Salary in NRE account of non-resident seafarer not taxable in India: ITAT

ORDER

Dr. Arjun Lal Saini, Accountant Member – The captioned appeal filed by the assessee, pertaining to assessment year 2012-13, is directed against the order passed by the ld. Commissioner of Income Tax (Appeals)-22, Kolkata, in Appeal No. 11/CIT (A)-22/Kol/12-13/15-16, dated 17.03.2017, which in turn arises out of an order passed by the Assessing Officer u/s. 143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 16.03.2015.

2. Brief facts qua the assessee are that the assessee filed its return of income for assessment year 2011-12 declaring total income of Rs. NIL on 28.05.2012. The assessee’s return of income was selected for scrutiny u/s. 143(2) and the Assessing Officer completed the assessment by making the addition of Rs. 36,96,150/- on account of salary received in India in view of the provisions of section 5(2) (a) of the I.T.Act,1961. The Assessee is a Marine Engineer and was engaged with M/s. OMI Crewing Services during the AY: 2012-13. On perusal of ‘Continuous Discharge Certificate’ it was found by the AO that assessee was on ship ‘M/T Torm Agnes’ of Singapore from 10.05.2011 to 11.11.2011. Assessee vide his submission dated 08.12.2014, 23.02.2015 and 03.03.2015 stated that he was outside India for 187 days on employment and qualifies to be a ‘Non-Resident’. Assessee in his support produced the copy of passport and ‘Continuous Discharge Certificate’ from his employer. However, the AO held that as the assessee is a non-resident, once it is determined that the income is of the nature of salary and it has become due to the assessee, the conditions laid down in Section 15(a) of the Act get fulfilled and it only remains to be seen that whether it falls within the scope of total income as provided in Section 5(2) of the Act. The AO noted that in the case of a non-resident, any income from whatever source derived, is to be included in his total income, if it is received in India (Section 5(2)(a) of the Act). In view of the above, AO held that, salary income of Rs. 36,96,150/- earned by assessee during the A.Y 2012-13, is brought to tax in India in view of provisions of Section 5(2)(a) of the Act.

3. The assessee has raised the following grounds of appeal:

4. Although, in this appeal the assessee has raised the multiple grounds of appeal, but at the time of hearing the main grievance of the assessee has been confined to the issue whether the remuneration received by the assessee in the sum of Rs. 36,69,150/- which was directly remitted from foreign to the NRE account of assessee by the foreign company could be brought to tax in India based on the facts and circumstances of the case.

4.1 The brief facts qua the issue are that the Assessee filed his return of income, showing Income from other sources of Rs. 30,628/-, chapter VI-A deduction of Rs. 1,04,977/- and tax liability of NIL. Further on perusal Schedule ‘S’ of ITR it was found by the AO that the assessee has shown salary of Rs. 36,96,150/- and claimed it exempt u/s. 5 of the Act offering ‘Nil’ salary income to tax. Assessee was asked why the salary is exempt from tax, when it is received in India from its employer. Assessee vide his submission dated 23.02.2015 submitted to the AO stating that the Assessee is a Marine Engineer and was engaged with OMI Crewing Services in the capacity as Marine Engineer. The assessee was paid US Dollar Rs. 73,923/- equivalent to Rs. 36,96,150/- and out of his earning he sent his allotment duly received from the master of the vessel from outside India and remitted to his SB A/c SBI (NRE) A/c No. 0457690828 from time to time. Further he added That the foreign shipping company did not deducted any tax as per their provision or law. As per CDC already filed before AO, the assessee sign on 10.05.2011 and sing off on 11.11.2011 i.e. 185 days and as per passport, assessee was outside India together 187 days and his status was Non-Resident. That is, the entire income duly rendering services from salary received from outside India in US dollar being Non-Resident also not taxable in India u/s. 5 of the Act. However, the AO rejected the submissions of the assessee and made the addition of Rs. 36,96,150/-

