Income Received in India: constructive receipt abroad-not fresh receipt on NRE credit; salary excluded and related additions deleted.

The note addresses whether salary earned by a non-resident for services rendered outside India and later credited to an NRE account constitutes 'income received in India' under Section 5(2)(a). It applies the constructive-receipt principle, holding that receipt occurs on the first occasion the assessee obtains control abroad and that subsequent remittance or credit into an Indian account is merely application of pre-existing foreign income; therefore the credited salary is not taxable. Consequentially, additions for unexplained foreign-currency investment and unexplained bank credits founded on the deleted salary finding were also deleted.

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Issues: (i) Whether salary earned by a non-resident for services rendered outside India and credited to his NRE bank account in India is taxable in India under Section 5(2)(a) of the Income-tax Act, 1961; (ii) Whether additions made on account of unexplained investment by purchase of foreign currency and unexplained bank credits should stand where the primary addition of foreign-sourced salary is deleted.

Issue (i): Whether salary earned by a non-resident for services rendered outside India and credited to his NRE bank account in India is taxable in India under Section 5(2)(a) of the Income-tax Act, 1961.

Analysis: The dispute concerns whether 'income received in India' under Section 5(2)(a) refers to the first occasion when the assessee obtains the money in his control (real or constructive) or to subsequent remittance/credit into an Indian account. The tribunal examined precedent treating constructive receipt at place of employment as decisive and distinguishing subsequent remittance/application in India. The tribunal found that when salary accrues and is received (real or constructive) outside India for services rendered outside India to a non-resident, subsequent credit to an NRE account in India constitutes mere application/remittance and not a fresh receipt of income in India.

Conclusion: The salary of Rs. 44,24,000 credited to the assessee's NRE account is not taxable in India under Section 5(2)(a) of the Income-tax Act, 1961; conclusion in favour of the assessee.

Issue (ii): Whether additions for unexplained investment by purchase of foreign currency (Rs. 42,81,762) and unexplained bank credits (Rs. 1,00,34,419) should be sustained once the salary addition is removed.

Analysis: The additions were primarily founded on the allegation that salary credited to India was unexplained. Having concluded that the salary credited to the NRE account was not taxable (i.e., was explained as foreign-sourced and not a receipt in India), the factual basis for treating the investments and bank credits as unexplained no longer subsists.

Conclusion: The additions of Rs. 42,81,762 and Rs. 1,00,34,419 are directed to be deleted; conclusion in favour of the assessee.

Final Conclusion: The appeal is allowed; the salary credit to the NRE account is not taxable in India and consequential additions based on that salary finding are deleted.

Ratio Decidendi: For a non-resident, 'income received in India' under Section 5(2)(a) of the Income-tax Act, 1961 means receipt on the first occasion (real or constructive) when the assessee obtains the income in his control; subsequent remittance or credit into an Indian account is an application of pre-existing foreign receipt and does not constitute fresh receipt in India.

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