Case Law Details
Arnab Bose Vs DCIT (ITAT Kolkata)
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 Sec.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 vs 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. Moreover, we note that the similar issue came up for consideration before the Hon’ble Calcutta High Court wherein Their Lordships in GA 3745 of 2016 with ITAT 374 of 2016 dated 13.07.2017 in Smt. Sumana Bandyopadhyay & Anr. Vs. The Deputy Director of Income Tax (International Taxation 3(1) admitted the appeal on 11.07.2017 on the following question:
“Whether on the facts and in the circumstances of the case and in law, income by way of salary which became due and has accrued to the assessee, a non-resident, for services rendered outside India and which is not chargeable to tax in India on the “due” or “accrual” basis, can be said to be chargeable to tax on the “receipt” basis merely because the foreign employers, on the instructions of the assessee, have remitted a part of amount of salary to the assessee’s NRE bank account in India?”
While adjudicating the issue, Their Lordships taking note of the Circular No. 13/2017, supra and the Karnataka High Court’s judgement in Director of Income-tax (International Taxation) Vs. Prahlad Vijendra Rao (IT Appeal No. 833 of 2009) held as under:
“6. We concur with the ratio of the decision of the Karnataka High Court and in our opinion the interpretation be given to sub section (b) of Section 5(2) of the Act would also apply to Section 5(2)(a) of the Act. The Circular is clarificatory in nature and is applicable for construing the aforesaid provision for the relevant assessment year. In our opinion the authorities under the Income Tax Act did not properly apply the provisions of law to the case of the assessee. We are of the view that the Assessing Officer was wrong in adding the aforesaid sum to the income chargeable to tax of the assessee for the relevant assessment year. We accordingly allow the appeal and answer the question framed by us in favour of the assessee.”
Accordingly, the ground raised by the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of Ld. CIT(A)-22, Kolkata dated 24.11.2015 for AY 2012-13.
2. The only issue to be decided in this appeal of assessee is as to whether the remuneration received by the assessee in the sum of Rs.38,26,820/- which was directly remitted from foreign to the NRE account of assessee by the foreign company could be brought to tax in the facts and circumstances of the case.
3. Brief facts of the case are that the assessee is a non-resident individual and for the AY under appeal i.e. 2012-13 return was filed on 24.09.2012 electronically declaring total income of Rs.35,07,446/- as income from salaries with a residential status as NRE along with other source of income Rs.34,298/- totaling Rs.35,41,744/- less Rs.100,000/- as deduction u/s. 80C of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) total non-taxable income being Rs.34,41,740/- in form no. 1 instead of form no. 2 and claimed as relief u/s. 90/91 of the Act for Rs.34,41,740/- as relief instead of exemption. The assessee is engaged for his service as Captain of the ship in a Foreign Shipping company (Crew). The assessee was paid Rs.38,26,820/- which was credited in his NRE account after conversion of US dollar in India for which necessary FRC (Foreign Remittance Certificate) from Standard Chartered Bank, Mumbai have been submitted.
4. The assessee stated that the above 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 service with foreign shipping company. According to the assessee, he has to float on foreign water to render services during the course of voyage and accordingly when he was staying for more than 182 days outside India or on foreign water, his residential status need to be treated as ‘Non-resident’ as per provision of law and so his salary income which are received in the NRE account remitted from outside India in converted foreign currency shall not be exigible to tax u/s 5 of the Act. According to the assessee, the AO accepted the residential status of the assessee as non-resident after verification of copy of passport and other details submitted, however was of the opinion to tax the same since it was credited in the bank account of assessee. The AO 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.
