Non-resident seafarer's foreign ship salary not taxable despite crediting to Indian NRE account

ITAT Kolkata held that salary income accrued to a non-resident seafarer for services rendered outside India on foreign ships is not taxable in India merely because it was credited to the assessee's NRE account with an Indian bank. The tribunal relied on CBDT Circular No. 13/2017 dated 11.04.2017, which clarified that such foreign-sourced salary income should not be included in total income solely due to NRE account crediting. The decision reversed CIT(A)'s findings and was decided in favor of the assessee.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment include:

• Whether the delay in filing the appeals by the assessee should be condoned.
• Whether the salary earned by the assessee, a non-resident seafarer, and credited to an NRE account in India is taxable under the Income Tax Act, 1961.
• Whether the Commissioner of Income Tax (Appeals) erred in confirming the assessment order that taxed the salary remitted to India.
• Whether the CBDT Circular No. 13/2017 and its corrigendum apply to the assessee's case, thereby exempting the salary from being taxed in India.
• Whether the principles established in previous judicial pronouncements, such as the case of CIT vs. Ogale Glass Works Limited, apply to the current case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay

• Legal Framework: The condonation of delay is generally governed by the principles of sufficient and reasonable cause, as recognized under various judicial precedents.
• Court's Interpretation: The court considered the peculiar facts of the case, including the non-disposal of the rectification application, which was supposed to be decided within six months.
• Key Evidence: The affidavit and detailed correspondence submitted by the assessee demonstrated efforts to rectify the order based on the CBDT circular.
• Application of Law: The tribunal found sufficient cause for the delay, considering the procedural delays and reassurances given to the assessee by tax officials.
• Conclusion: The delay was condoned, and the appeals were admitted for adjudication on merits.

Issue 2: Taxability of Salary Credited to NRE Account

• Legal Framework: Section 5(2)(a) of the Income Tax Act, 1961, and CBDT Circular No. 13/2017, which clarifies the taxability of salary credited to NRE accounts.
• Court's Interpretation: The tribunal relied on the CBDT circular, which states that salary accrued to a non-resident seafarer for services rendered outside India should not be taxed merely because it is credited in an NRE account.
• Key Evidence: The assessee's employment details, bank statements, and reliance on the circular were crucial.
• Application of Law: The tribunal applied the circular and the decision of the jurisdictional High Court in Smt. Sumana Bandopadhyay's case, which supported the assessee's position.
• Competing Arguments: The department contended that the credited amount constituted income received in India, but this was not upheld due to the clarificatory nature of the circular.
• Conclusion: The salary was held not taxable under Section 5(2)(a) merely due to its credit in the NRE account.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes: "It is hereby clarified that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship 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."
• Core Principles Established: The tribunal established that the CBDT circular is clarificatory and applicable to the relevant assessment years, ensuring that salary for services rendered outside India is not taxed merely due to its credit in an NRE account.
• Final Determinations: The tribunal allowed the appeals, reversing the findings of the CIT(A) and holding that the salary in question is not taxable in India.

The judgment underscores the importance of adhering to clarificatory circulars issued by the CBDT and highlights the tribunal's role in ensuring that such clarifications are applied consistently to prevent undue taxation of non-resident income.

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