Salary Earned Outside India Not Taxable as Deposit in NRE Account Does Not Amount to Receipt of Salary in India: ITAT [Read Order]
ITAT held that salary earned outside India by non-resident is not taxable in India
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, held that salary earned outside India by a non-resident is not taxable in India because it is credited to a Non-Resident External (NRE) account in India, observing that such deposit does not constitute receipt of salary in India.
The appellant, Kaushal Ganpatbhai Patel, a non-resident, filed an appeal against the order passed by the Assessing Officer (AO) for Assessment Year (AY) 2019–20, wherein the AO treated the salary earned outside India and credited to the appellant’s NRE account amounting ₹44,24,000 as taxable in India under Section 5(2)(a) of the IncomeTax Act, 1961
The AO also made additions towards unexplained investment in foreign currency amounting to ₹42,81,762 and unexplained money deposited in the bank account amounting to ₹1,00,34,419.
The counsel for the appellant, Dhinal Shah, contended that the salary was earned for services rendered outside India and had accrued outside India. It was submitted that the credit of the salary in the NRE account was a remittance of income already received outside India and could not be treated as receipt of income in India.
The Revenue Department, represented by Rameshwar P Meena, contended that the salary was credited to the NRE account maintained in India and it amounted to income received in India and was therefore taxable under Section 5(2)(a) of the Act.
Sanjay Garg, Judicial Member, and Annapurna Gupta, Accountant Member, relied on the decision of the Tribunal in Arvind Singh Chauhan vs. Income Tax Officer, where it was held that receipt of income refers to the first occasion when the assessee obtains control over the money.
The Tribunal noted that where salary accrues outside India and is subsequently remitted to India. The deposit of such an amount in an NRE account is an application of income already received outside India and does not constitute receipt of income in India.
In light of facts and circumstances, the Tribunal held that the salary amounting to ₹44,24,000 received in the NRE account did not amount to receipt of salary income in India and therefore could not be taxed under Section 5(2)(a) of the Act.
The Tribunal further directed deletion of additions relating to purchase of foreign currency amounting to ₹42,81,762 and deposits in bank account amounting to ₹1,00,34,419 since these additions were primarily made on the basis of treating the salary as taxable income.
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