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Shri Tapas Kr. Bandopadhyay Versus Deputy Director of Income-tax, (International Taxation) -3 (1) , Kolkata

2016 (6) TMI 215 - ITAT KOLKATA

Remuneration received directly remitted from foreign to the NRE account - accrual of income - Held that:- The income in the present case did not suffer tax in any other jurisdiction nor was it received in any other tax jurisdiction. The receipt in the NRE account in India is the first point of receipt by the assessee and prior to that it cannot be said that the assessee had control over the funds that had deposited in the NRE account from the employer.

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laganesh, AM This appeal by assessee is arising out of order of CIT(A)-22, Kolkata vide Appeal No. 102/CIT(A)-22/Kol/14-15 dated 02.11.2015. Assessment was framed by DDIT- 3(1) (IT), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 2010-11 vide his order dated 07.02.2013. 2. The only issue to be decided in this appeal of assessee is as to whether the remuneration received by the assessee in the sum of ₹ 14,79,598/- which was directly .....

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er. At the time of assessment proceedings the Ld. AO observed that the assessee worked in International Waters during the FY 2009-10 relevant to AY 2010-11 and received remuneration from two concerns i.e. (i) M/s. Great Offshore Ltd. ₹ 26,73,772/- and (ii) M/s. Bibby Ship Management (Singapore) Pte. Ltd. ₹ 6,60,100/-. Out of the above receipts the assessee claimed following income as exempt: (i) M/s. Great Offshore Ltd. ₹ 20,28,671/- (ii) M/s. Bibby Ship Management (Singapore) .....

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when he will stay more than 182 days outside India or on foreign water, his residential status will be treated as 'Non-resident' as per provision of law and his salary income which are received outside India in foreign currency also will not be taxable u/s 5 of the Act. The Ld. AO accepted the residential status of the assessee as non-resident after verification of copy of passport and other details submitted. The assessee claimed that as per provision of law, salary income, which is rec .....

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a non-resident. The relevant part of Section 5 is reproduced as under. 5(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or… It is therefore apparent that the amount received in India is taxable in India as per the Income-tax Act in case of Non-residents." 5. The ass .....

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de India to my NRE accounts in India with Axis Bank and RBS Bank, thus it is crystal clear that the entire amount of income in US$ were received by me from outside and that income in US$ shall not be deemed to received in India and it is also to be submitted that other than foreign currency any amount could not be deposited in NRE A/c. That therefore the amounts which are credited in my NRE A/cs in India were received outside and being "Non Resident' those income were not taxable U/s 5 .....

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at regarding the assessee s contention that these amounts received in foreign currency is not taxable in India, it is stated that as per section 5(2)(a) of the Act, which deals with the scope of income arising to a Non-resident, any income of a Non-Resident received in India is taxable in India. The section does not mention anything about Indian currency or foreign currency. The section specifically stated that any income received or deemed to be received in India is taxable in India. The only e .....

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ed in India. If the place, where the recipient gets the money (on first occasion) under his control, is in India, it is said to be income received in India. In the instant case all the income was remitted by the employer to the bank accounts of the assessee maintained in India. Therefore, the assessee got the money under its control for the first time in India. Accordingly, the AO added a sum of ₹ 14,79,598/- as income chargeable to tax in India. 7. On first appeal, the assessee argued tha .....

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tance was made to the NRE account of the assessee in India. The assessee claimed that the meaning of the word 'received in India' within the meaning of section 5(2)(a) of the Act should be interpreted only in the context of income received in Indian currency in India. There is a distinction between receiving money and transfer of money. The distinction is that where a foreign company makes payment to the non-resident for services rendered outside India, the foreign company is transferrin .....

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India and any larger interpretation to the section would render it otiose. The various arguments of the assessee were summarized by the Ld. CIT(A) as below: (a) The assessee is a non resident and rendering services outside India. (b) The payments are being made by a foreign company outside India and the foreign company does not have any permanent establishment in India. (c) The point of payment is to be taken into consideration for determining the provisions of clause 5(2)(a) of the Income Tax A .....

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e and therefore income cannot be said to have been received in India where payments have been received in foreign currency. (f) The provisions of Section 5(2)(a) has to be interpreted in the manner that it does not render the section meaningless. If interpretation as made out by the department is adopted, then definitely the section would be otiose and meaningless as because no benefit would be given to the non residents even if all the conditions have been satisfied. (g) The true interpretation .....

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f the case the action of the Ld.ClT(A) to uphold the addition made by the AO of ₹ 1479598/- as income u/s 5(2) (a) of the Income Tax Act is erroneous and contrary to the material facts on record. 2. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to uphold the action of the AO to bring into tax an amount of ₹ 1479598/- by treating it be received in India is based on incorrect assumption of facts and wrong application of law. 3. That on the facts an .....

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hearing and the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing. 9. The Ld. AR reiterated the submissions made before the lower authorities. He argued that the facts in the present case are squarely covered by the following decisions: i) DIT (International Taxation) Anr. Vs. Prahlad Vijendra Rao reported in 239 CTR 107(Kar), ii) CIT Vs. Avtar Singh Wadhwan reported in 247 ITR 260 (Bom) In response to this, the Learned DR argued that as per .....

