Santhoshkumar Vithal Akka Vs ITO (ITAT Bangalore)
Foreign Salary Credited to an NRE Account: ITAT Rejects Demand for Foreign Tax Returns
In Santhoshkumar Vithal Akka v. ITO, ITA No. 2056/Bang/2025, the Bengaluru Bench of the Income Tax Appellate Tribunal considered whether salary earned by a non-resident working outside India could be taxed in India because it was credited to his NRE bank account. The Assessing Officer and the Dispute Resolution Panel (DRP) had also relied on his failure to provide a foreign tax return, a tax residency certificate and proof of tax paid abroad. The Tribunal rejected that approach and sent the assessment back for a fresh decision.
The case concerns assessment year 2016–17. The order was pronounced on 23 September 2026. Its central question is the source and receipt of the salary in the facts of this employment, rather than whether another country ultimately collected tax on it.
The assessee had filed his original income-tax return as a non-resident. After the case was reopened, he did not file another return in response to the section 148 notice and initially did not answer requests for details. In response to a later show-cause notice, however, he provided documents including bank statements, an interest certificate, an income computation, passport details and payslips.
Why the department added the salary
The Assessing Officer found that salary credited in US dollars to an NRE account had not been declared in the Indian return. He inferred that the assessee worked for a foreign company, but was unwilling to exclude the salary without copies of his foreign tax returns, tax residency certificate (TRC) and proof of foreign tax payment. The Assessing Officer added the salary and a differential amount of interest income in the draft assessment order.
The assessee objected before the DRP. The DRP rejected the objections, citing the missing foreign tax documents. It also considered the salary taxable in India because the employer had paid it into a bank account in India. The Assessing Officer then passed the final assessment order in accordance with those directions.
Before the Tribunal, the assessee maintained that he was non-resident during the relevant year and had performed his employment duties in South Korea. He argued that the material already supplied established his employment abroad and that the absence of foreign filing or tax payment records could not, on its own, make that salary taxable in India.
What the employment documents showed
The Tribunal examined the employment and project records. They showed that Ocean Rig UDW Inc., based in Athens, Greece, had undertaken work connected with a project of Samsung Heavy Industries Co. Ltd. in the Republic of Korea. Under that arrangement, the assessee was identified as the supervisor who would work as an electrician at the Korean project site. The stated assignment ran from September 2014 to 30 June 2016, covering the period relevant to the appeal.
His remuneration was fixed in US dollars. The Tribunal also examined the bank statement showing the salary credits and the passport showing entries for his departures from and arrivals in India. It considered these documents relevant to his claim that he was non-resident and working abroad.
Against that evidence, the Tribunal found the authorities’ insistence on foreign tax documents misplaced. Whether the assessee filed a return or paid tax in another country was not, by itself, a reason to treat the salary as taxable in India. Nor could the absence of a TRC replace an examination of the passport, employment and banking records already furnished.
What the Tribunal actually ordered
Although the Tribunal criticised the basis on which the salary had been added, it did not finally delete the addition. It set aside the assessment order and restored the matter to the Assessing Officer for fresh adjudication. The Assessing Officer was specifically directed to consider the passport entries and NRE account details and decide the issue without insisting on a foreign tax return, TRC or proof that tax had been paid abroad.
The appeal was therefore allowed for statistical purposes. The salary question must be resolved in the fresh proceedings on the evidence and the applicable provisions of the Income-tax Act. The order also mentions an addition for a difference in interest income, but gives no separate analysis or final finding on that item.
Author’s comment
The useful point in this decision is evidentiary. Foreign tax payment is not the test for deciding whether a non-resident’s salary is chargeable to tax in India. The first inquiry is into the person’s residential status, where the employment duties were performed, and the facts concerning receipt of the income. An employer’s location, passport travel history, assignment records, payslips and bank credits may each help answer those questions.
At the same time, an NRE account label and a US dollar credit should not be treated as conclusive on their own. The Tribunal’s direction was to examine the documents and decide afresh. Its criticism was that the authorities had set aside relevant evidence while demanding foreign tax records as a condition for accepting the claim.
There is a factual inconsistency worth checking before relying on the order for the location of foreign tax compliance: the DRP discussion refers to missing proof of tax paid in Congo, while the employment documents examined by the Tribunal describe work in South Korea for a Greece-based company. The ruling’s operative direction remains clear: the Assessing Officer must assess the evidence of residence and employment without making foreign tax filing or payment proof a prerequisite.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the final assessment order dated 16/03/2024 in respect of the A.Y. 2016-17.
2. The brief facts of the case are that the assessee is a non- resident and was reopened on the basis of credible information and notice u/s. 148 was issued. The assessee had not filed his return of income pursuant to the notice issued u/s. 148 of the Act. The AO subsequently issued notices u/s. 142(1) of the Act calling for various details. The assessee had not submitted an y reply. Thereafter a show cause notice was issued and in response the assessee submitted the details of the bank statements, copy of the interest certificate issued by ICICI Bank, computation of income, passport copy and pay slips of the assessee for the period under consideration. Thereafter a draft assessment order was passed. In the draft order, the AO made the observation that the salary income received by the assessee was not declared in his return of income. The AO further observed that the assessee had received the credits into his NRE account in USD and therefore concluded that he is working with a foreign company. The AO further stated that in spite of his employment wit h a foreign company, the assessee has not filed the copy of the Foreign Tax Returns and also not furnished the copy of the TRC and therefore, the AO added the Salary income received to his total income. The AO also added the differential amount in the interest income received.
