17 Section 5(2)(a) of the Act – Benefit of Circular 13/2017 regarding non-taxability of remuneration received by non-resident in NRE account available also where such income was received for the first time in India; hence, such income was not taxable under the Act.

TS-219-ITAT-2017(Kol)

Shyamal Gopal Chattopadhyay vs. DDIT

A.Y.: 2011-12, Date of Order: 2^nd June, 2017

Facts

Taxpayer, a non-resident individual, was a marine engineer
employed by a Hongkong shipping company (HCo). During the year under
consideration, Taxpayer was a non-resident. Taxpayer received remuneration in
foreign currency from HCo which was directly remitted to the NRE account in
India of the Taxpayer.

Taxpayer argued that salary income for services rendered
outside India is not taxable under the Act. Furthe, since salary was received
outside India in foreign currency and remitted to NRE account, it was not
taxable in India u/s.5 of the Act on receipt basis.

Relying on the decision of the Mumbai Tribunal in the case of
Capt. A. L. Fernandes vs. ITO [81 ITD 203], AO observed that if the
place where the recipient gets the money (on first occasion) under his control,
is in India, such income is to be considered as received in India. According to
AO, since the income was remitted by the employer of the Taxpayer to his bank
account in India, the Taxpayer had control over the money for the first time in
India. Therefore, AO held that such income was received in India.

Taxpayer appealed before CIT(A), who upheld the order of AO.
Aggrieved by the order of CIT(A), Taxpayer appealed before the Tribunal.

Held

–   In terms of Circular 13/2017 dated
11.04.2017, salary accrued to a non-resident seafarer for services rendered
outside India on a foreign going ship (with Indian flag or foreign flag) is not
to be included in the total income merely because such salary is credited in
the Non-resident rupee (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:

–   Situation 1: employer directly crediting
salary to the NRE Account maintained with an Indian Bank by the seafarer;

–   Situation 2: 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.

–   Credit to account outside India and
subsequent transfer to NRE account would be outside the purview of provisions
of section 5(2)(a) of the Act, as what is remitted is not “salary
income” but mere transfer of Taxpayer’s own funds from one bank account to
another which does not give rise to “Income”.

–   In the present case, the employer has
directly credited the salary, for services rendered outside India, into NRE
bank account of the seafarer in India.

–   Circular 13/2017 is vague. It is not clear
whether the expression “merely because” used in the Circular refers
to direct credit to NRE account or transfer of funds to the NRE account and
whether or not it covers both types of credits to NRE account.

–   Accordingly, benefit of doubt should be given
to the Taxpayer by interpreting the Circular as covering both the situations.

–   Though such an interpretation of the Circular
would make provisions of section 5(2)(a) of the Act redundant, such
interpretation is binding on the revenue. Reliance in this regard was placed on
SC decision in the case of Indian Oil Corporation, wherein it was held that
when a circular is in operation then the revenue will be bound by it. Revenue
then cannot plead that the circular is not valid or contrary to the provisions
of the statute.

–   Thus salary income received in NRE account
was not taxable in India.