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Arvind Singh Chauhan vs. ITO (ITAT Agra)
February, 19th 2014

Salary income accrues at the place where the services are rendered and not where the appointment letter is received. If salary, after accrual abroad, is brought into India, it is not taxable on receipt basis. S. 6(5) which deals with residential status is redundant

(i) The AO’s stand that because the assessee has offered taxation of interest and pension, he has accepted himself as a “resident” and that the other income also becomes taxable u/s 6(5) is wrong. The pension was paid by his former employer in India, and, therefore, irrespective of his residential status, the income was taxable in India. Similarly, so far as interest on savings bank account was concerned, the interest accrued in India was credited, in income character as such, in India, and was, therefore, taxable in India. This taxability does not require recipient of income to have ‘resident’ status u/s 6 at all. In view of this finding, s. 6(5) cannot have any application in the matter. Even otherwise, section 6(5) is a redundant legal provision which can no longer have any practical implications because effective assessment year 1989-90, previous year, for all sources of income and for all assessees, is uniform i .e. financial year immediately preceding the assessment year. With the uniformity of previous years, such a situation is no longer possible, and, the legal provision incapable of any application. If this legal provision still exists on the statute, it can only be explained by inertia of the law makers in weeding out redundant legal provisions.

(ii) Once it is not in dispute that the assessee qualifies to be treated as a ‘non-resident’ under Section 6 of the Act, the scope of taxable income in the hands of the assessee, under Section 5(2), is restricted to (a) income received or is deemed to be received in India, by or on behalf of such person; and (b) income which accrues or arises, or is deemed to accrue or arise to him, in India. Therefore, it is only when at least one of these two conditions is fulfilled that the income of a non-resident can be brought to tax in India. In the present case, the services are rendered outside India as crew on merchant vessels and tankers plying on international routes. A salary is compensation for the services rendered by an employee and, therefore, situs of its accrual is the situs of services, for which salary paid, being rendered. It is wholly incorrect to assume that an employee gets right to receive the salary just by getting the appointment letter. An employee has to render the services to get a right to receive the salary and unless these services are rendered, no such right accrues to the employee.

(iii) The next objection of the Assessing Officer is that the money was received in India, since, beyond any dispute or controversy, the salary cheques were credited to the assessee’s account with HSBC, Mumbai. So far as this aspect of the matter is concerned, the law is trite that ‘receipt’ of income, for this purpose, refers to the first occasion when assessee gets the money in his own control – real or constructive. What is material is the receipt of income in its character as income, and not what happens subsequently once the income, in its character as such is received by the assessee or his agent; an income cannot be received twice or on multiple occasions. As the bank statement of the assessee clearly reveals these are US dollar denominated receipts from the foreign employer and credited to non resident external account maintained by the assessee wi th HSBC Mumbai . The assessee was in lawful right to receive these monies, as an employee, at the place of employment, i .e. at the location of its foreign employer, and it is a matter of convenience that the monies were thereafter transferred to India. These monies were at the disposal of the assessee outside India, and, it was in exercise of his rights to so dispose of the money, that monies were transferred to India.

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