By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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S/s.- 6 – (i) Salary earned outside India cannot be said to accrue in India merely because employment letter is issued in India, or salary is received in India; (ii) ‘non-resident’ cannot be deemed ‘resident’ by applying section 6(5) since it has become redundant since 1989-90.
Facts:
The taxpayer was employed by a Singapore company (“SIngCo”) for working on merchant vessels and tankers plying on international routes. Apart from salary income, he received pension and bank interest. During the relevant year, his stay in India was less than 182 days, and he was a ‘non-resident’, which was not disputed. The taxpayer did not offer the salary received from SingCo for tax since salary income in respect of ship crew is accruing and arising outside India.
The AO noted that the taxpayer got right to receive the salary by receiving the appointment letter and details of salary to be paid; appointment letter was issued by foreign employer’s agent in India; the salary was deposited in bank account in India in US dollars; and hence, the salary was deemed to accrue in India. The AO further referred to section 6(5) and noted that if a taxpayer is resident for one of the sources of income, he is deemed to be resident for all the sources of income. Since the taxpayer was ‘resident’ for pension and interest, his status was ‘resident’ for all sources.
Held:
The Tribunal held as follows.
• An employee has to render the services to get a right to receive the salary and not merely by receiving appointment letter. Salary accrues at the place where services are rendered or performed
• It is wholly incorrect to assume that an employee gets right to receive the salary just by getting the appointment letter.
• If non-resident offers income accruing in India to tax, it cannot be said that he has accepted residential status of a ‘resident’.
• Salary earned abroad cannot be taxed in hands of a non-resident by invoking section 6(5) as section 6(5) has become redundant since 1989-90.
• Receipt of income in India refers to the first occasion when the taxpayer gets money in his control, whether real or constructive.
• Where salary accrued outside India and thereafter, by an arrangement, amount is remitted to India, it will not constitute first receipt in India so as to trigger receipt based taxation u/s. 5(2)(a) of the Act.
