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Arnab Bose Versus Deputy Commissioner of Income-tax (IT) , Circle-1 (1) , Kolkata

2017 (9) TMI 808 - ITAT KOLKATA

Income accrues or arises in India - Remuneration received directly remitted from foreign to the NRE account of assessee by the foreign company - salary accrued to a non-resident seafarer for services rendered outside India - Held that:- Salary accrued to a non-resident seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign flag) shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with .....

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on 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 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 .....

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ndant. 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 COURT OF INDIA ) wherein with regard to binding nature of the Circulars and laid down that when a Circular issued by the Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not .....

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whether the remuneration received by the assessee in the sum of ₹ 38,26,820/- which was directly remitted from foreign to the NRE account of assessee by the foreign company could be brought to tax in the facts and circumstances of the case. 3. Brief facts of the case are that the assessee is a non-resident individual and for the AY under appeal i.e. 2012-13 return was filed on 24.09.2012 electronically declaring total income of ₹ 35,07,446/- as income from salaries with a residentia .....

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ssessee was paid ₹ 38,26,820/- which was credited in his NRE account after conversion of US dollar in India for which necessary FRC (Foreign Remittance Certificate) from Standard Chartered Bank, Mumbai have been submitted. 4. The assessee stated that the above income was received from outside India in foreign currency and, therefore, claimed as exempt. The assessee stated that he used to get his contract to do service with foreign shipping company. According to the assessee, he has to floa .....

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e 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 lat .....

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d any tax. Assessee also claimed relief of ₹ 3,441,740/- u/s 90/91. Assessee was show caused regarding this and asked proof of payment. Assessee vide his letter dated 11.08.2014 submitted I filed my Income Tax return for the said Assessment Year inadvertently in Form No. 1 instead of Form No. 2 on 24.09.2012 as a result my income of ₹ 35,07,446/- should be claimed as exempt income but it was claimed as deduction for which I request you to condone my mistake and treat Form No. 1 as Fo .....

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d vide order sheet dated 13.03.2015 that Why the salary income received in his Indian Bank Account should not be taxed as per section 5(1)(a) of the Act ; assessee submitted My salary is received from my overseas employer by US dollars which is converted to INR and credited to my NRE account as per RBI Act. I am a crew of foreign going merchant vessel as Captain having Indian Passport. I have stayed in India less than 182 days and so my entire income should be non-taxable as per Act. 6. The AO e .....

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tes the quantum of monthly salary and other perks payable to the assessee during the period of contract. However, the terms & conditions of the contract are entirely silent as regards to the place of payment 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 dispu .....

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39;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 salary earned by the assessee outside India but received it in India at the first instance can be taxed in Ind .....

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the computation of the total income. 8. Section 5 determines the scope of total income which is mentioned in section 4. In the case of a non-resident, total income includes all income from whatever source derived which: a. is received in India [ section 5(2)(a) ], or b. is deemed to be received in India [section 5(2)(a) ], or c. accrues or arises to him in India [ section 5(2)(b) ], or d. is deemed to accrue or arise to him in India [section 5(2)(b) ]. 9· Thus, total income of a non-resi .....

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all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the heads of income 'salaries', 'income from house property', 'profits and gains of business or profession , capital gains' and 'income from other sources'. Thus, any item of income must fall under one of these heads of income in order to be chargeable and for the purpose of computation of total income. 11. In the present case, assessee was not a residen .....

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s 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 c .....

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charge. As section 15(a) is applicable, there can be a mistaken view that if salary has become due to the assessee overseas, it cannot be charged to tax in India on receipt basis. 15· The main point of contention here, apparently, 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 .....

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to claim the same. 16. Thus, as explicitly determined by the Hon'ble Supreme Court, the term due as qualified by the clause whether paid or not is connected with the contractual right of the employee to receive his salary and 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 a .....

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ees, commissions, perquisites or profits in lieu of or in addition to salary or wages within the scope of the term 'salary'. The contract entered into by the assessee with the foreign party clearly suggests that the receipts are 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 h .....

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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 provisions of section 5(2)(a) of the Act. 7. On first appeal, the assessee ar .....

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account of the assessee in India after conversation for which the assessee had obtained necessary FRC. 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 transferring the money or remitting the money in foreign currency to the assessee who is a non-resident, and the money is being received by the assessee not in India as because the poin .....

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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 Act and the point of payment shall be considered as the point of receipt. (d) It is immaterial that the payment is being transferred by the foreign company or remitted by the .....

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terpreted 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 In .....

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0 taxmann.com 238 (Kar.), (ii) CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260/115 Taxman 536 (Bom.) He stated that the issue is now squarely covered in favour of the assessee by the CBDT Circular No. 13/2017 dated 11.4.2017 wherein it has been categorically clarified by CBDT that the subject mentioned receipt is not taxable as income u/s 5(2)(a) of the Act. (iii) Shri Shyamal Gopal Chattopadhyay Vs. DDIT (IT) in ITA No. 67/Kol/2016 for AY 2011-12 dated 02.06.2017 10. In response to this, the Lear .....

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e four modes. This means, 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 nonresident 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 .....

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whatever source which '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 pe .....

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e 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 .....

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se. 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 nonresident) 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 a basis of charge under .....

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assessee that what was brought into India is not the salary income but only the salary amount to India. Moreover, the ld AR had also not brought any material on record to prove that the assessee had the control over his salary income in international waters. He argued that if this argument of the assessee is to be accepted, then the assessee goes scot free from not paying tax anywhere in the world on this salary income. The provisions of section 5(2)(a) of the Act are probably enacted keeping i .....

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sed 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 inc .....

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hereunder:- SECTION 5 OF THE INCOME-TAX ACT, 1961 - INCOME - ACCRUAL OF - CLARIFICATION REGARDING LIABILITY TO INCOME-TAX IN INDIA FOR A NON-RESIDENT SEAFARER RECEIVING REMUNERATION IN NRE (NONRESIDENT EXTERNAL) ACCOUNT MAINTAINED WITH AN INDIAN BANK CIRCULAR NO.13/2017 [F.NO.500/07/2017-FT&TR-V], DATED 11-4-2017 {AS CORRECTED BY CIRCULAR NO. 17/2017 [F.NO.500/07/2017-FT&TR-V], DATED 26- 4-2017} Representations have been received in the Board that income by way of salary, received by non .....

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t salary accrued to a non-resident seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign flag) shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer. SECTION 5 OF THE INCOME-TAX ACT, 1961 - INCOME - ACCRUAL OF - CLARIFICATION REGARDING LIABILITY TO INCOME-TAX IN INDIA FOR A NON-RESIDENT SEAFARER RECEIVING REMUNERATION IN NRE (NONRESIDENT EXTERNAL) ACC .....

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(with Indian flag or foreign flag) shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer. Remittances of salary into NRE Account maintained with an Indian Bank by a seafarer could be of two types : (i) Employer directly crediting salary to the NRE Account maintained with an Indian Bank by the seafarer ; (ii) Employer directly crediting salary to the account maintained outside India by the seaf .....

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s 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 .....

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nature of the Circulars and laid down that when a Circular issued by the Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the statute. Moreover, we note that the similar issue came up for consideration before the Hon ble Calcutta High Court wherein Their Lordships in GA 3745 of 2016 with ITAT 374 of 2016 dated 13.07.2017 in Smt. Sumana Bandyopadhyay & Anr. Vs. The Deputy Director of Income T .....

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