5. The assessee replied to the show cause notice by stating that he was outside India 185 days for employment and qualifies to be a “Non-Resident”. But later on vide submission dated 06.03.2015 rectified it to 189 days in place of 185 days. In support of this assessee produce the copy of passport and certificate from his employer before the lower authorities. Assessee also stated that he filed his return of income electronically in ITR-1 showing total income of Rs. 3,441,740/- that include income from salary of Rs. 3,507,446/- and income from other sources of Rs. 34,298/-. Assessee has shown tax payable of ‘Nil’ and has not paid any tax. Assessee also claimed relief of Rs. 3,441,740/- u/s 90/91. Assessee was show caused regarding this and asked proof of payment. Assessee vide his letter dated 11.08.2014 submitted “I filed my Income Tax return for the said Assessment Year inadvertently in Form No. 1 instead of Form No. 2 on 24.09.2012 as a result my income of Rs. 35,07,446/- should be claimed as exempt income but it was claimed as deduction for which I request you to condone my mistake and treat Form No. 1 as Form No. 2.” From the aforesaid submission, the AO observed that it is proved that assessee has not paid any tax outside India in any other country and not eligible to get relief u/s 90/91 of the Act. Further Assessee was show caused vide letter dated 20.02.2015 asking why the salary income received in India should not be taxed as per section 5(1)(a) of the Act along with other queries. Assessee did not file any submission on this issue in his letter dated 06.03.2015. Consequently assessee was asked vide order sheet dated 13.03.2015 that “Why the salary income received in his Indian Bank Account should not be taxed as per section 5(1)(a) of the Act”; assessee submitted “My salary is received from my overseas employer by US dollars which is converted to INR and credited to my NRE account as per RBI Act. I am a crew of foreign going merchant vessel as Captain having Indian Passport. I have stayed in India less than 182 days and so my entire income should be non-taxable as per Act.”
6. The AO examined the reply of the assessee and observed as under:
“5. Reply submitted by the assessee is duly considered. However, assessee failed to apprise the issue taxability of his salary in India was being questioned on the basis of ‘received in India’ not on the basis accrued in India.’ There is no dispute that during the assessment year 2012-13, the assessee was a non-resident engaged under a contract of employment signed with M/s MOL Manning Services S.A.(Panama). The contract stipulates the quantum of monthly salary and other perks payable to the assessee during the period of contract. However, the terms & conditions of the contract are entirely silent as regards to the place of payment of such salary. On perusal of copy of bank statement maintained with HSBC Bank, Main Branch, Kolkata it is observed that the assessee has received whole salary in India by way of remittance by the foreign employer to the assessee’s bank account in India.
6. The assessee has not disputed the above facts or at least the assessee has not led any evidence to the contrary. This makes it imperative to note that his salary was not received outside India either by the assessee himself or by anybody else on assessee’s behalf, but was received directly in assessee’s bank account in India, purportedly in pursuance of some understanding between the assessee and his employer. Thus, the facts are amply clear that the total salary was received in India at the first instance and ‘receipt at the first instance’ is the first occasion when the assessee gets the money by way of salary under his control and this has happened in the present case of the assessee when the salary was credited into his bank account in India without having to receive the same by himself or on his behalf outside India in any manner.
7. The controversy now boils down as to whether the salary earned by the assessee outside India but received it in India at the first instance can be taxed in India under the provisions of the Income-tax Act, 1961. Given the factual matrix and legal principles involved, it is perhaps relevant to analyze the scheme of taxation put in place by the Act. Section 4 provides that income-tax is to be charged at rate(s) enacted for any assessment year and such rate(s) shall be charged in accordance with and subject to the provisions of the Act in respect of the total income of the previous year of every person. This brings into play the provisions of the Act and the computation of the total income.
8. Section 5 determines the scope of total income which is mentioned in section 4. In the case of a non-resident, total income includes all income from whatever source derived which:
a. is received in India [ section 5(2)(a) ], or
b. is deemed to be received in India [section 5(2)(a) ], or
c. accrues or arises to him in India [ section 5(2)(b) ], or
d. is deemed to accrue or arise to him in India [section 5(2)(b) ].
