2023 (11) TMI 123 - AT - Income Tax

Income deemed to accrue or arise in India - Salary receipts filled under NRI status - remuneration to the assessee was received in Nigeria but directly credited to his NRE account in India - assessee being a non-resident and engaged in on-shore projects has requested his employer in Nigeria to transfer the salaries to his NRE account in India to meet his family commitments - Ld. DRP concluded that the Ld. AO is absolutely correct in invoking the provisions of section 5(2)(a) - HELD THAT - The assessee is employed in Nigeria is not disputed by the revenue. Since the salary is received by the assessee in NRE account in India, it cannot be considered as income in India, as services were rendered onshore by the assessee, the salary cannot be considered as accrued or deemed to accrue to the assessee in India and hence the provisions of section 5(2)(a) of the Act cannot be applied. From the bare reading of Section 9(1)(ii) salary shall be deemed to accrue or arise in India and shall be regarded as income earned in India, only when services are rendered in India. We find that there is merit in the argument of the Ld. AR wherein the CBDT Circular No. 13/2017 shall be applied to the assessee who is working on-shore and merely because of the use of the word seafarer in the Circular the benefit to the assessee cannot be denied. The clarification given by the Ministry of Finance in Circular No. 13/2017 is to mitigate the hardships faced by the assessees where a non-resident received his salary in the NRE account maintained with an Indian Bank, since conditions of his employment are not restricted to a single place but either in the ships or in the onshore projects elsewhere. We are therefore of the considered opinion that this beneficial Circular No. 13/2017 of the CBDT shall be applied to the instant case. Considering the above facts and circumstances of the case, we are inclined to quash the directions of the Ld. DRP and allow the grounds raised by the assessee.

Summary

Issues:
The judgment involves the interpretation of provisions related to taxation of salary income received by a non-resident individual in India, specifically focusing on whether such income is taxable in India when services are rendered outside the country.

Facts:
The assessee, a non-resident individual, filed his return of income admitting a total income and claimed exemption under section 54EC of the Act. The Assessing Officer (AO) observed discrepancies in the sale consideration of properties and assessed the difference under section 50C. Subsequently, the AO issued a notice under section 148, and the assessee filed a revised return claiming exempt income. The AO disallowed the exempt income under the head of salaries, invoking section 5(2)(a) of the Act. The Dispute Resolution Panel (DRP) upheld the AO's decision, stating that the income received in the NRE account in India should be taxed. The assessee appealed against the DRP's directions.

Arguments:
The assessee argued that as a non-resident engaged in on-shore projects, his salary received in India should not be taxable as per CBDT Circular No. 13 of 2017. The revenue authorities contended that the circular was not applicable to the assessee and supported the DRP's directions.

Judgment:
The tribunal considered that the salary was received in the NRE account in India, but services were rendered onshore in Nigeria. Referring to section 9(1)(ii) of the Act, the tribunal concluded that the salary cannot be deemed to accrue or arise in India as services were not rendered in India. The tribunal also applied the CBDT Circular No. 13/2017, intended to benefit non-residents receiving salaries in Indian accounts for work done outside India. Therefore, the tribunal quashed the DRP's directions and allowed the assessee's appeal.

Outcome:
The tribunal allowed the appeal of the assessee, holding that the salary income received in the NRE account in India for services rendered outside India is not taxable in India. The judgment was pronounced on 31st October 2023.