In a landmark judgement, especially for the seafarer community, the Calcutta High Court has held that income earned by a marine engineer for services rendered for 286 days overseas is not liable to be taxed in India.
In an order (WP No369 of 2014), dated 15 December 2016, Justice Debangsu Basak, says, "In the impugned order, the Commissioner notes that, the income received by the petitioner is in respect of services rendered for 286 days outside India. The Commissioner exercising powers under Section 264 of the Act of 1961 could have proceeded to grant appropriate relief to the petitioner by setting aside the intimation under Section 143(1) of the Act of 1961 and holding that, such income of the petitioner is not taxable in respect of the relevant assessment year. The Commissioner, however, did not do so. It has remanded the matter to the assessing officer to do the needful. ...therefore, the intimation under Section 143(1) of the Act of 1961 dated 7 December 2012 as well as the order under Section 264 dated 25 September 2013 are set aside."
The case is related to Utanka Roy, a marine engineer who worked a foreign shipping company during the assessment year 2011-2012. Giving his status as non-resident Indian (NRI), he filed his income tax returns for AY11-12, disclosing a remuneration of Rs5.63 lakh, received in US dollars. However, he was issued an assessment order-cum-intimation under Section 143(1). He did not file an appeal, but applied under Section 264 of the Income Tax Act claiming that he had worked as an engineer with a foreign company for 286 days during AY11-12.
During the hearing under Section 264, he claimed that he had received Rs27.92 lakh from his employer during AY11-12 instead of Rs5.63 lakh as stated earlier. On 25 September 2013, his appeal was disposed of. The order finds that Roy's income was assessable under the I-T Ac, but did not compute any tax liability. It also noted that Roy did not claim any exemptions, thus allowing the Assessing Officer to take necessary action.
Roy then filed an appeal in the High Court. He contended that under the present facts, he is exempt from payment of I-T.
The scope of total income is laid down in Section 5 of the I-T Act. Sub-Section (1) deals with the income of a person who is resident in India while Sub-Section (2) deals with income of a person who is a non-resident. Roy was a non-resident during AY11-12.
Section 5(2) of the Act of 1961 is as follows:
“(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.- Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.- For the removal of doubts, it is hereby declared that income, which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.”
The Calcutta HC said it has to be found out where the income o the person concerned had accrued. "For the purpose of finding out the place of accrual of the income, the place where the services have been rendered becomes material. In fact, the place where the income gave rise is required to be considered to arrive at a finding whether the income was in India or outside India," it stated.
The HC said, "The question whether the petitioner has rendered services in India or not is a question of fact. It is not disputed that the petitioner as a marine engineer had rendered services outside India for the period of 286 days. He has received his remuneration for such work from a foreign company. Consequently, the income received by the petitioner for services rendered outside India has to be considered as income received out of India and treated as such."
There was an anomaly in the income received by Roy during AY11-12 as, in his ITR, he stated Rs5.63 lakh as his income, while in the proceedings under Section 264, he claimed to have received Rs27.92 lakh. The HC said, "In view of the finding that the petitioner has received the remuneration from a foreign company for services rendered outside India, the quantum that he claims to have received, namely, Rs27.92 lakh has to be considered as such."
The HC said powers conferred on the Commissioner under Section 264 are very wide. "The Commissioner has the discretion to grant or refuse reliefs. There is nothing in Section 264 which places any restriction on the Commissioner’s revision power to grant relief to the assessee in a case where the assessee detects a mistake on account of which he was over-assessed after the assessment was completed," it concluded while disposing off the petition.
One must note that seafarers spend a good amount of their time away from their family and are not land lubbers. It takes ages for them to get used to lawlessness in the country. Majority of the Seafarers are involved in lots of charity work which is never taken cognisance. The seaaring community is a very small community which does its best in representing the country in international waters . The amount of money earned by people on land are way more than an average seafarer earns and they all take exemptions under various sections of IT. If people and IT dept had so much to think of the nation, catch the corrupt and the corporate and leave the dying middle class alone.