9· Thus, total income of a non-resident can consist of income from any source which is derived by way of any of these four modes. In the case at hand, only the provisions contained in section 5(2)(a) as pertaining to receipt of income in India are of relevance. However, section 5(2) has subjected this scope to the other provisions of the Act.
10. The computation of total income is to be made in accordance with provisions contained in Chapter IV of the Act. In this regard, section 14 provides that unless it is provided otherwise, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the heads of income ‘salaries’, ‘income from house property’, ‘profits and gains of business or profession’, ‘capital gains’ and ‘income from other sources’. Thus, any item of income must fall under one of these heads of income in order to be chargeable and for the purpose of computation of total income.
11. In the present case, assessee was not a resident of any other country, hence, only the provisions of the Income-tax Act, 1961 are applicable. From the Return of Income filed by the assessee, it is seen that assessee has squarely put the receipts under the head of income “salaries”. Thus, for chargeability of income under this head and its computation, the provisions contained in Chapter IV of the Act shall apply.
12. Section 15 of the Act is the charging section for income under the head “salaries”. In this regard, the following are regarded as chargeable:
i. any salary due to an assessee from an employer in the previous year, whether paid or not; [ section 15(a) ]
ii. any salary paid or allowed to an assessee in the previous year by or on behalf of an employer, though not due or before it became due; [section 15(b)]
iii. any arrears of salary paid or allowed to an assessee in the previous year if not charged to tax for any earlier previous year. [section 15(c) ]
13. A plain reading of section 15 suggests that salary becomes chargeable on ‘due basis’, even if it is not paid by the employer. However, it can be charged to tax on receipt basis also but this could be done only in cases where the salary is received before it is due or when it has not become due at all. In the present case, it is not the contention that the salary has been received before it became due or when it is not due at all.
14. In the present case, the salary income cannot fall under section 15(b) or 15(c) for arriving at a basis of charge. As section 15(a) is applicable, there can be a mistaken view that if salary has become due to the assessee overseas, it cannot be charged to tax in India on receipt basis.
15. The main point of contention here, apparently, is whether the language of the statute as contained in section 15(a) reflects any locational preference. There is no such preference in section 15(a). Salary can become due to an ‘assessee’ anywhere in the world. The moot question here is the meaning of the phrase ‘due from an employer …. whether paid or not’. This phrase was present in section 7(1) of the 1922 Act also. Hon’ble Supreme Court of India had occasion to determine the meaning of this phrase in the case of CIT Vs. L.W. Russel (1964) 53 ITR 91 (SC). Hon’ble Supreme Court held that:
“The expression “due” followed by the qualifying clause “whether paid or not” shows that there shall be an obligation on the part of the employer to pay that amount and a right on the employee to claim the same.”
16. Thus, as explicitly determined by the Hon’ble Supreme Court, the term “due” as qualified by the clause “whether paid or not” is connected with the contractual right of the employee to receive his salary and nothing else. It has no relation with location or place of services rendered or to where the amount has become “due”. Thus, what is important for charging an amount to tax under section 15(a) is whether it is in the nature of salary and whether it has become due to the assessee ( whatever may be his status – resident or non-resident) and it has no relation to the place where it has become due. The place where it has become due and the place where service has been rendered do not form a basis of charge under section 15 of the Act. Had the Parliament thought it relevant, the statute would have taken a form w’hich reflected such thought.
17. In the present case, the amounts involved are in the nature of salary. Section 17 of the Act, inter alia, includes any fees, commissions, perquisites or profits in lieu of or in addition to salary or wages within the scope of the term ‘salary’. The contract entered into by the assessee with the foreign party clearly suggests that the receipts are in the nature of salary. There is no dispute as to whether the amount has become due or not – as per the decision of the Hon’ble Supreme Court mentioned supra, an enforceable obligation has arisen in this case. As mentioned above, the place where the salary has become due or the place where service has been rendered has no relevance so far as charging of tax on salary under section 15 is concerned. This is based on a plain reading of the statute and the decision of the Hon’ble Supreme Court cited supra.
