Many non-resident Indians (NRIs) want to keep their earnings in
India, though they may be earning abroad. In case of an NRI, only income
accruing in India or received in India or deemed to accrue in India is taxable
in India, unlike in the case of a resident, whose worldwide income is taxable in
India. Therefore, for an NRI who earns abroad, it is very important to ensure
that her salary is not received directly in India, so that it is not taxable in
India. Usually, one opens a bank account abroad in which the salary is first
deposited before being remitted to India. A recent tribunal decision has eased
the problem significantly for NRIs who may want their salaries transferred to
India.
The decision was in the case of a crew member of a foreign ship who
was hired by a Singapore ship management company to work on ships plying on
international routes. The contract was issued by the Singapore company’s agent
in India. The crew member was an NRI for the relevant year based on the number
of days stayed in India. The salary was remitted directly by the company from
its account in Singapore to the NRI’s non-resident (external) account with a
bank in India.
The tax officer took the view that the salary was taxable in India,
as the taxpayer was a resident of the country for the following reasons: he had
other taxable income of pension and interest in India; the salary accrued in
India since the contract was signed in India; and the salary was received in
India since it was credited directly to a bank account here. The tribunal,
however, held that merely because the taxpayer had some other taxable income in
India did not mean he was a tax resident of India. Income accrued in India of
non-residents is taxable in India, but that does not make them residents of
India. Moreover, the taxpayer was not an Indian resident based on the number of
days stayed here, which is the test for residence. The tribunal rightly held
that signing of the contract in India did not mean that the salary accrued in
India. The place where the services were rendered was the place of accrual for
the salary—since the services were rendered abroad, the salary, too, accrued
outside India. Addressing the tax officer’s contention that the salary was
taxable in India as it was received in India, the tribunal took the view that
“receipt” has to be considered in the context of the first occasion when the
taxpayer gets control of the money—real or constructive control. Therefore, what
is material is the receipt of income in its character as income, whether by the
taxpayer or by his agent. There cannot be more than one receipt of income, and
the same income cannot be taxed on multiple occasions.
In this case, the taxpayer had a right to receive his salary in
Singapore, the location of his employer, and it was as a matter of convenience
that he chose to have the money transferred to India. The money was at his
disposal in Singapore, and it was in exercise of this right to dispose of the
money that it was transferred to India. The tribunal drew a fine distinction
between receipt of an income in India and receipt of an amount in India, holding
that the salary amount was received in India but the salary itself was received
in Singapore.
The tribunal placed reliance on a Madras High Court decision, which
had taken a similar view in the context of a foreign pension transferred to
India. It held that the foreign salary income was not taxable in India, though
remitted to India.
Many NRIs want to remit their entire salaries to India, but have to
necessarily open a bank account abroad to save themselves from the Indian tax
net. This decision is helpful for NRIs who may have requested their employers to
directly remit their salary to India, without opening a bank account abroad.
Whether this decision will be accepted by the tax authorities, or whether they
will choose to litigate this issue all the way up to the Supreme Court, as they
normally do, will be known later.
Should the taxability of an income depend upon where the bank
account is opened for this purpose? Double taxation treaties rightly grant the
benefit of an exemption based on different conditions, and not upon which bank
account the amount is credited to. Since tax treaties override domestic tax laws
in India, a taxpayer who has the advantage of a tax treaty can opt for it, and
not pay tax on such salary remittances to India by his foreign employer. Access
to tax treaties requires a taxpayer residency certificate of the foreign
country, which is at times a difficult or expensive proposition. Further, India
may not have tax treaties with certain countries. Many taxpayers, particularly
crew members of foreign ships or foreign airlines, cannot get the benefit of tax
treaties, as they are not residents in a particular country for a long period.
To encourage such taxpayers to remit their entire salary to India, the Central
Board of Direct Taxes should consider issuing a circular accepting this tribunal
decision, so that they are not put through the hassle of litigation, just
because they have been loyal citizens, choosing to have their entire savings
transferred to India
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