ITAT Mumbai: No Section 69 Addition When Property Investment Explained from Foreign Salary Savings
Tribunal says NRI’s Dubai salary savings used for property purchase cannot be treated as unexplained.
Judgment clarifies law, protects NRIs from arbitrary tax additions on foreign-earned income.
By Our Legal Reporter
New Delhi: December 06, 2025:
In a landmark ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has held that property investments made from foreign salary savings cannot be taxed as unexplained under Section 69 of the Income Tax Act, 1961. The judgment came in the case of Rajnish Kasturchand Ostwal vs. Income Tax Officer (International Taxation), where the assessee, a non-resident Indian (NRI), challenged a ₹2 crore addition made by the Assessing Officer.
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The Tribunal clarified that since the funds were earned abroad, remitted legally into India, and fully explained, they cannot be treated as unexplained investments.
Background of the Case
- The assessee, Rajnish Kasturchand Ostwal, had been living and working in Dubai since 2001.
- In the relevant assessment year (2016–17), he purchased a residential property in India worth ₹2 crore.
- The Assessing Officer reopened the case under Section 147 and added the investment under Section 69 (unexplained investments), alleging that the source was not explained.
- Ostwal argued that the funds came from his foreign salary savings, remitted through his NRE account.
- The Commissioner of Income Tax (Appeals) upheld the addition, leading to an appeal before the ITAT.
ITAT’s Observations
The Tribunal, comprising Judicial Member Amit Shukla and Accountant Member Girish Agrawal, made several key observations:
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- Section 69 cannot override Section 5(2): Income earned outside India by a non-resident is not taxable in India.
- Funds explained: The assessee provided documentary evidence showing remittance from Dubai salary savings.
- No unexplained investment: Since the source was clear and legitimate, Section 69 addition was unjustified.
- Error by authorities: Both the Assessing Officer and CIT(A) failed to appreciate that the funds were foreign income, outside India’s tax scope.
The Tribunal deleted the entire addition, ruling in favour of the assessee.
Why This Judgment Matters
This ruling is significant for several reasons:
- Protects NRIs: Ensures that property purchases funded by foreign income are not wrongly taxed.
- Clarifies law: Reinforces that Section 69 applies only when investments are unexplained.
- Encourages transparency: NRIs can confidently invest in India if funds are remitted legally.
- Reduces litigation: Provides clarity for similar disputes involving foreign-earned income.
Impact on NRIs
For NRIs, the ruling provides major relief:
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- No arbitrary additions: Property investments explained through foreign salary savings are safe.
- Legal remittances protected: Funds transferred via NRE accounts remain outside Section 69 scrutiny.
- Encourages investment: NRIs can invest in Indian real estate without fear of wrongful taxation.
This ruling strengthens India’s appeal as a destination for NRI investments.
Expert Opinions
Tax experts and legal professionals welcomed the judgment.
- Chartered Accountants: Say the ruling clarifies the scope of Section 69.
- Lawyers: Stress that NRIs should maintain proper documentation of remittances.
- Real estate analysts: Believe the ruling will boost NRI confidence in property investments.
According to tax analyst CA Vijayakumar Shetty, “The ITAT has rightly held that Section 69 cannot be invoked when funds are clearly explained as foreign salary savings. This ruling will prevent arbitrary taxation of NRIs.”
Challenges Ahead
While the ruling is positive, challenges remain:
- Documentation: NRIs must maintain clear records of remittances and foreign income.
- Awareness: Many NRIs may not know their rights under Section 5(2).
- Consistency: Other tribunals and courts must adopt similar interpretations to ensure uniformity.
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Experts suggest that the CBDT (Central Board of Direct Taxes) should issue guidelines to prevent misuse of Section 69 against NRIs.
Global Best Practices
Globally, tax systems recognize foreign-earned income of non-residents:
- United States: Non-residents are taxed only on US-sourced income.
- United Kingdom: Overseas income is exempt for non-residents.
- Australia: Foreign salary savings of non-residents are not taxed domestically.
India’s ruling aligns with these practices, strengthening its tax justice framework.
Conclusion
The ITAT Mumbai’s ruling that no Section 69 addition can be made when property investment is explained from foreign salary savings is a milestone in NRI taxation. By clarifying that foreign-earned income remitted legally into India cannot be treated as unexplained, the Tribunal has protected NRIs from arbitrary tax burdens.
For NRIs, this judgment is a reassurance that their investments in India will be respected if properly documented. For authorities, it is a reminder to apply Section 69 judiciously. As India continues to attract global investments, this ruling sets a strong precedent for fairness, clarity, and accountability in taxation.
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