Non-resident Marine Engineer's foreign income not taxable in India

The Tribunal allowed the appeal of the non-resident individual, a Marine Engineer, determining that the remuneration received in the NRE account from services rendered outside India was not taxable under Section 5(2)(a) of the Income Tax Act, 1961. The Tribunal relied on a CBDT Circular stating that such income accrued to a non-resident seafarer for services outside India on a foreign-going ship is not taxable, even if credited to an NRE account in India, rendering Section 5(2)(a) redundant in this context.

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Issues Involved:
1. Taxability of remuneration received by a non-resident individual in an NRE account in India under Section 5(2)(a) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Taxability of Remuneration Received by a Non-Resident Individual in an NRE Account in India:

Facts:
The assessee, a non-resident Marine Engineer, filed a return declaring total income of Rs. 2,09,021 for AY 2011-12. He received Rs. 23,71,727 as remuneration from M/s. Mercator Lines Ltd, Singapore, which was directly remitted to his NRE account in India. The assessee claimed this income as exempt, arguing that it was received in foreign currency for services rendered outside India.

Arguments by the Assessee:
The assessee contended that:
- He rendered services outside India, qualifying him as a non-resident.
- The income was received in foreign currency and remitted to his NRE account in India.
- According to Section 5 of the Act, salary received outside India in foreign currency is not taxable in India.
- The point of payment by the foreign company should be considered the point of receipt, not the remittance to the NRE account in India.

Assessment Officer's (AO) Position:
The AO argued that:
- Section 5(2)(a) of the Act states that income received or deemed to be received in India is taxable, irrespective of the currency.
- The income was received in India as it was remitted to the NRE account, thus taxable in India.
- The AO relied on the Third Member decision in Capt. A.L. Fernandes vs ITO, which held that salary received in India is taxable under Section 5(2)(a).

CIT(A) Decision:
The CIT(A) upheld the AO's decision, stating that:
- The income was received in India and thus taxable under Section 5(2)(a).
- The arguments presented by the assessee were not convincing enough to overturn the AO's decision.

Arguments by the Learned Departmental Representative (DR):
The DR argued that:
- Section 5(2)(a) includes income received in India, irrespective of the place of service.
- The term "due" in Section 15(a) refers to the contractual right of the employee to receive salary, not the location of service.
- The assessee's argument that the salary was controlled in international waters was not substantiated with evidence.

Tribunal's Analysis:
The Tribunal considered:
- The binding nature of CBDT Circular No. 13/2017, which clarifies that salary accrued to a non-resident seafarer for services rendered outside India on a foreign-going ship shall not be included in total income merely because it is credited to an NRE account in India.
- The Circular's vagueness regarding whether it covers direct credit to NRE accounts or transfers from foreign accounts to NRE accounts.
- The principle that Circulars issued by the CBDT are binding on revenue authorities, as upheld by the Supreme Court in Commissioner of Customs vs Indian Oil Corporation Ltd.

Conclusion:
The Tribunal concluded that:
- The Circular covers both direct credits to NRE accounts and transfers from foreign accounts to NRE accounts.
- The provisions of Section 5(2)(a) are rendered redundant by the Circular, but the Circular remains binding on revenue authorities.
- The assessee's appeal is allowed, and the remuneration received in the NRE account is not taxable in India.

Order:
The appeal of the assessee is allowed. The remuneration received in the NRE account is not taxable under Section 5(2)(a) of the Income Tax Act, 1961.

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