India does not tax income just because an overseas employer sent a salary to an Indian NRE account
Fact and issue of the case
This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax, CIT (IT & TP), Ahmedabad, in proceedingn u/s. 263 vide order dated 31/03/2021 passed for the assessment year 201617.
The assessee has taken the following grounds of appeal
The learned.CIT(IT &, IP) has erred in invoking the provisions of section 263 and 1. Holing that the Assessment Order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue and the same has been passed without application of mind and without proper enquiry and verification of fact, though all the information and explanations required for completing assessment have been furnished and the Assessing Officer has duly verified the same and there is no manifest error in the Assessment Order and the interest of the revenue is not prejudiced. The appellant craves leave to add, amend, alter, edit, delete, modify or change the ground of appeal at the time of or before the hearing of the appeal.
At the outset, we observe that the appeal of the assessee is time-barred by 59 days. However, the counsel for the assessee informed us that the due date of filing of appeal by the assessee was falling in the Covid period, and accordingly, the appeal of the assessee was time-barred in view of the aforesaid circumstances. We observe that the date of communication of the order was 31-03-2021, and accordingly, the period of limitation of filing of appeal was falling within the corona period. Accordingly, in the interest of justice, the delay of 59 days in filing of the present appeal is hereby being condoned.
On merits, the facts of the case are that the assessment order was passed under section 143(3) of the Act on 18-12-2018 accepting the income declared in the return of income filed with the assessee. However, the Principal CIT initiated 263 proceedings by observing that the assessee had filed return of income for assessment in 2016-17 declaring income of 1,16,700/- and assessee had shown 66,70,790/- as exempt income in return of income. Thereafter, the case of the assessee was selected for scrutiny to examine the “claim of large exempt income” claimed by the assessee in the return of income. During the course of assessment, the assessee had given categorisation of this exempt income and submitted that out of total income of 66,70,790/-, a sum of 45,66,800/- is salary income received by the assessee from his employer “Oceaneering International GmbH”. The assessee claimed the said income as “exempt” income because of his non-residential status and the salary earned is for working in international waters. However, the Principal CIT was of the view that the assessing officer did not conduct cogent enquiries during the course of assessment proceedings for the following reasons
TDS has been deducted u/s 192 of the Act by the Mumbai Project Office of the aforesaid company on a TAN registered at Mumbai. Accordingly, it cannot be accepted that payment was made by an overseas company as contended by the assessee.
The AO did not call for details of the offshore sites where the work has been performed by the assessee.
The copy of employment agreement with M/s Oceaneering International GmbH was not called for by the AO (iv) No enquiry was made by the AO whether the location of site/ship was within the territorial waters of Indian subcontinent (v) Perusal of the stamp on the passport of the assessee shows that the assessee was on board “SEAMEC III” on a “coastal run”. This shows that the assessee was not working in international waters during this period.
Accordingly, in the light of the above observations, the Principal CIT held that the order passed by the AO is erroneous and prejudicial to the interests of the revenue and accordingly, set aside the assessment order for de novo consideration.
The assessee is in appeal before us against the aforesaid order passed by the Principal CIT under section 263 of the Act. Before us, the counsel for the assessee submitted that during the course of assessment, the assessing officer had gone into substantial depth while inquiring into this issue and it is not a case where there is any lack of enquiry on the part of the assessing officer during the course of assessment proceedings. The counsel for the assessee drew our attention to page 74 of the paper book, wherein the assessing officer had specifically called for the employment agreement between the assessee had his employer. Further, he drew our attention to the Form 26AS at pages 27-31 of the paper book, i.e. the details of TDS deducted by the employer and submitted that the aforesaid certificates were produced by the assessee before the assessing officer for his review during the course of assessment proceedings. He further submitted that the details of TAN of the assessee’s employer was also submitted before the assessing during the course of assessment proceedings (at page 25 of the paper book). The counsel for the assessee then drew our attention to notice issued under section 142(1) of the Act dated 18-09-2018, wherein the assessing officer specifically enquired into (i) the aspect of reconciliation of TDS deducted as per Form 26AS (ii) the earning of “exempt” income earned by the assessee with documentary evidence (iii) A.O. specifically called for the employment agreement issued by the employer of the assessee (iv) A.O. enquired into the bank statement reflecting the salary credited to the bank account held by the assessee. Thereafter, the counsel for the assessee drew our attention to notice issued under section 142(1) of the Act dated 02-12-2018, wherein the AO asked the assessee to furnish bank statements of bank accounts operated by the assessee in India i.e. NRE/NRO/F CNR/FD/savings accounts etc. Vide the aforesaid notice, the AO also asked the assessee to submit documentary evidence of residential status along with copy of passport, giving details of number of days stayed in India and number of days stayed abroad during the relevant period in terms of section 6 of the Act. Thereafter, the counsel for the assessee drew our attention to pages 