3. The AO issued the draft order u/s. 144C of the Act since the assessee is an eligible assessee and the assessee filed his objections before the DRP. The Ld. DRP rejected the objections on the ground that the assessee had failed to submit the TRC, foreign tax returns and proof of the payment of taxes in Congo. The Ld. DRP also observed that the salary paid by the employer into a Bank account in India is deemed to arise and accrue in India and should be taxed in India.
4. The AO based on the directions given by the Ld. DRP, had passed the final assessment order by adding the salary and interest as income in the total income.
5. As against the said order, the present appeal has been filed by the assessee before this Tribunal.
6. At th e time of hearing, the Ld.AR submitted that the assessee during the A.Y. is a non-resident and employed in South Korea and also received the salary in USD and credited into the NRE account of the assessee maintained with Axis Bank and therefore, the salary income earned by the assessee as a non- resident is not liable to be taxed under the provisions of the Act. The Ld.AR further submitted that the findings given by the AO as well as the Ld. DRP that the assessee had not furnished the copy of the returns filed in the foreign country and the TRC issued by the foreign country and the tax paid details in the foreign country would not be a reason for treating the salary income earned by the assessee in a foreign country as income taxable under the pro visions of the Income Tax Act. The Ld.AR further submitted that the AO having accepted that the assessee had produced the details vide their submissions dated 30/05/2023 and on that basis, construed that the assessee was working with a foreign company, tr eating the salary received from the said foreign company as income of the assessee and subjecting the same to the provisions of the Act is against the facts of the case and also against the provisions of the Act. The Ld.AR further submitted that all the documents furnished by the assessee would indicate that the assessee was employed in South Korea and received the salary in USD and therefore, the presumption that the income is chargeable to tax under the Act is an arbitrary one and liable to be set aside. The Ld.AR also filed a synopsis and also a paper book enclosing the various documents in support of his claim that the assessee is a non- resident and therefore, the salary income earned by him during that period could not be taxed in India.
7. The Ld. DR submitted that the assessee had failed to furnish the copy of the returns filed in the foreign country, the TRC and the tax paid details and therefore, the authorities below had deemed that the income has accrued in India and therefore, prayed to dismiss the appeal.
8. We have heard the arguments of both sides and perused the materials available on record.
9. We have perused the various documents filed before the AO as well as before us and the said documents would establishes the fact that the assessee was employed in a foreign entity Ocean Rig UDW Inc. based in Athens, Greece. The said company had got a project from Samsung Heavy Industries Co. Ltd., Republic of Korea and pursuant to the agreement entered with them, the Greece company had to depute a Supervisor to supervise the construction of the vessel from September, 2014 to 30th June, 2016. In the said document, it was clearly mentioned that the Supervisor is the assessee who will work as an electrician at the project site at Korea. Pursuant to the said employment, his salary was fixed in the USD and the said amount was credited into the bank account of the assessee maintained with the Axis Bank. The bank statement copy filed by the assessee also vouched the said facts. We have also perused the copy of the passport furnished by the assessee in which several entries were made for the arrival into India and departure of the assessee from India. If the said documents would establishes the fact that the assessee was a non- resident during the relevant period, the question of levying tax on the salary income received by the assessee would not arise. The allegations made by the AO as well as the Ld. DRP that the assessee had not furnished the tax returns filed in foreign country, TRC and the tax paid details could not be taken as a valid reason for disbelieving the submissions made by the assessee. Whether the assessee had paid the tax in the foreign country or not is not a ground for treating the income earned by the assessee as taxable in India. Even though the assessee had furnished all the details before the authorities, they have treated the income asacc rued in India on the ground that the above said documents are not produced before them. We do not think that the said finding is correct when the assessee is able to demonstrate that he was a non- resident during the relevant period. The NRE account also establishes the fact that the assessee had received the salary in USD. In such circumstances, the assessment order passed by the AO is not in accordance with the provisions of the Act.
10. In spite of the fact that the assessee had produced the copy of the passport and the copy of the bank statements, the AO had not considered the same for the only reason that the document such as tax returns, TRC and tax paid details in the foreign country were not produced by the assessee. Already we have observed that the non- filing of the said documents could not be a reason for rejecting the said claim of the assessee when the facts remain that the assessee is a non- resident and earned the income in USD. We, therefore, set aside the assessment order framed by the AO and remitted the same to the file of the AO for fresh adjudication. We also direct the AO to consider the passport entries and the NRE account details and decide the issue based on the said documents without insisting the copy of the tax return filed i n foreign country, TRC and tax paid details in foreign country.
11. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 23rd September, 2026.