18. 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) 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. As mentioned earlier, 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 ).
21. In view of the above discussion, salary income of Rs. 38,26,820/- earned by assessee during the AY 2012-13 is brought to tax in India in view of provisions of section 5(2)(a) of the Act.”
7. On first appeal, the assessee argued 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 i.e. M/s MOL Manning Services S.A. (Panama) and services were rendered outside India and shipping company 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 after conversation for which the assessee had obtained necessary FRC. 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. The various arguments of the assessee were summarized by the Ld. CIT(A) as below:
“(a) The assessee is a non-resident and rendering services outside India.
(b) The payments are being made by a foreign company outside India and the foreign company does not have any permanent establishment in India.
(c) The point of payment is to be taken into consideration for determining the provisions of clause 5(2)(a) of the Income Tax Act and the point of payment shall be considered as the point of receipt.
(d) It is immaterial that the payment is being transferred by the foreign company or remitted by the foreign company to the NRE account in foreign exchange in India as because payment have been made by the foreign company outside India and the point of payment is to be taken as the point of receipt.
(e) Without prejudice to the above the amount which is received by the assessee from the foreign company is in foreign exchange and therefore income cannot be said to have been received in India where payments have been received in foreign currency.
(f) The provisions of Section 5(2)(a) has to be interpreted in the manner that it does not render the section meaningless. If interpretation as made out by the department is adopted, then definitely the section would be otiose and meaningless as because no benefit would be given to the non residents even if all the conditions have been satisfied.
(g) The true interpretation to the provisions of section 5(2)(a) is that the meaning which is to be adopted for income received or deemed to be received in India, that the payments have been made in India in Indian currency and the recipient of the payments has received the payments in Indian currency.”
8. The Ld. CIT(A) not convinced with the arguments of the assessee upheld the addition made by the AO. Aggrieved, assessee is in appeal before us.
9. The Ld. AR reiterated the submissions made before the lower authorities. He argued that the facts in the present case are squarely covered by the following decisions:
(i) DIT (International Taxation) v. Prahlad Vijendra Rao [2011] 198 Taxman 551/10 com 238 (Kar.),
(ii) CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260/115 Taxman 536 (Bom.)
He stated that the issue is now squarely covered in favour of the assessee by the CBDT Circular No. 13/2017 dated 11.4.2017 wherein it has been categorically clarified by CBDT that the subject mentioned receipt is not taxable as income u/s 5(2)(a) of the Act.
(iii) Shri Shyamal Gopal Chattopadhyay Vs. DDIT (IT) in ITA No. 67/Kol/2016 for AY 2011-12 dated 02.06.2017
10. In response to this, the Learned DR argued that as per Section 5 of the Act, so far as non-residents are concerned, total income includes all income from whatever source derived which:
i. is received in India [section 5(2(a)], or
ii. is deemed to be received in India [section 5(2(a)], or
iii. accrues or arises to him in India [section 5(2(b)], or
iv. is deemed to accrue or arise to him in India [section 5(2(b)].
