2022 (9) TMI 1327 - HC - Income Tax

Appeal Success: Court Orders Reassessment Excluding Foreign Income, Citing Missteps in Previous Tax Rulings.

The court allowed the appeal, overturning the decisions of the tribunal, CIT(A), and DCIT (International Taxation). It directed the assessing officer to ... Taxability of salary of non-resident seafarer - accrual versus receipt basis of taxation - rectification under section 154 - mistake apparent from record - duty of tax authorities to apply benefits in favour of assessee - precedent and binding decisions as ground for rectification - application of CBDT circulars in assessment proceedings - remand for fresh consideration by assessing officerTaxability of salary of non-resident seafarer - accrual versus receipt basis of taxation - application of CBDT circulars in assessment proceedings - Whether salary shown in the assessee's return as having accrued in India could be taxed in India merely because it was so shown, when the assessee was employed and rendered services outside India. - HELD THAT: - The Court held that the mere fact that the assessee included the foreign salary in the return or that such amounts were credited to an NRE account in India does not, without more, establish that the income accrued or became chargeable to tax in India. The orders of the assessing officer, the CIT(A) and the Tribunal which treated the income as taxable on that basis were found to be perverse in view of binding decisions of this Court and applicable CBDT circulars indicating that salary of a non-resident seafarer for services rendered on a foreign ship is not includible in total income merely because credited to an Indian bank account. The Court also relied on the principle that tax authorities have a duty to apply provisions beneficial to the taxpayer and the Board's circulars which instruct officers to assist taxpayers in securing reliefs where appropriate. Applying these principles, the Court concluded that the foreign salary ought not to have been treated as taxable in India on the facts before the authorities and directed reassessment in accordance with law and relevant circulars.The impugned orders holding the foreign salary taxable on the stated basis were quashed; the assessment is to be reviewed and the foreign salary excluded from taxable income if found not chargeable under law and relevant CBDT circulars.Rectification under section 154 - mistake apparent from record - precedent and binding decisions as ground for rectification - remand for fresh consideration by assessing officer - Whether the assessee's applications for rectification under section 154 should have been entertained where the Tribunal and authorities had ignored binding decisions and CBDT circulars. - HELD THAT: - The Court concluded that refusal to rectify was erroneous where the authorities failed to consider binding decisions of the jurisdictional High Court and applicable CBDT circulars that were on record at the time the Tribunal and lower authorities decided the matter. Citing the principle that non-consideration of a jurisdictional court's decision is a 'mistake apparent from the record,' the Court found that rectification under section 154 was maintainable. Rather than disposing the controversy finally on merits at appellate level, the Court quashed the impugned orders and remanded the matter to the Assessing Officer to review the assessment afresh in the light of the binding precedents, CBDT circulars and the law on the subject and to grant appropriate relief under section 10(6)(viii) if warranted.Applications for rectification ought to have been entertained; impugned orders are quashed and the assessment is remitted to the Assessing Officer for reconsideration and grant of relief in accordance with law and relevant circulars.Final Conclusion: Appeal allowed; orders of assessing officer, CIT(A), Tribunal and CPC rejecting rectification and treating the foreign salary as taxable are quashed and the assessment restored to the file of the Assessing Officer for review and compliance with binding precedents and CBDT circulars, with directions to grant relief where appropriate within six weeks. Issues Involved:1. Whether the subject income could be taken to have accrued in India only for the reason that it was shown in the balance sheet of the assessee.2. Whether the learned tribunal ought to have allowed the rectification application of the appellant for the assessment year 2012-13 based on the CBDT circular no. 13 of 2017.Issue 1: Accrual of Income in IndiaThe primary legal issue was whether the income of the assessee could be considered to have accrued in India merely because it was mistakenly shown as such in the balance sheet while filing the return of income on January 11, 2013. The assessee was employed by M/s. MSC Ship Management Hongkong Limited and was thus employed outside Indian territory. The return was processed, and an intimation under Section 143(1) was issued, computing the tax liability. The assessee filed an application for rectification under Section 154, which was rejected by the assessing officer, stating that the tax was correctly computed on the income return by the assessee. The assessing officer rejected the application for rectification on the grounds that it did not constitute a mistake apparent from the record.Issue 2: Rectification Application Based on CBDT Circular No. 13 of 2017The assessee filed another petition before the Deputy Commissioner of Income Tax (International Taxation), stating that the assessee was an NRI during the relevant period and that the income had been assessed without considering the NRI status. This petition was also rejected. The assessee then appealed to the CIT(A), contending that the assessing officer erred in ignoring the revised return filed on July 15, 2014, which claimed exemption under Section 10(6)(viii) of the Act. The CIT(A) dismissed the appeal, focusing on the scope of interference under Section 154 without addressing the merits. The tribunal also dismissed the appeal, considering the issue debatable and thus not suitable for rectification under Section 154. The assessee's subsequent application for rectification was dismissed by the tribunal.Court's Analysis and JudgmentThe court found the decisions of the tribunal and CIT(A) to be perverse. On the date of the tribunal's initial decision, there was a binding decision of the High Court in the case of Utanka Roy Vs. Director of Income Tax, International Taxation Transfer Pricing, Kolkata & Ors., which the tribunal ignored. This constituted an error apparent on the face of the record. The tribunal should have exercised its power under Section 154 to rectify this mistake.The court noted that the Department had harshly dealt with the assessee, who had filed the return through a Chartered Accountant. The Department could have taken a more reasonable stand, especially since the law favored the assessee. The court referred to CBDT Circular No. 13/2017, which clarified that salary credited in the NRE account of a non-resident seafarer should not be included in total income merely because it was credited in an Indian bank account. The court also cited Circular No. 14 (XL-35) of 1995, which directed officers to assist taxpayers in claiming reliefs.The court emphasized the duty of the Income Tax Officer to apply relevant provisions to determine the true taxable income, as held by the Supreme Court in Commissioner of Income Tax, Delhi Vs. Mahalaxmi Sugar Mills Co. Ltd. The court found that the assessing officer and CIT(A) had ignored these principles and the circulars issued by the Board.The court also referred to the decision in Smt. Sumana Bandyopadhyay & Anr. Vs. The Deputy Director of Income Tax, (International Taxation), which addressed a similar issue, and the Supreme Court's ruling in ACIT vs. Sourashtra Kutch Stock Exchange, which held that non-consideration of a jurisdictional court's decision constitutes a 'mistake apparent from the record.'ConclusionThe court allowed the appeal, quashing the orders of the tribunal, CIT(A), and DCIT (International Taxation). The court directed the assessing officer to review the assessment, exclude the foreign income under Section 10(6)(viii) of the Act, and grant relief to the assessee within six weeks.