Facts:
The assessee, an individual, was in employment of a Singapore Company (ESM-S) and worked on merchant vessels and tankers plying on international routes. The assessee’s stay in India in the relevant previous year, was less than 182 days, and so the residential status of the assessee is ‘non-resident’. In the income tax return filed by the assessee, the salary received from ESM-S was not offered to tax on the grounds that his salary income was accruing and arising outside India. As for the salary income being credited to the bank account in India, the assessee’s contention was that the salary income deposited in the bank account in India, directly from the bank account of the company outside India. Thus, it was outside the ambit of section 5(2). However, the Assessing Officer was of the view that the assessee’s explanation could not be accepted for several reasons. One of the reasons is that since the appointment letter was issued by a foreign employer’s agent in India, it is to be deemed that the salary income accrued in India. The Assessing Officer further took note of the fact that the salary cheques were credited to the assessee’s account with HSBC Bank in Mumbai. Hence, the salary of Rs. 13,34,884 received from ESM-S was brought to tax in the hands of the assessee.
Held:
The above issue is analysed in two parts as follows:
1. Whether issuance of an appointment letter gives the assessee the right to receive salary?
Once it is not in dispute that the assessee qualifies to be treated as a ‘non-resident’ u/s. 6, as is the undisputed position in this case, the scope of taxable income in the hands of the assessee is restricted to section 5(2), Therefore, it is only when at least one of the two conditions u/s. 5(2) is fulfilled that the income of a non-resident can be brought to tax in India. In the present case, the services are rendered outside India as crew on merchant vessels and tankers plying on international routes. A salary is compensation for the services rendered by an employee and, therefore, situs of its accrual is the situs of services, for which salary paid, being rendered. It is wholly incorrect to assume that an employee gets the right to receive the salary just by getting the appointment letter. An employee has to render the services to get a right to receive the salary and unless these services are rendered, no such right accrues to the employee. Undoubtedly, if an assessee acquires a right to receive an income, the income is said to have accrued to him even though it may be received later on, it’s being ascertained, but this proposition will be relevant only when the assessee gets a right to receive the income, and, in the present case, the assessee gets his right to receive salary income when he renders the services and not when he simply receives the appointment letter. Thus, the receipt of an appointment letter cannot be the sole basis for deciding situs of accrual of salary.
2. Whether salary amount remitted to bank account in India attracts taxability u/s 5(2)(a)?
The law is trite that the ‘receipt’ of income, for this purpose, refers to the first occasion when the assessee gets the money in his own control – real or constructive. What is material is the receipt of income in its character as income, and not what happens subsequently once the income, in its character as such is received by the assessee or his agent; an income cannot be received twice or on multiple occasions. As the bank statement of the assessee clearly reveals these are US dollar denominated receipts from the foreign employer and credited to non-resident external account maintained by the assessee with HSBC, Mumbai. The assessee was in lawful right to receive these monies, as an employee, at the place of employment, i.e. at the location of its foreign employer, and it is a matter of convenience that the monies were thereafter transferred in India. The connotation of an income having been received and an amount having being received are qualitatively different. The salary amount is received in India in this case but the salary income is received outside India. Thus, when the salary has accrued outside India, and thereafter, by an arrangement, the salary is remitted to India and made available to the employee, it will not constitute as receipt of salary in India by the assessee so as to trigger taxability u/s. 5(2)(a).