Thus, total income of a non-resident can consist of income from any source which is derived by way of any of these four modes. This means, first of all, there has to be a source of income (the term ‘in India’ is not mentioned in the context of such source of income) and then, income from such a source will only get included in the total income of the nonresident person through any of the four modes as described in section 5(2) of the Act. It is evident that all the four modes stand on their own legs, otherwise the enactment will be rendered redundant. Section 5(2)(b) mentions the term ‘accrues or arises to him in India’. There is no specific section in the Act which deals with any income which accrues or arises to any person only in India. In other words, there is no section in the Act which provides for a charge on any income derived from any source on the basis of its accruing or arising specifically ‘In India’. The context of this term is provided by section 5(1)(c) which, inter alia, mentions that the total income of a person resident in India includes all income from whatever source which ‘accrues or arises to him outside India’. This is the reason that the main charging section, i.e. section 4, does not make any reference to the words ‘in India’ as it has to provide a basis of charge for both – income which is accruing or arising to a person in India as well as income which is accruing and arising to a person outside India. The charging section does not have a territorial bias. This is also the reason that neither does section 4 qualify a person as being resident or non-resident, nor does the definition of ‘person’ given in section 2(31) of the Act qualifies it as such. Thus, the charging section does not have a bias based on residency also. It will be shown below that the separate charging sections for each head of income provided in the Act also follow the same scheme as does the main charging section (section 4). It was further argued by the Learned DR that the main point of contention here, is whether the language of the statute as contained in section 15(a) reflects any locational preference. There is no such preference in section 15(a). Salary can become due to an ‘assessee’ anywhere in the world. The moot question here is the meaning of the phrase ‘due from an employer … whether paid or not’. This phrase was present in section 7(1) of the 1922 Act also. Hon’ble Supreme Court of India had occasion to determine the meaning of this phrase in the case of CIT v. L. W. Russel [1964] 53 ITR 91 (SC). Hon’ble Apex Court held that:
“The expression ‘due’ followed by the qualifying clause ‘whether paid or not’ shows that there shall be an obligation on the part of the employer to pay that amount and a right on the employee to claim the same.”
Thus, as explicitly and unequivocally determined by the Hon’ble Apex Court, the term “due” as qualified by the phrase “whether paid or not” is connected with the contractual right of the employee to receive his salary and nothing else. It has no relation with location or place of services rendered or to where the amount has become “due”. Thus, what is important for charging an amount to tax under section 15(a) is whether it is in the nature of salary and whether it has become due to the assessee (whatever may be his status — resident or nonresident) and it has no relation to the place where it has become due. The place where it has become due and the place where service has been rendered do not form a basis of charge under section 15 of the Act. Had the Parliament thought it relevant, the statute would have taken a form which reflected such thought.
10.1. The ld DR further argued that the assessee was only trying to introduce one more layer to the entire transaction that the assessee had the control over his money in the form of salary income in international waters and for the sake of convenience, he instructed the foreign employer to send the monies to his NRE account in India. He stated that the argument of the assessee that what was brought into India is not the salary income but only the salary amount to India. Moreover, the ld AR had also not brought any material on record to prove that the assessee had the control over his salary income in international waters. He argued that if this argument of the assessee is to be accepted, then the assessee goes scot free from not paying tax anywhere in the world on this salary income. The provisions of section 5(2)(a) of the Act are probably enacted keeping in mind that income has to suffer tax in some tax jurisdiction.
10.2. The ld DR argued that this issue is decided in favour of the revenue by the order of this tribunal in the case of Tapas Kumar Bandhopadhyay vs DDIT reported in (2016) 159 ITD 309 (Kol Trib) dated 1.6.2016 on the very same set of facts. He also argued that the Circular relied upon by the ld AR would make the provisions of section 5(2)(a) of the Act itself unworkable and redundant.
11. We have heard the rival submissions and perused the materials available on record. We find that the decision relied upon by the ld DR , was rendered by placing reliance on the Third Member decision of Mumbai Tribunal in the case of Capt. A.L.Fernandes vs ITO reported in (2002) 81 ITD 203 (Mum ) (TM ) . This decision clearly lays down that the receipt in India of salary for services rendered on board a ship outside the territorial waters of any country would be sufficient to give the country where it is received the right to tax the said income on receipt basis. Such a provision is found in section 5(2)(a) of the Act which was applied in the aforesaid decision. It is trite that decision of a Third Member would be equivalent to a decision of a Special Bench and thereby would become a binding precedent on the division bench. However, we find that the impugned issue has been duly addressed by the CBDT Circular No. 13/2017 dated 11.4.2017 as rightly relied upon by the ld AR. For the sake of convenience, the said Circular is reproduced hereunder:-
SECTION 5 OF THE INCOME-TAX ACT, 1961 – INCOME – ACCRUAL OF – CLARIFICATION REGARDING LIABILITY TO INCOME-TAX IN INDIA FORA NON-RESIDENT SEAFARER RECEIVING REMUNERATION IN NRE (NON- RESIDENT EXTERNAL) ACCOUNT MAINTAINED WITH AN INDIAN BANK CIRCULAR NO.13/2017 [F.NO.500/07/2017-FT&TR-V], DATED 11-4-2017
{AS CORRECTED BY CIRCULAR NO. 17/2017 [F.NO.500/07/2017-FT&TR-V], DATED 26-4-2017}
Representations 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 into the NRE bank account maintained in India by the seafarer.
