2014 (3) TMI 18 - AT - Income Tax

Salary income accrues when services rendered, not on appointment letter receipt; NRE bank interest exempt under s.10(4)(ii)

Arvind Singh Chauhan Versus Income Tax Officer

The ITAT Agra held that salary income accrues when services are rendered, not upon receipt of the appointment letter, and salary received outside India ... Addition made - Salary accrue and received in India - Whether the authorities have erred in making and upholding the addition on account of salary considering it as accrued and received in India – Held that:- If an assessee acquires a right to receive an income, the income is said to have accrued to him even though it may be received later, on it's being ascertained, but this proposition will be relevant only when assessee gets a right to receive the income - the assessee gets his right to receive salary income when he renders the services and not when he simply receives the appointment letter. The assessee had to be regarded as having received the income outside India and the pension had been remitted or transmitted to the place where the assessee was living, as a matter of convenience and that would not constitute receipt of pension in India by the assessee, falling within s. 5(1)(a) of the Act - once an income is received outside India, whether in reality or on constructive basis, the mere fact that it has been remitted to India would not be decisive on the question as to income is to be treated as having been received in India - The connotation of an income having been received and an amount having being received are qualitatively different - The salary amount is received in India but the salary income is received outside India - It is elementary that an income cannot be taxed more than once but if, at each point of receipt, the income is to be taxed, it may have to be taxed on multiple occasions – thus, in a situation in which the salary has accrued outside India, thereafter, by an arrangement, salary is remitted to India and made available to the employee, it will not constitute receipt of salary in India by the assessee so as to trigger taxability under section 5(2)(a) of the Act – thus, the addition made is liable to be set aside – Decided in favour of Assessee. Addition on account of bank interest - Whether the authorities below have erred in making and upholding the addition on account of bank interest earned and credited in NRE account – Held that:- The HSBC has categorically indicated that the account is an NRE account - When this was pointed out to the Revenue, he did not have much to say except for placing his rather dutiful reliance on the orders of the authorities below – it is a specific mandate of Section 10(4)(ii) which exempts interest on NRE accounts from income tax – thus, the addition made is liable to be set aside – Decided in favour of Assessee. Issues Involved:1. Taxability of salary income remitted from a foreign employer to an NRE account in India.2. Taxability of bank interest earned and credited in an NRE account.Issue-wise Detailed Analysis:1. Taxability of Salary Income Remitted from a Foreign Employer to an NRE Account in India:The primary issue revolves around whether the salary income received by the assessee from a foreign employer and remitted to an NRE account in India is taxable in India. The assessee, a non-resident, argued that the salary income for services rendered on international routes should not be taxed in India. The Assessing Officer (AO) contended that since the appointment letter was issued in India and the salary was deposited in an Indian bank account, the income should be considered as accrued and received in India.The Tribunal found that the AO erred in assuming the assessee's residential status as 'resident' based on the inclusion of pension and interest income in the taxable income. The Tribunal clarified that the pension and interest income were taxable in India irrespective of the residential status due to their accrual and receipt in India. The Tribunal emphasized that the situs of salary accrual is where the services are rendered, which, in this case, was outside India. The Tribunal also rejected the AO's reliance on the Supreme Court judgment in CIT Vs. Shri Govardhan Ltd., stating that the right to receive salary arises only after rendering services, not merely upon receiving an appointment letter.Furthermore, the Tribunal held that the receipt of salary in India via an NRE account does not constitute receipt of income in India for tax purposes. The income was received outside India and subsequently transferred to India, which does not trigger taxability under section 5(2)(a) of the Income Tax Act.2. Taxability of Bank Interest Earned and Credited in an NRE Account:The second issue concerns the taxability of bank interest earned and credited in an NRE account. The AO added the interest income to the taxable income, which was upheld by the CIT(A), who claimed the account was not an NRE account. The assessee provided evidence that the account was indeed an NRE account, making the interest income exempt under section 10(4)(ii) of the Income Tax Act.The Tribunal reviewed the bank statements and confirmed that the account was an NRE account. Consequently, the interest earned on this account was exempt from income tax as per the specific mandate of Section 10(4)(ii). The Tribunal upheld the assessee's grievance and deleted the addition of Rs 40,589.Application to Assessment Year 2008-09:For the assessment year 2008-09, the Tribunal noted that the facts and circumstances were identical to the assessment year 2009-10, except for the amounts involved. Consistent with the decision for 2009-10, the Tribunal deleted the additions for salary income and bank interest for 2008-09 as well.Conclusion:Both appeals filed by the assessee for the assessment years 2009-10 and 2008-09 were allowed, with the Tribunal deleting the additions related to salary income and bank interest in the NRE account.