Exempt salary received in NRE account not taxable on receipt basis – Calcutta High Court

Exempt salary received in NRE account not taxable on receipt basis merely because the foreign employers remitted salary to the assessee’s NRE bank account in India-Calcutta High Court

ABCAUS Case Law Citation:
ABCAUS 1295 (2017) (07) HC

The Question framed for determination:
“Whether on the facts and in the circumstances of the case and in law, income by way of salary which became due and has accrued to the assessee, a non-resident, for services rendered outside India and which is not chargeable to tax in India on the “due” or “accrual” basis, can be said to be chargeable to tax on the “receipt” basis merely because the foreign employers, on the instructions of the assessee, have remitted a part of amount of salary to the assessee’s NRE bank account in India?”

Important Case Laws Cited/relied upon:
Director of Income-tax (International Taxation) Vs. Prahlad Vijendra Rao

Brief Facts of the Case:
The assessee was a marine engineer During the FY 2009-10, he had received Rs.14,79,598/-, as salary from two concerns, Great Offshore Limited and Bibby Ship Management (Singapore) Pte. Ltd. The assessee had the status of non-resident under Section 6 of the Income Tax Act, 1961 (‘the Act’) and it was received in a Non-Resident (external) bank account, (NRE) account. The appellant, in his return, had not declared this salary.

However, during the scrutiny assessment,  the salary was added to his income.

The appeal of the assessee against the aforesaid addition failed before the CIT(A) and the Income Tax Appellate Tribunal (ITAT) also rejected the contention of the assessee that the said income was exempted, having been received from outside India in foreign currency.

The basic reasoning of the Revenue for including the aforesaid sum to income chargeable to tax was that the said sum was received by him in the NRE account directly from his employers and this constituted receipt of the said sum in India. Revenue’s stand is that the said sum attracts Section 5(2)(a) of the Act.

Contentions of the Petitioner Assessee:
It was contended that the income of the assessee constituted earning outside India while the assessee was an NRI and mere receipt of the said sum in the assessee’s NRE account would not subject it to tax.

Observations made by the High Court:
The Hon’ble High Court noted that the legal position in a similar situation has been clarified by the Ministry of Finance on 11th April 2017 under Circular No. 13/2017.

The Hon’ble High Court concurred with the ratio of the decision of the Karnataka High Court and opined that the interpretation be given to sub Section (b) of Section 5(2) of the Act would also apply to Section 5(2)(a) of the Act. The Circular is clarificatory in nature and is applicable for construing the aforesaid provision for the relevant assessment year. The authorities under the Income Tax Act did not properly apply the provisions of law to the case of the assessee.

Held:
It was held that the Assessing Officer was wrong in adding the aforesaid sum to the income chargeable to tax of the assessee. The appeal was allowed the question framed was answered in favour of the assessee.

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