2. 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 going ship (with Indian flag or foreign flag) 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.
SECTION 5 OF THE INCOME-TAX ACT, 1961 – INCOME – ACCRUAL OF – CLARIFICATION REGARDING LIABILITY TO INCOME-TAX IN INDIA FOR A NON-RESIDENT SEAFARER RECEIVING REMUNERATION IN NRE (NONRESIDENT EXTERNAL) ACCOUNT MAINTAINED WITH AN INDIAN BANK – CORRIGENDUM TO CIRCULAR NO.13/2017 [F.NO.500/07/2017-FT&TR-V], DATED 11-4-2017
CIRCULAR NO. 17/2017 [F.NO.500/07/2017-FT&TR-V], DATED 26-4-2017
In line 4 of Paragraph No. 2 of the captioned circular, the word “foreign ship” may be read as “foreign going ship (with Indian flag or foreign flag)”.
11.1. A perusal of the Circular referred to above shows that salary accrued to a non-resident seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign flag) 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. Remittances of salary into NRE Account maintained with an Indian Bank by a seafarer could be of two types : (i) Employer directly crediting salary to the NRE Account maintained with an Indian Bank by the seafarer ; (ii) Employer directly crediting salary to the account maintained outside India by the seafarer and the seafarer transferring 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 is 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.
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 Sec.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 vs 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. Moreover, we note that the similar issue came up for consideration before the Hon’ble Calcutta High Court wherein Their Lordships in GA 3745 of 2016 with ITAT 374 of 2016 dated 13.07.2017 in Smt. Sumana Bandyopadhyay & Anr. Vs. The Deputy Director of Income Tax (International Taxation 3(1) admitted the appeal on 11.07.2017 on the following question:
“Whether on the facts and in the circumstances of the case and in law, income by way of salary which became due and has accrued to the assessee, a non-resident, for services rendered outside India and which is not chargeable to tax in India on the “due” or “accrual” basis, can be said to be chargeable to tax on the “receipt” basis merely because the foreign employers, on the instructions of the assessee, have remitted a part of amount of salary to the assessee’s NRE bank account in India?”
While adjudicating the issue, Their Lordships taking note of the Circular No. 13/2017, supra and the Karnataka High Court’s judgement in Director of Income-tax (International Taxation) Vs. Prahlad Vijendra Rao (IT Appeal No. 833 of 2009) held as under:
“6. We concur with the ratio of the decision of the Karnataka High Court and in our opinion the interpretation be given to sub section (b) of Section 5(2) of the Act would also apply to Section 5(2)(a) of the Act. The Circular is clarificatory in nature and is applicable for construing the aforesaid provision for the relevant assessment year. In our opinion the authorities under the Income Tax Act did not properly apply the provisions of law to the case of the assessee. We are of the view that the Assessing Officer was wrong in adding the aforesaid sum to the income chargeable to tax of the assessee for the relevant assessment year. We accordingly allow the appeal and answer the question framed by us in favour of the assessee.”
Accordingly, the ground raised by the assessee is allowed.
12. In the result, the appeal of the assessee is allowed.
