1986-VIL-85-ITAT-
Equivalent Citation: ITD 018, 230, TTJ 025, 368,
Income Tax Appellate Tribunal CALCUTTA
Date: 26.02.1986
RANJIT KUMAR BOSE.
Vs
INCOME-TAX OFFICER.
BENCH
Member(s) : B. C. MITRA., D. N. SHARMA.
JUDGMENT
Per Shri D. N. Sharma, Judicial Member - This appeal filed by the assessee is directed against the order dated 9-11-1984 passed by the AAC for the assessment year 1983-84.
2. The assessee an individual is a non-resident. During the relevant previous year which ended on 31-3-1983 the assessee was in the service of India Steamship Co. Ltd. and Highsea Steamship Co. Ltd. a foreign company based at Singapore. As the assessee was treated as a non-resident for the assessment year 1983-84, salary earned and received by him outside India was not included in his total income. The ITO was, however, of the view that moneys representing salary are received in India is taxable. The convention put forth on behalf of the assessee that the entire salary received from Highsea Steamship Co. Ltd. is to be excluded from the total income of the assessee was not accepted by the ITO. A sum of Rs. 56,000 received as salary from Highsea Steamship Co. Ltd., was included by the ITO in the total income of the assessee. This amount represented salary earned by the assessee outside India but received by him in India during the relevant accounting year from his foreign employer.
3. The mater was carried in appeal before the AAC who was of the view that even though the income had accrued outside India since it was received in India it had to be taxed in the case of assessee, a non-resident by virtue of section 5(2) of the Income-tax Act, 1961 ('the Act'). A contrary view expressed by the Tribunal in the case of L. Carvey [IT Appeal Nos. 2343 and 2344 (Cal.) of 1981 dated 20-12-1982] did not appeal to the AAC.
4. The learned authorised representative for the assessee submitted before us that in the instant case the assessee, a non-resident earned salary outside India and that only a part of the salary so earned and amounting to Rs. 56,000 was received by him in India. It was submmited that section 5(2) is subject to the other provisions of the Act and that in view of the provisions contained in section 9(1)(ii) of the Act and the Explanation thereto, since services in the instant case were redered by the assessee outside India, the assessee's case does not fall under section 9(1)(ii) with the result that the income earned by the assessee outside India by way of salary cannot be deemed to accure or arise in India. Therefore, it is not taxable in India. It was further submitted that under section 15(a) of the Act, salary income is taxable on due or accrual basis. In this case the salary accrued outside India and, therefore, it could not be subjected to tax under section 15(a) on receipt basis. In support of this contention, reliance has been placed on the decision of the Gujarat High Court in the case of CIT v. Bachubhai Nagindas Shah [1976] 104 ITR 551. Reliance has also been placed on the decision of the Supreme Court in the case of CIT v. Toshoku Ltd. [1980] 125 ITR 525.
5. The learned departmental representative has, on the other hand, fully supported the orders of the authorities below. It was submitted that since the salary income was not taxed in the hands of the assessee on accrual basis it was rightly taxed on receipt basis under section 15. It was further submitted that in view of section 5(2)(a) the total income of the previous year of the assessee who is a non-resident includes income which is received or is deemed to be received in India in such year by or on behalf of such person. It was further pointed out that in this case, admittedly, the assessee received salary income to the extent of Rs. 56,000 in India and, therefore, by virtue of section 5(2)(a) this part of the income is taxable in India. The learned departmental representative while conceding that the provisions of section 5(2) are subject to the other provisions of the Act contended that reference to section 9(1)(ii) in the instant case is irrelevant. Elaborating his argument on the point it was further submitted by the learned departmental representative that section 9 covers income deemed to accrue or arise in India and that the provision of section 9 could be relevant if a case falls under section 5(2)(b). It was, thus, contended that since, in this case the income was taxed on receipt basis, the provisions of.section 9(1)(ii) have no application. Reliance was placed on the decision of the Supreme Court in the case of Raghava Reddi v. CIT [1962] 44 ITR 720 in support of the contention that income could be taxed in India on receipt basis.
6. The learned departmental representative next submitted that the case of L. Carvey has been wrongly decided by the Tribunal and that the same has not been accepted by the department.
7. We have considered the rival contentions as also the facts on record. The facts relevant for the purpose of the controversy raised before us are not in dispute. The assessee is a non-resident. The salary income amounting to Rs. 56,000 brought to tax by the ITO was earned by the assessee outside India. The salary income accrued or rose to him outside India. This fact is not in dispute. There is no dispute that during the relevant accounting year the amount of Rs. 56,000 as salary income was received by the assessee in India and it is on this basis that this part of the income has been subjected to tax in the hands of the assessee by the ITO and his action on the point has been confirmed in appeal by the AAC. According to the contention advanced before us on behalf of department the salary income amounting to Rs. 56,000 is taxable in India by virtue of the provisions contained in section 5(2) (a), which says that the total income of a non-resident includes which is received in India during any previous year. We agree with the contention advanced by the learned departmental representative that since the department has taxed the salary income on actual receipt basis, the deeming provision contained in section 9(1) which covers a case where income is deemed on accrue or arise in India is not relevant for the purpose of the present case. The department does not seek to bring to tax the salary income earned by the assessee outside India by the invoking the provision contained in section 9(1) which relates to the income deemed to accrue or arise in India. For this reason we agree with the contention that the provision of section 9(1)(ii) and the Explanation thereto is not relevant for the purpose of the present case.
