1. Introduction
The view stated in the title of the article (supra) has been expressed by the C- Bench of the C- Bench of the ITAT, Kolkata, in the case of Tarun kumar sarkar v. DY.Director Of Income -3 (1) , Kolkata 2017 Taxpub (DT) 3872 (Kol ‘C’ –Trib): (2017 ) 166 ITD 125 (Kol-Trib).The decision has been picked up for this write –up because the AO’s decision in the case is contry to the CBDT’s Circulars No.13/2017, dt.11-4-2017 and No.17/2017 dt.20-4-2017 issued ofter the assessment.
2.Facts of the case
The assessee,a Marine Engineer by profession , for the AY 2011-12 filed his return of income ,showing an income of Rs.2,09,021 in the status of a ‘non–resident ‘.He was engaged with M/s Mercator Lines Ltd ., Singapore, as a Marine Engineer .During the previous year ,relevant to the AY 2011-12, he was paid a sum of Rs.23,71,727 by the employer company on different dates for his services as a seafarer by credit to his two NRE accounts in india with HSHC Bank. The assessee did not show this amount as income in the return as income in the india filed in the status of a ‘Non-Resident’. The assessee’s case was that this income was received from outside india in foreign currency and,therefore, claimed as exempt.The assessee stated that he used to get his contract to do services with india/foreign shipping company through Indian agent and that contrats were executed in india duly signed by the agent in india and himself before joining the ship. But, he was to float on foreign water to render services during the courses of voyage and accordingly, when he will stay more than 182 days outside india or on foreign water,his residential status will be treated as ‘Non –resident’ as per provision of law and his salary income ,which are received out side india in foreign currency also will not be taxable under section 5 of the Act .The AO accepted the residential status of assessee as non-resident after verification of copy of passport and other details submitted . The assessee claimed that as per provisions of law ,salary income , which is received outside india in foreign issued show cause notice to the assessee as to why the remuneration received in india should not be brought to tax in terms of section 5(2)(a) of the Act. However, before examining the assessee’s defence to the AO’s notice ,it is relevant to examine the provisions of section 5(2)(a) of the Income Tax Act,1961 (Act).
3. Section 5(2)& (b) of the Act
Clauses (a) and (b) of section 5(2) of the Act read as under –
“(2) Subject to the provisions of this Act ,the total income of any previous year of a person , who is a non-resident, includes all income from whatever source derived , which-
(a) is received or is deemed to be received in india in such year by or on behalf of such person ;0
(b) accrues or arises or is deemed to accure or arise to him in india during such year”
Explanation 2 to section 5(2) provides that income,which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in india.
4.Analysis of section 5(2)(a)
From the foregoing extract of section 5(2)(a),it could be seen that section 5 of the Act provides for charge of income tax on accrual or receipt basis . Explanation 2 to section 5(2) provides that if an income has been subject of taxation on accrual basis , it cannot again be taxed on receipt basis. The section ,however , does nit give any indication as to in respect of what income ,the charge shall be on the receipt basis and on what income the charge shall be on accrual basis . Obviously , this would depend on the factual matrix.
5. Appraisal of the Tribunal’s decision
With the above background of legal provisions, the tribunal’s decision can be examined.
(i)AO’s case
According to the AO, the provisions of section 5(2)(a) of the Act state that income from whatever source derived, which is received in india in such year by or on behalf of such person shall be included in the total income of any previous year of such person. He further observed that the said sextion does not mention anything about Indian currency. The section specifically states that any income received or deemed to be received in india taxable in india.He observed that the law states that the income received in india is taxable
In india in all cases (whether accrued in india or elsewhere), irrespective of residential status of the assessee. He also observed that it is significant to know the meaning of income received in india . if the place where the recipient gets the money (on first occasion) under his control ,is in india,it is said be income received in india. In the instant case ,all the income was remitted by the employer to the bank accounts of the assessee maintained in india .therefore, the AO added a sum of Rs .23,71,727 as income chargeable to tax in india. In support of his proposition , he placed of Capt . A.L.Fernandes v. ITO (2002) 81 ITD 203(Mum) (TM) whrerin it was held that teh salary received by the assessee in india was taxable under section 5(2)(a) of teh Act.