4.2 Aggrieved by the order of the assessing Officer, the assessee filed an appeal before the ld Commissioner of Income Tax (Appeals). The assessee argued before the CIT (A) that he was a non-resident and no income was taxable in India as entire service was rendered outside India. It was argued that assessee was under employment of a foreign company and services were rendered outside India and his foreign employer does not have any permanent establishment in India. For the services rendered by the assessee outside India the entire payment of salary was made by the foreign company in US$ and remittance was made to the NRE account of the assessee in India. The assessee claimed that the meaning of the word ‘received in India’ within the meaning of section 5(2)(a) of the Act should be interpreted only in the context of income received in Indian currency in India. There is a 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 company is transferring the money or remitting the money in foreign currency to the assessee who is a non-resident, and the money is being received by the assessee not in India as because the point of payment by the foreign company is in foreign land and the point of receipt by the assessee should be taken from the point of payment. Mere remittance or transfer of the payments by the foreign company in the NRE account of the assessee in India that also in foreign exchange shall not be considered as income received in India and any larger interpretation to the section would render it otiose. However, the ld CIT (A) referred judgements of various High Courts/Tribunals and came on the conclusion that matter was covered against the assessee by the decisions of the Hon’ble ITAT, and therefore he confirmed the addition made by AO.

4.3 The Ld. Counsel for the assessee has submitted, before us, that although the Assessing Officer made the addition stating that in the case of assessee under consideration being non-resident therefore, any income from whatsoever sources derived is to be included in his total income as if it is received in India (Section 5(2)(a) of the Income Tax Act). Whereas the Ld. CIT (A) has dismissed the appeal of the assessee observing that all the decisions of Hon’ble ITAT are against the assessee. But the ld Counsel pointed out before us that neither the Assessing Officer nor the ld CIT (A) was correct in making the addition because they did not consider the CBDT Circular No. 13/2017, which is applicable to them. The Ld. Counsel for the assessee has submitted before us that the CBDT Circular No. 13/2017 wherein it has been clarified that the salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer. The relevant para of the CBDT circular No. 13/2017 reads as under:

“The matter has been examined in the Board Section 5(2)(a) of the Income Tax Act provides that only such income of a non-resident shall be subjected to tax in India that is either received or is deemed to be received in India. It is hereby clarified that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer.”

In addition to this, the Ld. Counsel for the assessee relied on the judgment of the Hon’ble I.T.A.T., Kolkata in the case of Shyamal Gopal Chattopadhyay v. Dy. DIT (IT) [2017] 165 ITD 437 wherein it was held as follows:

“11.2 In the instant case, the employer has directly credited the salary, for services rendered outside India, into the NRE bank account of the seafarer in India. In our considered opinion, the aforesaid Circular is vague in as much as it does not specify as to whether the Circular covers either of the situations or both the situations contemplated above. Hence, we deem it fit to give the benefit of doubt to the assessee by holding that the Circular covers both the situations referred to above. The result of such interpretation of the 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 Hon’ble Apex Court in the case of Commissioner of Customs v. Indian Oil Corporation Ltd. reported in 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 Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the Statute. Accordingly, the grounds raised by the assessee are allowed”.

The ld Counsel pointed out that CBDT Circular are binding on the Income Tax Authorities. That is, when a Circular issued by the Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the Statute.

4.4 On the other hand, the Ld. DR for the Revenue has vehemently submitted that the order passed by the Assessing Officer, is a reasoned order, as it is based on the analysis of various sections of the Income tax Act which are applicable to the assessee under consideration. Therefore, the Ld. DR for the Revenue strongly defended the order passed by the Assessing Officer.

4.5 Having heard the rival submissions, perused the material available on record, we are of the view that CBDT has issued a Circular No. 13/2017 dated 11.04.2017 wherein CBDT has clarified that the salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the salary has been credited in the NRE account maintained with an Indian Bank by the seafarer. It is well settled that the circular issued by the CBDT are binding on the Revenue authority. This position has been confirmed by the Hon’ble Apex Court in the case of Commissioner of Customs v. Indian Oil Corpn. Ltd. [2004] 267 ITR 272  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 Board remains in operation then the revenue is bound by it and cannot be allowed to plead that it is not valid or that it is contrary to the terms of the Statute.

Therefore, based on the CBDT circular and the principles laid down by the hon’ble Supreme Court in the case of Indian Oil Corpn. Ltd. (supra), we are of the view that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the salary has been credited in the NRE account maintained with an Indian Bank by the seafarer, therefore, based on the reasons mentioned above, the grounds raised by the assessee are allowed.

4.6 In the result, the appeal filed by the assessee, is allowed.