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2017 (9) TMI 808

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..... e transfer of assessee’s fund from one bank account to another which does not give rise to “Income”. It is not clear as to whether the expression “merely because” used in the Circular refers to the former type of remittance or the latter. To this extent the Circular No. 13/2017 dated 11.4.2017 is vague. In the instant case, the employer has directly credited the salary, for services rendered outside India, into the NRE bank account of the seafarer in India. In our considered opinion, the aforesaid Circular is vague in as much as it does not specify as to whether the Circular covers either of the situations or both the situations contemplated above. Hence we deem it fit to give the benefit of doubt to the assessee by holding that the Circular covers both the situations referred to above. The result of such interpretation of the Circular would be that the provisions of Sec.5(2)(a) of the Act is rendered redundant. Be that as it may, it is well settled that the Circulars issued by CBDT are binding on the revenue authorities. This position has been confirmed by the Hon’ble Apex Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd (2004 (2) TMI 66 - SUPREME COUR .....

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..... e India or on foreign water, his residential status need to be treated as 'Non-resident' as per provision of law and so his salary income which are received in the NRE account remitted from outside India in converted foreign currency shall not be exigible to tax u/s 5 of the Act. According to the assessee, the AO accepted the residential status of the assessee as non-resident after verification of copy of passport and other details submitted, however was of the opinion to tax the same since it was credited in the bank account of assessee. The AO issued show cause notice to the assessee as to why the remuneration received in India should not be brought to tax in terms of section 5(2)(a) of the Act. 5. The assessee replied to the show cause notice by stating that he was outside India 185 days for employment and qualifies to be a Non-Resident . But later on vide submission dated 06.03.2015 rectified it to 189 days in place of 185 days. In support of this assessee produce the copy of passport and certificate from his employer before the lower authorities. Assessee also stated that he filed his return of income electronically in ITR-1 showing total income of ₹ 3,441,74 .....

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..... yment of such salary. On perusal of copy of bank statement maintained with HSBC Bank, Main Branch, Kolkata it is observed that the assessee has received whole salary in India by way of remittance by the foreign employer to the assessee's bank account in India. 6. The assessee has not disputed the above facts or at least the assessee has not led any evidence to the contrary. This makes it imperative to note that his salary was not received outside India either by the assessee himself or by anybody else on assessee's behalf, but was received directly in assessee's bank account in India, purportedly in pursuance of some understanding between the assessee and his employer. Thus, the facts are amply clear that the total salary was received in India at the first instance and 'receipt at the first instance' is the first occasion when the assessee gets the money by way of salary under his control and this has happened in the present case of the assessee when the salary was credited into his bank account in India without having to receive the same by himself or on his behalf outside India in any manner. 7. The controversy now boils down as to whether the sala .....

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..... for chargeability of income under this head and its computation, the provisions contained in Chapter IV of the Act shall apply. 12. Section 15 of the Act is the charging section for income under the head salaries . In this regard, the following are regarded as chargeable: i. any salary due to an assessee from an employer in the previous year, whether paid or not; [ section 15(a) ] ii. any salary paid or allowed to an assessee in the previous year by or on behalf of an employer, though not due or before it became due; [section 15(b)] iii. any arrears of salary paid or allowed to an assessee in the previous year if not charged to tax for any earlier previous year. [section 15(c) ] 13 A plain reading of section 15 suggests that salary becomes chargeable on 'due basis', even if it is not paid by the employer. However, it can be charged to tax on receipt basis also but this could be done only in cases where the salary is received before it is due or when it has not become due at all. In the present case, it is not the contention that the salary has been received before it became due or when it is not due at all. 14 In the present .....

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..... e in the nature of salary. There is no dispute as to whether the amount has become due or not - as per the decision of the Hon'ble Supreme Court mentioned supra, an enforceable obligation has arisen in this case. As mentioned above, the place where the salary has become due or the place where service has been rendered has no relevance so far as charging of tax on salary under section 15 is concerned. This is based on a plain reading of the statute and the decision of the Hon'ble Supreme Court cited supra. 18. As the assessee is a non-resident, once it is determined that the income is of the nature of salary and it has become due to the assessee, the conditions laid down in section 15(a) get fulfilled and it only remains to be seen that whether it falls within the scope of total income as provided in section 5(2) of the Act. As mentioned earlier, in the case of a non-resident, any income from whatever source derived, is to be included in his total income if it is received in India ( section 5(2)(a) of the Act ). 21. In view of the above discussion, salary income of ₹ 38,26,820/- earned by assessee during the AY 2012-13 is brought to tax in India in view of .....

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..... ssee from the foreign company is in foreign exchange 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 to the provisions of section 5(2)(a) is that the meaning which is to be adopted for income received or deemed to be received in India, that the payments have been made in India in Indian currency and the recipient of the payments has received the payments in Indian currency. 8. The Ld. CIT(A) not convinced with the arguments of the assessee upheld the addition made by the AO. Aggrieved, assessee is in appeal before us. 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 Tax .....

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..... e 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 or non-resident, nor does the definition of 'person' given in section 2(31) of the Act qualifies it as such. Thus, the charging section does not have a bias based on residency also. It will be shown below that the separate charging sections for each head of income provided in the Act also follow the same scheme as does the main charging section (section 4). It was further argued by the Learned DR that the main point of contention here, is whether the language of the statute as contained in 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 v. L. W. Russel [1964] 53 ITR 91 (SC). Hon'ble .....

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..... uld make the provisions of section 5(2)(a) of the Act itself unworkable and redundant. 11. We have heard the rival submissions and perused the materials available on record. We find that the decision relied upon by the ld DR, was rendered by placing reliance on the Third Member decision of Mumbai Tribunal in the case of Capt. A.L.Fernandes vs ITO reported in (2002) 81 ITD 203 (Mum ) (TM ). This decision clearly lays down that the receipt in India of salary for services rendered on board a ship outside the territorial waters of any country would be sufficient to give the country where it is received the right to tax the said income on receipt basis. Such a provision is found in section 5(2)(a) of the Act which was applied in the aforesaid decision. It is trite that decision of a Third Member would be equivalent to a decision of a Special Bench and thereby would become a binding precedent on the division bench. However, we find that the impugned issue has been duly addressed by the CBDT Circular No. 13/2017 dated 11.4.2017 as rightly relied upon by the ld AR. For the sake of convenience, the said Circular is reproduced hereunder:- SECTION 5 OF THE INCOME-TAX ACT, 1961 - INC .....

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..... the seafarer ; (ii) Employer directly crediting salary to the account maintained outside India by the seafarer and the seafarer transferring such money to NRE account maintained by him in India. The latter remittance would be outside the purview of provisions of section 5(2)(a) of the Act, as what is remitted is not salary income but a mere transfer of assessee s fund from one bank account to another which does not give rise to Income . It is not clear as to whether the expression merely because used in the Circular refers to the former type of remittance or the latter. To this extent the Circular is vague. 11.2. In the instant case, the employer has directly credited the salary, for services rendered outside India, into the NRE bank account of the seafarer in India. In our considered opinion, the aforesaid Circular is vague in as much as it does not specify as to whether the Circular covers either of the situations or both the situations contemplated above. Hence we deem it fit to give the benefit of doubt to the assessee by holding that the Circular covers both the situations referred to above. The result of such interpretation of the Circular would be that the provisions .....

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