsequent year, he may furnish to the Assessing Officer a declaration in writing along with his return of income under s. 139 for that assessment year, to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to the investment income derived from a foreign exchange asset being an asset referred to in sub-clauses (ii), (iii), (iv) or (v) of s. 115C(f) — i.e., public-company debentures, public-company deposits, Central Government securities and notified assets (note: shares, sub-clause (i), are excluded).
If he does so, the Chapter continues to apply to that income for that assessment year and every subsequent year until the transfer or conversion (otherwise than by transfer) into money of such assets.
Position under the Income-tax Act, 2025 (w.e.f. AY 2027-28):
The continuation-of-benefit rule is re-enacted at s. 217 of the Income-tax Act, 2025 (the express analogue of s. 115H), preserving the written-declaration-with-return mechanism, the restriction to s. 115C(f)(ii)–(v) assets (excluding shares) and the 'until transfer/conversion into money' sunset. (Mapping per the TaxTMI clause-comparison; verify the final numbering in the bare Act, as amended by the Finance Act, 2026.)
2. Commentary
2.1 Purpose — grandfathering a concession for the returning NRI
s. 115H protects the NRI who repatriates and becomes resident: the concessional 20% rate on investment income from qualifying assets continues as if he were still an NRI, until those assets are sold or converted into money. The object is to avoid penalising the act of returning to India in respect of investments already made out of foreign exchange.
2.2 Two strict conditions (Dr. M. Manohar)
The Madras High Court in CIT v. Dr. M. Manohar distilled the section into two conditions: (i) a declaration along with the return for the assessment year in which the assessee first becomes assessable as resident; and (ii) the benefit continues only for income from an asset that retains its character as a 'specified (foreign exchange) asset' under s. 115C(f)(ii)–(v). Once the asset is transferred or converted into money, the benefit ends.
2.3 Shares are excluded; the asset must keep its character
Critically, s. 115H lists only sub-clauses (ii)–(v) of s. 115C(f) — debentures, deposits, Government securities and notified assets. Shares [sub-clause (i)] are not eligible for continuation. Further, the income must be traceable to the same foreign exchange asset; second-generation Indian-source income (e.g., interest on re-deposited interest) is outside the concession, as Dr. M. Manohar held.
2.4 Timing — the first-resident-year declaration
The declaration is filed with the return for the first year of residence. As the relief is elective and tied to that return, a careful, contemporaneous declaration is essential; the benefit then runs forward automatically until the asset is transferred or monetised. Treat the first-resident-year return as the single opportunity to capture the grandfathering.
3. Key Issues / Practice Points
4. Case Laws
Direct, leading authority:
Commissioner of Income Tax v. Dr. M. Manohar
Tax Case (Appeal) No. 759 of 2004 | High Court of Madras | DIRECT decision under Chapter XII-A — the leading s. 115H authority
Facts
Question(s) for determination
Whether interest earned on a deposit made out of interest income (i.e., re-deposited interest) qualifies for the concessional rate under s. 115H as 'investment income derived from a foreign exchange asset', on the footing that it is ultimately traceable to the original foreign-currency-funded deposit.
Rival contentions
Decision & reasoning
The Court read s. 115H as imposing two conditions: (i) the assessee must file a declaration along with the return for the assessment year in which he first becomes assessable as a resident, seeking the benefit; and (ii) the benefit continues only in respect of income derived from a foreign exchange asset falling within the 'specified assets' definition in s. 115C(f)(ii) to (v), and only so long as each asset retains its character as a foreign/specified asset.
On the plain language, the Court held the concessional levy is available only to investment income derived from the foreign exchange asset. The interest on the re-deposited interest had accrued in India and did not acquire the status of an investment made with foreign exchange.
The RBI circular relied on by the assessee was held to have no relevance to the assessee's situation.
Finding the section clear and free from ambiguity, the Court saw no ground to enlarge the concession and confirmed the order of the Tribunal against the assessee.
Ratio decidendi
The s. 115H/115E concession attaches to investment income derived from the original foreign exchange (specified) asset and is not infinitely inheritable; second-generation, Indian-source accretions (interest on interest) fall outside it.