8. The amount of Rs. 56,000 was received by the assessee in India as part of his salary and this amount was assessed by the ITO as salary income. Now, section 15 says that :
"The following income shall be chargeable to income-tax under the head 'Salaries'
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; and
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year."
9. The Explanation to section 15 says that for removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.
10. Section 15 thus, contemplates tax on salary which is due, whether paid or not, as well as on salary which is paid whether due or not. The words 'due ...., whether paid or not' occurring in section 15(a) cover all sums which are due irrespective of whether they are paid or not paid, therefore, the portion of salary due and paid as well as the portion due and not paid are both covered under clause (a). Section 15 does not give an option to the ITO to assess the income in the year of accrual or in the year of receipt according to his choice, or to the assessee to offer it when it become due or is received as he may please. The provision contained in section 15 fixes the liability at the point of accrual except in case of salary paid in advance though not due or in the case of arrears of salary where it is taxable on receipt basis if it is not charged to income-tax for any earlier previous year. The instant case does not fall under clause (b) or clause (c) of Section 15 for the simple reason that in this case, salary was not paid in advance before it is became due and it is also not a case of payment of arrears of salary. The salary which became due in the previous year was paid in the same year and so it is a case of salary income falling under clause (a) of section 15. Under this clause salary income is taxable on due or accrual basis. Salary becomes taxable under section 15(a) the moment it become due, i.e., on accrual basis and actual receipt of salary by the assessee is immaterial. In the case of Bhuban Mohan Banerjee v. CIT [1956] 29 ITR 229, their Lordships of the Calcutta High Court were dealing with a case under the Indian Income-tax Act, 1922 ('the 1922 Act'). It was held that section 7(1) of the 1922 Act does not give an option to the ITO to assess the income in the year of accrual or in the year of receipt according to his choice. The assessee was also not given an option to offer it when it becomes due or it is received. It was further observed that section 7(1) does not deal with and does not contemplate with any alternatives at all and question of any option of either ITO or the assessee arises. It may be pointed out that the provisions of section 7(1) of the 1922 Act corresponds to the provisions of section 15 of the 1961 Act.
11. In the case of Bhuban Mohan Banerjee it was further held by the High Court that if any of the kinds of payment contemplated in section 7(1) becomes due, then, irrespective of whether it is or is not paid in the year in which it become due, it must be brought under assessment as the income of that year. There can be no question of assessing it is the income of the year when it is actually paid the payment basis is relevant only for the kinds of payment contemplated by the words 'payments of amounts which are not due' for example, advances by way of loan or otherwise of income chargeable under section 15(a) salary can be taxed only on accrual or due basis and not on receipt basis.
12. The view canvassed on behalf of the assessee also finds support from the decision of the Gujarat High Court in Bachubhai Nagindas Shah's case. In that case, the assessee a director of a private company waived his right of remuneration of the sum of Rs. 4,800 which had become due to him for the calendar year 1962. It was held by their Lordships of the Gujarat High Court that principle under section 15 is that income became chargeable to tax with reference to the previous year in which is fell due, and not on the basis of actual receipt but on the basis of the amount becoming due. This authority also fully supports the view that under section 15(a) salary income is chargeable to tax on the due or accrual basis and not on receipt basis.
13. In the case Raghava Reddi cited on behalf of the revenue, the assessee-firm which was exporting Mica to Japan appointed a Japanese company to handle its affairs in Japan, undertaking to pay commission on receipts of sales effected in Japan. The assessee was instructed by the Japanese company to credit the amount, due to it is commission in the account books of the assessee without remitting them to Japan. The income-tax authorities treated the assessee as the statutory agent of the Japanese company under section 43 of the 1922 Act and assessed the amounts which were so credited in the assessee's books to the Japanese company as income received by the Japanese company in India. On these facts it was held by the Supreme Court that clauses (a) and (c) of section 4(1) of the 1922 Act (which corresponds to section 5 of the 1961 Act), can be read disjunctively and that the assessee could be assessed as the statutory agents of the Japanese company in respect of moneys credited in the assessee's books on receipt basis. The facts of that case are, thus, quite different and in that case the Supreme Court had no occassion to consider the scope of section 7(1) of the 1922 Act which corresponds to section 15 of the 1961 Act.
14. True, in this case, salary income accrued outside India, but was received in India in the same accounting year. It is clear that salary income could not have been brought to tax on accrual basis for the simple reason that it accrued outside India. The provisions of section 5(2) (a) are subject to section 15 which, inter alia, says that salary is chargeable to income-tax on due basis irrespective of the fact whether it has been received or not. So, salary income is not liable to be taxed in India on receipt basis under section 15. We are, therefore, clearly of the view that the salary received in India in this case was not chargeable to income-tax under the head 'Salaries' under section 15(a). As has also been pointed out above, this case does not fall either under clause (b) or clause (c) of section 15.
15. A copy of the order of the Tribunal in the case of L. Carvey is included in the paper book. On similar facts it was held by the Tribunal, though for different reasons, that the salary income as defined in section 15 does not come for the purpose of taxation of attempted by the ITO.
16. In view of what has been stated above, we hold that salary income of Rs. 56,000 which accrued to the assessee outside India should be excluded from his total income.
17. The appeal accordingly stands allowed.
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