A division bench of the Calcutta High Court in Smt. Sumana Bandyopadhyay & Anr v. DCIT (Int. Taxation), held that salary which became due and has accrued to a non-resident, for services rendered outside India and which is not chargeable to tax in India on the “due” or “accrual” basis, cannot 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.
The appellant, a marine engineer, received salary from his two employers in his NRE Account. The department took a view that the sum so received must be included to the taxable income of the assessee since it was received by him in the NRE account directly from his employers and this constituted receipt of the said sum in India. According to them, the said sum attracts Section 5(2)(a) of the Income Tax Act.
The assessee maintained that the income 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 to tax under the Income Tax Act.
The bench relied on the departmental circular dated 11.04.2017 clarifying that the salary of a non-resident seafarer on account of services rendered outside India in a foreign ship is not taxable in India merely for the reason that the salary has been deposited in the NRE account.
Concurring with the ratio of the decision of the Karnataka High Court in the case of Director of Income-tax (International Taxation) Vs. Prahlad Vijendra Rao, the bench allowed the appeal and said that “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. In our opinion the authorities under the Income Tax Act did not properly apply the provisions of law to the case of the assessee. We are of the view that the Assessing Officer was wrong in adding the aforesaid sum to the income chargeable to tax of the assessee for the relevant assessment year.”
Read the full text of the Judgment below.