A clear statutory concession is applied on its own terms; a beneficial RBI/administrative circular cannot enlarge the statutory benefit.
Application to this section
This is the leading s. 115H decision. It fixes (i) the procedural condition (declaration with the first-resident-year return), (ii) the substantive condition (income from an asset that retains its s. 115C(f)(ii)–(v) character), and (iii) the boundary that excludes Indian-source accretions such as interest on re-deposited interest from the continued concession.
Practice note: The single most-cited High Court authority on s. 115H. Useful both offensively (to fix the eligible income on becoming resident) and defensively (to resist Revenue attempts to tax non-forex accretions at normal rates only where the income genuinely flows from the forex asset).
Allied / foundational (verify before citing):
Bajaj Tempo Ltd. v. Commissioner of Income Tax
[1992] 196 ITR 188 | Supreme Court of India | FOUNDATIONAL — construction of beneficial / incentive provisions
Facts
Question(s) for determination
How should a provision granting an incentive/exemption, and the conditions limiting it, be construed?
Decision & reasoning
The Supreme Court held that a provision granting an incentive for promoting economic growth and industrialisation should be construed liberally so as to advance the objective of the provision; and that the restrictions/conditions attached to it should be construed so as not to frustrate the purpose, while remaining within the statutory language.
Ratio decidendi
Beneficial provisions receive a liberal, purposive construction; their conditions are not read in a manner that defeats the relief where the assessee is otherwise within the provision.
Application to this section
Supports a purposive reading of the s. 115H continuation where the assessee has substantially complied with the declaration requirement — the condition is not read to defeat a bona fide claim.
Practice note: Supports a purposive reading of the *benefit* limbs of Chapter XII-A (the s. 115F reinvestment conditions and the s. 115H continuation declaration) where there is substantial compliance — balanced, of course, against the strict computation rule in s. 115D.
Sanjay Gala v. Income Tax Officer
ITA No. 2989/Mum./2008 — decided 15 July 2011 | ITAT 'L' Bench, Mumbai (P.M. Jagtap, AM & V. Durga Rao, JM) | DIRECT decision under Chapter XII-A — the leading s. 115C/115F authority
Facts
Question(s) for determination
Whether bonus shares received in respect of original shares (admittedly acquired in convertible foreign exchange) are themselves a 'foreign exchange asset' within s. 115C(b), so as to be eligible for the s. 115F exemption.
Rival contentions
Decision & reasoning
The Tribunal held that the assessee had acquired the original shares by investing convertible foreign exchange, and the bonus shares cannot be considered in isolation from those original shares.
It noted that the Supreme Court and various High Courts have settled the valuation of bonus shares: the cost of acquisition of the original shares is to be spread over both the original and the bonus shares (the averaging method), because on issue of bonus shares the value of the original shares is proportionately diminished — the holding is, in effect, 'split up'. The cost and value of the original and bonus shares are therefore closely interlinked and interdependent, and once bonus shares are issued the averaging formula applies to the whole holding.
Applying that principle, the bonus shares partake of the character of the original (forex-funded) shares and are covered by s. 115C(b) as a foreign exchange asset; they are accordingly eligible for benefit under s. 115F.
The appeal of the assessee was allowed.
Ratio decidendi
The forex character of an original foreign-currency-funded shareholding flows through to bonus shares issued on it; bonus shares are a 'foreign exchange asset' under s. 115C(b) and qualify for s. 115F.
The cost-averaging principle for bonus shares (the Dalmia Investment line of authority) governs both the characterisation of the bonus shares and the quantification of the qualifying gain.
Application to this section
Useful by analogy on which assets 'retain their character' as foreign exchange assets — noting, however, that shares are themselves excluded from s. 115H continuation by the statute (only s. 115C(f)(ii)–(v) assets qualify).
Practice note: The leading authority to defend Chapter XII-A claims on accreted/derivative securities. Retain the original FIRC / contract notes to anchor the forex 'flow-through'.
5. Cross-references
s. 115C(f)(ii)–(v) (eligible assets) • s. 139 (return) • s. 6 (residence) • s. 115E (rate continued) • s. 115-I (alternative — opt out) • Income-tax Act, 2025, s. 217 (analogue).
Standing Disclaimer & Verification Note