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first of all, there has to be a source of income (the term 'in India' is not mentioned in the context of such source of income) and then, income from such a source will only get included in the total income of the non-resident person through any of the four modes as described in section 5(2) of the Act. It is evident that all the four modes stand on their own legs, otherwise the enactment will be rendered redundant. Section 5(2)(b) mentions the term 'accrues or arises to him in Indi .....

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39;accrues or arises to him outside India'. This is the reason that the main charging section, i.e. section 4, does not make any reference to the words 'in India' as it has to provide a basis of charge for both - income which is accruing or arising to a person in India as well as income which is accruing and arising to a person outside India. The charging section does not have a territorial bias. This is also the reason that neither does section 4 qualify a person as being resident o .....

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n section 15(a) reflects any locational preference. There is no such preference in section 15(a). Salary can become due to an 'assessee' anywhere in the world. The moot question here is the meaning of the phrase 'due from an employer ... whether paid or not'. This phrase was present in section 7(1) of the 1922 Act also. Hon ble Supreme Court of India had occasion to determine the meaning of this phrase in the case of CIT vs L. W. Russel (1964), 53 ITR 91(SC). Hon'ble Apex Cou .....

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nd nothing else. It has no relation with location or place of services rendered or to where the amount has become "due". Thus, what is important for charging an amount to tax under section 15(a) is whether it is in the nature of salary and whether it has become due to the assessee (whatever may be his status - resident or non-resident) and it has no relation to the place where it has become due. The place where it has become due and the place where service has been rendered do not form .....

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pany in abroad directly to NRE account of the assessee in India. The character of receipt of salary does not change according to Ld. DR. He argued that the receipt contemplated u/s. 5(2)(a) of the Act is actual receipt. Hence, income which is actually received in India is taxable in India u/s. 5(2)(a) of the Act and hence, the Third Member decision relied on by the Ld. CIT(A) is directly in favour of the revenue. When the decisions of both Bombay and Karnataka High Courts were put across to the .....

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re layer to the entire transaction that the assessee had the control over his money in the form of salary income in international waters and for the sake of convenience, he instructed the foreign employer to send the monies to his NRE account in India. It was argued by the assessee that income was actually earned by the assessee outside India and assessee had only brought those amounts into India. In other words, what was brought into India is not the salary income but only the salary amount. Bu .....

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in tax legislation of all countries. We hold that if the argument of the assessee is accepted, then it would make the provisions of section 5(2)(a) of the Act redundant. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat, i.e. to make it workable rather than redundant. From the provisions of section 5(1) of the Act, in the case of a resident, the global income is taxable in India. In case of non-residents, the scope of total income has four mod .....

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ecision of the Hon ble Bombay High Court in the case of CIT vs Avtar Singh Wadhwan reported in 247 ITR 260 (Bom) which was in turn followed by Hon ble Karnataka High Court in the case of DIT (Intl Taxn) vs Prahlad Vijendra Rao reported in 239 CTR 107 (Kar). We find that the question before the Hon ble Bombay High Court was to decide the place of accrual of income. The Court held that the income accrues in the place where the services were rendered which was admittedly outside India. We find that .....

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ssee in India. The question that arises for consideration is can a person receive salary on high seas. The only possibility of receiving salary on board of a ship on high seas is to receive in hot currency. It is not the case of the assessee that the hot currency got deposited in the NRE account. On the other hand, the money was transferred from the employer s account outside India to the assessee s NRE account in India. In such circumstances, it is difficult to accept the contention of the Lear .....

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ceived the pension in India through the Accountant General Madras directly and hence the pension received is liable to tax in India on receipt basis. The first appellate authority found that the pension amount received by the assessee had been subjected to assessment in Malaysia in the status of non-resident and that clearly pointed out that the pension had accrued to the assessee only in Malaysia. It was further held that pension had accrued to assessee only in Malaysia and the Accountant Gener .....

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to tax in Malaya in the status of noncitizen and non-resident would clearly establish that the pension of the assessee had been remitted to India by arrangement with the Accountant General Madras. On further appeal, the Hon ble Madras High Court firstly held that the Malaysian Govt had assessed the assessee to income tax on the pension. The Hon ble High Court also found that the Malaysian Govt had deducted tax at source which clearly indicated that the income had accrued to assessee in Malaysia .....

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the assessee to be made at the nearest treasury and the rate of exchange was also indicated therein. Further the letter also stated that the payment requested to be made was in respect of the pension payable to the assessee and at the rate of exchange indicated therein and the amount so paid, should , according to the letter, be charged to the Govt of Federation of Malaya in the usual manner. Taking note of the contents of the aforesaid letter, the Hon ble Court held that payment in India was o .....

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learly prove that the facts before the Hon ble Madras High Court (supra) are distinguishable from the facts of the present case in as much as the income in the present case did not suffer tax in any other jurisdiction nor was it received in any other tax jurisdiction. The receipt in the NRE account in India is the first point of receipt by the assessee and prior to that it cannot be said that the assessee had control over the funds that had deposited in the NRE account from the employer. 10.4. T .....

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salary is not the relevant criterion but the relevant criterion is the receipt of payment which is admittedly in India. Therefore, we have our own doubts as to the applicability of the decision of High Court in the case of A. P. Kalyankrishnan (supra) to the facts of the present case. 10.5. Now what we are left with is the decision relied upon by the Learned DR on the Third Member decision of Mumbai Tribunal in the case of Captain A. L. Fernandez Vs. ITO reported in 81 ITD 203 (TM ) wherein it .....

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