Salary accrued to non-resident for services rendered outside India not taxable

Salary accrued to non-resident for services rendered outside India not taxable and included in the total income.

ABCAUS Case Law Citation:
ABCAUS 3079 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Utanka Roy vs. DCIT & Others reported in [2017] 390 ITR 109 (Cal)

The instant appeal by the Revenue was directed against the order passed by the Commissioner of Income Tax (Appeals) in deleting the addition made by the Assessing Officer on account of income said to have been received in India for the services rendered outside India.

The assessee had received salary in his NRE account of Bank. The Assessing Officer sought explanation why the said amount was not chargeable to tax.

The assessee explained that his employer, the foreign company had paid the said amount in Euro currency after deducting tax. Further it had been contended that the said salary was received for services rendered outside India and was not chargeable to tax in India.

The Assessing Officer opined that the term ‘received in India’ in section 5(2)(a)(i) of the Income Tax Act, 1961 (the Act) has a literal meaning that total income of a person who is a non-resident shall include any income derived from whatever source if it is received in India.

According to the AO, section 5(2)(b)(iv) of the Act mentioned the term ‘accrues or arises to him in India and there is no specific section in the Act which deals with any income which accrues or arises to any person only in India.

Further the AO was of the opinion that there is no section in the Act which provides for a charge on any income derived from any source on the basis of accruing or arising specifically in India. Therefore according to Assessing Officer, the total income of a person who is non-resident shall include in income derived from whatever source if it is received in India is chargeable to tax under Income Tax Act.

Further, the AO harboured the belief that even if the non-resident renders services outside India if any income accrues or arises to him in India is chargeable to tax under Income Tax Act.

Accordingly, the Assessing Officer added the above said amount to the total income of the assessee vide its order passed u/s 143(3) of the Act.  

On appeal, the CIT(A) observed that the issue was covered by the decision of Hon’ble High Court. He further noted that the CBDT in Circular No.13/2017 dated 11.04.2017 had clarified that where the salary has accrued to a non-resident sea farer for services rendered outside India shall not be included in the total income merely on the ground that the salary has been credited into the NRE account maintained with an Indian Bank by the sea farer.

As a result, the CIT(A), deleted the addition made by the Assessing Officer by observing that the salary received by a non-resident in India for the services rendered outside India is not taxable in India under Income Tax Act 1961.

The Tribunal observed that the Hon’ble High Court had decided the similar issue on same, identical facts by holding that the salary accrued to the non-resident for the services rendered outside India shall not be included in the total income.

Therefore the Tribunal upheld the order of the CIT(A).

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