(ii)CIT (A)’s decision
The assessee claimed before the CIT (A) that teh AO’s decision is wrong,interalia, on the ground that he was under employment of a foreign company and serevices were rendered outside India. For The services rendered by the assessee outside India ,the entire payment of salary made by the foreign company in US$ and remittance was made to the NRE account of the assessee in india . The meaning of section 5(2) (a) or the Act. Should be interpreted only in the context of income received in india currency in india.There is a distinction between receiving money and transfer of money . The distinction between receiving money and transfer of money.the distinction is that where a foreign company makes payment to the non-resident for services rendered outside india , the foreign currency to the assessee who is a non- resident and the money in foreign received by the assessee not in india as because the point po payment by the company is in foreign land & the point of receipt by the assessee should be taken from the of payment. Mere remittance or transfer of the payments by the foreign co in the NRE account of the assessee in india that also in foreign exchange shall not be considered as income received in india & larger interpretation to the section would render it otiose.
The CIT (A) did not feel convinced with assessee (appellant before him) and confirmed AO’s order . Hence ,the assessee filed appeal before the income tax Appellate Tribunal (Tribunal ,for short,in later discussion).
(iii) Tribunal’s decision
The Tribunals has decided the appeal in favour of the case of the assessee , inter alia , on the following grounds.
(i) Thuogh the third Member’s decision in the case of capt .A.L.Fernandes v. ITO (2002) 81 (Mum) (TM), could be said to support the AO’s case , but More important are the CBDT’s Circulars (infra), which read as under and are binding on the AO’s:-
1st circular
“Section 5 of the act –income- Accrual of –Clarification regarding liability to income tax in india for a non-resident seafarer receiving remuneration in NRE (non –resident external) account maintained with an Indian Bank
Circular NO. 13/2017 (F.No500/07/2017- FT & TR –V) dt 11-4-2017 (as corrected by Circular No 17/2017(F.No 500/07/2017-FT& TR- V) dt.26-4-2017)
Represent have been received in the board that income by way of salary received by non- resident seafarers for services rendered outside india on-board foreign ships,are being subjected to tax in india for the reason that the salary has been received by the seafarer.
2. The matter has been examined in the board. section 5(2)(a) of the Act provides that only such income of a non- resident shall be subjected to tax in india that is either received in india. It is hereby clarified that salary accrued to a non-resident seafarer for services rendered out side india on a foreign going ship (with indian flag or foreign flag) shall not be included in the NRE account maintained with an indian bank by the seafarer".
2nd circular
"section 5 of the act - income -accrual of - clarification regarding liability to income - tax in india for a non-resident seafarer receiving remuneraton in NRE (non-resident external) account with an indian bank - Corrigendum to circular NO.13/2017(F.NO.500/07/2017-FT&TR-V) dt.11-4-2017) Circular NO.17/2017(F.NO.500/07/2017-FT&TR-V) dt. 26-4-2017)
In the 4 of the paragraph No. 2 of the captioned circular, the words "Foreign Ship " may be "foreign going ship (with Indian flag or foreign flag)".
(iv) Final summing up by the tribunal
According to the Tribunal, a perusal of the Circulars reffered to above shows that salary accrued to a non-resident seafarer for services rendered outside india on a foreign going ship (withindian flag or foreign flag) shall not be included in the total income merely because the said salary hsa been crtedited in the NRE account maintained with an indian bank by a seafarer.Remittance of salary into NRE account maintained with an indian Bank by a seafarer could bea two types:
(i) employer directly creditng slary to the NRE account maintained with an Indian bank by the seafarer '
(ii) employer directly creding salary to the account maintained outside India by the seafarer transfering 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 ios 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 is vague.
However, giving the benefit of doubt to the assessee ,the Tribunal has said that inthe case before it, the employer has directly credited the salary for services rendered outside India into the NRE bank account as it does not specify as to whether the circular covers either of the situations contemplated above. Hence, we deem it fit to give the benifit of doubt to the assessee by holding that the circular covers both teh situations referred to above. The result of such interpretation of teh circular would be that the provisions of section 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 Apex Court in the case of Commissioner of Customs v.Indian Oil Corpn .Ltd .2004 Taxpub (DT) 1391 (SC) : (2004) 267 ITR 272 (SC) wherein their Lordships examined the earlier decisions of the Apex Court with regard to binding nature of the circulars and laid down that when a circular issued by the Bourd remains of the circulars issued by the Board remais in operation then the revenue is bound by it and cannot be allowed to plead that it is contrary to the terms of the statute.Accordingly,the grounds raised by the assessee are allowed.Hence the Tribunal allowed the assessee’s appeal.
Logically also,the Tribunals decision seems to be correct The salary accrued to the assessee for services rendered outside territorial waters when his status was that of non- resident, about which there is no dispute .The salary having accrued outside territorial waters, whether he rerceives it so on his behalf should make no difference.If at all, it could only be a technical non-compliance, for which the assessee need not be subjected abroad when it is squarely covered by teh CBDT’s circulars. Hence,it is respectfully said that the Tribunal has reached to a correct conclusion though through a circuitous route.
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