45-46 of the paper book, in which the assessee submitted various details to the assessing officer as requisitioned on the inquiries made by the assessing officer. He submitted that at page 48 of the paper book, the employment letter was specifically submitted before the assessing officer during the course of assessment proceedings. Further, at page 52, the assessee had also submitted copy of passport of the assessee, along with travel details for the perusal of the assessing officer. Further, the assessee also furnished before the assessing officer details of number of days for which the assessee stayed in India and the period for which the assessee was outside India. The assessee also furnished the bank accounts to the assessing officer of the assessee for his perusal, during the course of assessment proceedings. Accordingly, the counsel for the assessee submitted that in the instant facts, the assessing officer had made detailed enquiries during the course of assessment proceedings in order to ascertain whether income was “exempt” in the hands of the assessee. Further, the assessee also during the course of assessment proceedings furnished various details to the assessing officer in order to substantiate its stand that the aforesaid income is not taxable in the hands of the assessee. Various information like details of period of the stay of the assessee in India and abroad, employment agreement between the assessee and his employer, TAN number of the employer, Form 26AS giving details of TDS deducted by the employer, copy of the passport of the assessee giving details of travel made by the assessee, copy of the bank statements of the assessee in which salary income was credited etc. were furnished to the assessing officer during the course of assessment proceedings. Accordingly, it was submitted that from the facts of the instant case, it is clear that the Principal CIT has erred in holding that the assessing officer did not make cogent enquiries during the course of assessment proceedings. Further, the counsel for the assessee submitted that the Principal CIT has also erroneously held that various details were omitted to be enquired into by the assessing officer. A perusal of the 142(1) notices issued by the assessing officer clearly shows that all details required for taking an informed view in the matter were called for during the course of assessment proceedings and duly furnished by the assessee. Accordingly, looking into the instant facts, the assessment order is not erroneous and prejudicial to the interests of the Revenue.
In response, the Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order.
Observation of the court
We have heard the rival contentions and perused the material on record. We are of the considered view that in the instant facts, the assessing officer had made detailed enquiries into the claim of the assessee’s income being “exempt” under the Act and the assessee also filed detailed submissions before the assessing officer, duly supported by various documents in support of his claim in the return of income. Accordingly, in our view, Principal CIT erred in holding that the assessing officer had not made cogent enquiries during the course of assessment proceedings. Further, we also observe that the assessee’s facts are supported by various judicial precedents on the subject as well. In the case of Sumana Bandyopadhyay88 taxmann.com 847 (Calcutta), the Calcutta High Court held that salary received by assessee, a non-resident marine engineer, from two foreign employers for services rendered outside India could not be subjected to tax in India merely because foreign employers, on instructions of assessee, had remitted a part of amount of salary to assessee’s NRE bank account in India. In the case of Shyamal Gopal Chattopadhyay 82 taxmann.com 209 (Kolkata – Trib.), the ITAT held that where foreign employer directly credited salary for services rendered outside India into NRE bank account of non-resident seafarer in India, same could not be brought to tax in India in terms of section 5 of the Act. In the case of Arvind Singh Chauhan 42 taxmann.com 285 (Agra – Trib.), the Agra ITAT held that salary received by NRI from foreign company for rendering services outside India as crew on merchant vessels and tankers plying on international routes, is not taxable in India merely because said salary was remitted to India from foreign bank account to NRE bank account of assessee in India. In the case of Asim Kumar Bera 85 taxmann.com 275 (Kolkata – Trib.), the Calcutta ITAT held that salary accruing to a nonresident seafarer for services rendered outside India on a foreign ship shall not be included in total income merely because salary has been credited in NRE account maintained with an Indian Bank by seafarer. Accordingly, in our view, it is a well settled proposition that simply because the overseas employer paid salary into NRE account of the assessee in India, would by itself, not imply that the income is taxable in India. Further, the fact that TDS was deducted by the project office of the overseas company in India, using TAN registered at Mumbai, India also is not a determinative factor in ascertaining whether a person/the assessee was a non-resident or not and whether his income was exempt “from Taxation in India”. Accordingly, in our view, the order passed by the assessing officer is not erroneous and prejudicial to the interests of the Revenue for the reason firstly, the assessing officer had made detailed enquiries on the aspect of “exempt” income during the course of assessment proceedings, to which the assessee had also filed detailed replies, duly supported by various documents and secondly, the view taken by the assessing officer cannot be held to be an erroneous view or a view which is legally implausible, since the view/ facts of the assessee are supported by various judicial precedents on this issue, as highlighted above.
Accordingly, we are setting aside the order passed by the Principal CIT passed under section 263 of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 12-05-2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee