The Calcutta High Court in Utanka Roy Vs. Director of Income Tax, International Taxation Transfer Pricing, held that salary of an Indian citizen, working in a foreign ship & rendered services outside India for a period of 286 days is exempt from taxation under section 5(2) of the Income Tax Act, 1961.
The petitioner, in the instant case, is a marine engineer-rendering services to a foreign ship, filed income tax returns under the resdential status of Non-resident Indian. Assessment u/s 143(1) was passed against the petitioner. The petitioner applied u/s 243 of the Act, which was concluded against the petitioner assessee.
The petitioner challenged both the orders before the High court.The petitioner, relying upon the case laws, contended that his income for the relevant assessment year is exempt from taxation.
The court analyzed the provisions of s. 5(2), and observed “Explanation 1 to Sub-Section 2 states that, income accruing or arising outside India shall not be deemed to be received in India within the meaning of such section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2 clarifies that income will not be treated to be received in India solely on the basis that such income was received or deemed to be received in India. Therefore, it has to be found out where the income to 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.”
Justice Debangsu Basak noted that since the petitioner is a marine engineering working for a foreign entity and had rendered services outside India for a period of 286 days, the income received by him for services rendered outside India has to be considered as income received out of India and treated as such.
Regarding the maintainability of the writ petition on ground that the petitioner preferred an application u/s 246 without challenging the assessment order in appeal, the bench said “The impugned order is one under Section 264 of the Income Tax Act of 1961. The power under Section 264 is wide enough to grant appropriate relief to an assessee. 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 Income Tax 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.”
Read the full text of the Judgment below.
