Mere payment of salary into NRE account does not make income is taxable in India – ITAT

Simply because the overseas employer paid salary into NRE account of the assessee in India, would by itself, not imply that the income is taxable in India

In a recent judgment ITAT has held that only because the overseas employer paid salary into NRE account of the assessee in India, it would not imply that the income is taxable in India.

ABCAUS Case Law Citation:
ABCAUS 3773 (2023) (06) ITAT

Important Case Laws relied upon:
Smt. Sumana Bandyopadhyay 
Shyamal Gopal Chattopadhyay 
Arvind Singh Chauhan 
Asim Kumar Bera 

In the instant case, the assessee had challenged the revisionary order passed u/s 263 of the Income Tax Act, 1961 (the Act) by the Commissioner of Income Tax (CIT).

The assessment order was passed under section 143(3) of the Act accepting the income declared in the return of income filed with the assessee. The case of the assessee was selected for scrutiny to examine the “claim of large exempt income” claimed by the assessee in the return of income.

The assessee submitted that out of total income salary income was received by the assessee from his foreign employer. The assessee claimed the said income as “exempt” income because of his non-residential status and the salary earned is for working in international waters.

However, the Principal CIT was of the view that the assessing officer did not conduct cogent enquiries during the course of the assessment proceedings for the following reasons:

TDS has been deducted u/s 192 of the Act by the Mumbai Project Office of the aforesaid company on a TAN registered at Mumbai. Accordingly, it cannot be accepted that payment was made by an overseas company as contended by the assessee. The AO did not call for details of the offshore sites where the work has been performed by the assessee. The copy of employment agreement was not called for by the Assessing Officer (AO). No enquiry was made by the AO whether the location of site/ship was within the territorial waters of Indian subcontinent. Stamp on the passport of the assessee showed that the ship the assessee was on board was on a “coastal run”.

The above facts showed that the assessee was not working in international waters during this period.

In the light of the above observations, the Principal CIT held that the order passed by the AO is erroneous and prejudicial to the interests of the revenue and accordingly, set aside the assessment order for de novo consideration.

Before the Tribunal, the assessee submitted that during the course of assessment, the assessing officer had gone into substantial depth while inquiring into this issue and it is not a case where there is any lack of enquiry That the assessing officer had specifically called for the employment agreement, the TDS certificates were produced by the assessee before the assessing officer for his review, details of TAN of the assessee’s employer was also submitted before the assessing officer. That the AO specifically enquired into the aspect of reconciliation of TDS deducted as per Form 26AS and the earning of “exempt” income earned by the assessee.

It was further submitted that the AO asked the assessee to furnish bank statements of bank accounts operated by the assessee in India i.e. NRE/NRO/F CNR/FD/savings accounts etc. and also asked the assessee to submit documentary evidence of residential status along with copy of passport, giving details of number of days stayed in India and number of days stayed abroad during the relevant period in terms of section 6 of the Act.

The Tribunal opined that the assessing officer had made detailed enquiries into the claim of the assessee’s income being “exempt” under the Act and the assessee also filed detailed submissions before the assessing officer, duly supported by various documents in support of his claim in the return of income. Therefore, the Principal CIT erred in holding that the assessing officer had not made cogent enquiries during the course of assessment proceedings.

Further, the ITAT observed that the assessee’s facts are supported by various judicial precedents on the subject as well.

The Hon’ble High Court had held that held that salary received by assessee, a non-resident marine engineer, from two foreign employers for services rendered outside India could not be subjected to tax in India merely because foreign employers, on instructions of assessee, had remitted a part of amount of salary to assessee’s NRE bank account in India.

The Co-ordinate Bench of ITAT had held that where foreign employer directly credited salary for services rendered outside India into NRE bank account of non-resident seafarer in India, same could not be brought to tax in India in terms of section 5 of the Act.

Another Bench of the ITAT had held that salary received by NRI from foreign company for rendering services outside India as crew on merchant vessels and tankers plying on international routes, is not taxable in India merely because said salary was remitted to India from foreign bank account to NRE bank account of assessee in India.

Another Bench of ITAT had held that salary accruing to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in total income merely because salary has been credited in NRE account maintained with an Indian Bank by seafarer.

The Tribunal stated that it is a well settled proposition that simply because the overseas employer paid salary into NRE account of the assessee in India, would by itself, not imply that the income is taxable in India. Further, the fact that TDS was deducted by the project office of the overseas company in India, using TAN registered at Mumbai, India also is not a determinative factor in ascertaining whether a person/the assessee was a non-resident or not and whether his income was exempt “from Taxation in India”.

Accordingly, the Tribunal held that the order passed by the assessing officer was not erroneous and prejudicial to the interests of the Revenue for the reason firstly, the assessing officer had made detailed enquiries and secondly, the view taken by the assessing officer cannot be held to be an erroneous view or a view which is legally implausible, since the view/ facts of the assessee are supported by various judicial precedents on this issue.

Accordingly, the Tribunal set aside the order of the Principal CIT passed under section 263 of the Act and allowed the appeal of the assessee.

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