Let us take example of a Non Resident Indian who is giving services outside India and receives salary in his NRE account situated in India . The A.O tries to tax such salary on the ground that since salary has been received in India , it should be included in total income of assessee as per section 5(2) of the I t Act. Is the action of A.O correct ?
No, if the salary of a non resident person accrues outside India , such salary is not taxable under I T Act and as such is not includible in total income even if it is received in India later on. The reason is that salary payable is taxable at the place where it accrues. Only exception is salary received in advance which is taxable at the place where it is received.
Case laws to support this view are
1. Ranjit Kumar Bose vs ITO 18 ITD 230
Facts of the case was
The assessee an individual is a non-resident. During the relevant previous year which ended on 31-3-1983 the assessee was in the service of India Steamship Co. Ltd. and Highsea Steamship Co. Ltd. a foreign company based at Singapore. As the assessee was treated as a non-resident for the assessment year 1983-84, salary earned and received by him outside India was not included in his total income. The ITO was, however, of the view that moneys representing salary are received in India is taxable. The convention put forth on behalf of the assessee that the entire salary received from Highsea Steamship Co. Ltd. is to be excluded from the total income of the assessee was not accepted by the ITO. A sum of Rs. 56,000 received as salary from Highsea Steamship Co. Ltd., was included by the ITO in the total income of the assessee. This amount represented salary earned by the assessee outside India but received by him in India during the relevant accounting year from his foreign employer.
The decision by Kolkata Tribunal was
The High Court dismissed the departmental appeal against the order on following grounds
3. ITO vs Abhraham P Abraham ITA No.728/Bang/2010 (ITAT, Banglore)
The assessee is an individual. He is a Marine Engineer by profession and qualification. For the asst.year under challenge, the assessee filed a return of income admitting a total income of Rs.2,68,104/-. The return of income was processed u/s 143(1). The case was selected for scrutiny. In the course of scrutiny assessment proceedings, it was noticed by the Assessing Officer that the assessee was working as a Chief Engineer in a shipping company and he had received salary for the financial year relevant to the asst. year under appeal amounting to Rs.18,96,458/- through his NRE account No.SB/3/72 with Corporation Bank, Indiranagar Branch, Bangalore. Relying on the judgement of the Hon’ble Supreme Court in the case of Raghava Reddy and another v CIT 44 ITR 720 , the Assessing Officer directed the assessee to explain as to why the said amount of Rs.18,96,458/- received by the assessee in India during the financial year relevant to the asst. year under appeal, should not be brought to tax under the provisions of section 5(2) of the Act. 3.1 It was submitted by the assessee that he was an employee of a company engaged in the management of crew and vessels and that his income/salary had accrued outside India and also was received outside India on board the ship belonging to the said company. The Assessing Officer, however, rejected the explanation furnished by the assessee and concluded that the said income fell within the purview of section 5(2) of the Act.
CIT(Appeal) favoured assessee. When department approached , ITAT , Bangalore, it held as under
Facts of the case
Mr Nambiar , a Non Resident in India , worked on board an ocean liner belonging to a Malaysan company. He was paid salary directly on board the ship.However , on his requested ,a certain portion of the salary paid to him abroad the ship was credited through telegraphic transfer by the employer company to be deposited in the assessee’s NRE account in a bank at Banglore.
CIT(Appeal) allowed the case . ITAT Bangore confirmed the decision by relying on its own decision in Prahlad Vijendra Rao case.
No, if the salary of a non resident person accrues outside India , such salary is not taxable under I T Act and as such is not includible in total income even if it is received in India later on. The reason is that salary payable is taxable at the place where it accrues. Only exception is salary received in advance which is taxable at the place where it is received.
Case laws to support this view are
1. Ranjit Kumar Bose vs ITO 18 ITD 230
Facts of the case was
The assessee an individual is a non-resident. During the relevant previous year which ended on 31-3-1983 the assessee was in the service of India Steamship Co. Ltd. and Highsea Steamship Co. Ltd. a foreign company based at Singapore. As the assessee was treated as a non-resident for the assessment year 1983-84, salary earned and received by him outside India was not included in his total income. The ITO was, however, of the view that moneys representing salary are received in India is taxable. The convention put forth on behalf of the assessee that the entire salary received from Highsea Steamship Co. Ltd. is to be excluded from the total income of the assessee was not accepted by the ITO. A sum of Rs. 56,000 received as salary from Highsea Steamship Co. Ltd., was included by the ITO in the total income of the assessee. This amount represented salary earned by the assessee outside India but received by him in India during the relevant accounting year from his foreign employer.
