2017 (9) TMI 808 - AT - Income Tax

Income accrues or arises in India - Remuneration received directly remitted from foreign to the NRE account of assessee by the foreign company - salary accrued to a non-resident seafarer for services rendered outside India - Held that - Salary accrued to a non-resident seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign flag) shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer. Remittances of salary into NRE Account maintained with an Indian Bank by a seafarer could be of two types (i) Employer directly crediting salary to the NRE Account maintained with an Indian Bank by the seafarer ; (ii) Employer directly crediting salary to the account maintained outside India by the seafarer and the seafarer transferring such money to NRE account maintained by him in India. The latter remittance would be outside the purview of provisions of section 5(2)(a) of the Act as what is remitted is not salary income but a mere transfer of assessee s fund from one bank account to another which does not give rise to Income . It is not clear as to whether the expression merely because used in the Circular refers to the former type of remittance or the latter. To this extent the Circular No. 13/2017 dated 11.4.2017 is vague. In the instant case the employer has directly credited the salary for services rendered outside India into the NRE bank account of the seafarer in India. In our considered opinion the aforesaid Circular is vague in as much as it does not specify as to whether the Circular covers either of the situations or both the situations contemplated above. Hence we deem it fit to give the benefit of doubt to the assessee by holding that the Circular covers both the situations referred to above. The result of such interpretation of the Circular would be that the provisions of Sec.5(2)(a) of the Act is rendered redundant. Be that as it may it is well settled that the Circulars issued by CBDT are binding on the revenue authorities. This position has been confirmed by the Hon ble Apex Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd (2004 (2) TMI 66 - SUPREME COURT OF INDIA ) wherein with regard to binding nature of the Circulars and laid down that when a Circular issued by the Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the statute.- Decided in favour of assessee.

Summary

Issues Involved:

1. Taxability of remuneration received by a non-resident individual in India.
2. Interpretation of Section 5(2)(a) of the Income-tax Act, 1961.
3. Applicability of CBDT Circular No. 13/2017 regarding non-resident seafarers.

Detailed Analysis:

Issue 1: Taxability of Remuneration Received by a Non-Resident Individual in India

The core issue in this appeal is whether the remuneration of ?38,26,820/- received by the non-resident assessee, which was directly remitted from a foreign company to his NRE account in India, is taxable under the Income-tax Act, 1961.

Issue 2: Interpretation of Section 5(2)(a) of the Income-tax Act, 1961

The assessee, a non-resident individual, filed his return electronically declaring total income from salaries and other sources. He claimed that his salary income, received in foreign currency and remitted to his NRE account, should be exempt from tax. The AO, however, contended that the salary received in India should be taxed under Section 5(2)(a) of the Act, which includes income received in India in the total income of a non-resident.

The AO argued that the salary was directly credited to the assessee's bank account in India, making it taxable under Section 5(2)(a). The AO referenced the Supreme Court's interpretation in CIT Vs. L.W. Russel, which emphasized that salary due from an employer is chargeable to tax regardless of the location of payment or services rendered.

Issue 3: Applicability of CBDT Circular No. 13/2017 Regarding Non-Resident Seafarers

The assessee argued that his case is covered by CBDT Circular No. 13/2017, which clarifies that salary accrued to a non-resident seafarer for services rendered outside India on a foreign-going ship shall not be included in total income merely because it is credited to an NRE account in India.

The Tribunal noted the binding nature of CBDT Circulars on revenue authorities, as confirmed by the Supreme Court in Commissioner of Customs vs Indian Oil Corporation Ltd. The Circular states that salary credited to an NRE account for services rendered outside India should not be taxed in India.

Conclusion:

The Tribunal concluded that the salary received by the assessee, a non-resident seafarer, for services rendered outside India should not be included in his total income merely because it was credited to his NRE account in India. The Tribunal allowed the appeal, aligning with the CBDT Circular No. 13/2017 and the precedent set by the Karnataka High Court in Director of Income-tax (International Taxation) Vs. Prahlad Vijendra Rao.

Final Judgment:

The appeal of the assessee is allowed, and the salary income of ?38,26,820/- is not taxable in India under Section 5(2)(a) of the Income-tax Act, 1961, as per the CBDT Circular No. 13/2017.