The decision by Kolkata Tribunal was
14. True, in this case, salary income accrued outside India, but was received in India in the same accounting year. It is clear that salary income could not have been brought to tax on accrual basis for the simple reason that it accrued outside India. The provisions of section 5(2) (a) are subject to section 15 which, inter alia, says that salary is chargeable to income-tax on due basis irrespective of the fact whether it has been received or not. So, salary income is not liable to be taxed in India on receipt basis under section 15. We are, therefore, clearly of the view that the salary received in India in this case was not chargeable to income-tax under the head ‘Salaries’ under section 15(a). As has also been pointed out above, this case does not fall either under clause (b) or clause (c) of section 15.2. Prahlad Vijendra Rao in ITA No 1137/Bang/2008 dt 26-06-2009 . The Karnataka High Court dismissed departmental appeal against this order.
The High Court dismissed the departmental appeal against the order on following grounds
- The criteria for applying definition of section 5(2)(b) of the I T Act would be such income which is earned in India for services rendered in India and not otherwise.
- Under section 15 of Act even on accrual basis salary income is taxable i.e it becomes taxable irrespective of the fact whether it is actually received or not only when services rendered in India , it becomes taxable by implications. However, if services are rendered outside India , such income would not be taxable in India.
3. ITO vs Abhraham P Abraham ITA No.728/Bang/2010 (ITAT, Banglore)
The assessee is an individual. He is a Marine Engineer by profession and qualification. For the asst.year under challenge, the assessee filed a return of income admitting a total income of Rs.2,68,104/-. The return of income was processed u/s 143(1). The case was selected for scrutiny. In the course of scrutiny assessment proceedings, it was noticed by the Assessing Officer that the assessee was working as a Chief Engineer in a shipping company and he had received salary for the financial year relevant to the asst. year under appeal amounting to Rs.18,96,458/- through his NRE account No.SB/3/72 with Corporation Bank, Indiranagar Branch, Bangalore. Relying on the judgement of the Hon’ble Supreme Court in the case of Raghava Reddy and another v CIT 44 ITR 720 , the Assessing Officer directed the assessee to explain as to why the said amount of Rs.18,96,458/- received by the assessee in India during the financial year relevant to the asst. year under appeal, should not be brought to tax under the provisions of section 5(2) of the Act. 3.1 It was submitted by the assessee that he was an employee of a company engaged in the management of crew and vessels and that his income/salary had accrued outside India and also was received outside India on board the ship belonging to the said company. The Assessing Officer, however, rejected the explanation furnished by the assessee and concluded that the said income fell within the purview of section 5(2) of the Act.
CIT(Appeal) favoured assessee. When department approached , ITAT , Bangalore, it held as under
8. We have heard the rival submission and perused the material on record. This issue was considered by ITAT, Bangalore ‘B’ Bench in the case of ITO v Mr. Prahlad Vijendra Rao (ITA No.1137/Bang/2008 dated 26.6.2009) and in the case of ITO v Shri Ivan Benn (ITA No.1044/Bang/2009 dated 1/4/2010 = (2010-TII-104-ITAT-BANG-INTL). After considering the facts and applicable law, the Tribunal came to the conclusion that the salary income of the assessee could not be held as accrued or arisen in India u/s 5(2) of the I T Act, 1961. The Tribunal also relied on a decision of ITAT, Calcutta Bench in the case of Ranjit Kumar Bose v ITO reported in 25 TTJ 368 where again it was held that under similar circumstances, the salary would not be taxable.4. ITO (International Taxation) Ward -1(3), Bangalore v. Lohitakshan Nambiar (Bangalore ITAT) (ITA No.1045/ Bang /2009)[2010-TII-201-ITAT-BANG-NRI]
8.1 Following the above orders of the Tribunal, we hold that the salary amount taxed in the hands of the assessee is to be exempted as the said amount cannot be treated as accrued or arisen in India. It is a foreign income in the hands of non-resident and not taxable in India. The CIT(A) is justified in his order.
Facts of the case
Mr Nambiar , a Non Resident in India , worked on board an ocean liner belonging to a Malaysan company. He was paid salary directly on board the ship.However , on his requested ,a certain portion of the salary paid to him abroad the ship was credited through telegraphic transfer by the employer company to be deposited in the assessee’s NRE account in a bank at Banglore.
CIT(Appeal) allowed the case . ITAT Bangore confirmed the decision by relying on its own decision in Prahlad Vijendra Rao case.
Please solve the following query:
ReplyDeleteMr. X, a salaried employee, who was resident of U.S.A. since past 5 years came to India in July 2010 for permanent residence. He earned salary income of $ 50000 in U.S.A & also paid tax thereon in U.S.A. He became a resident of India for the FY 2010-11.
Whether his salary income of U.S.A. should be taxed in india???? & If Yes then would it amounts to double taxation??? & If Yes then what will be the treatment for this salary income??
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