ITAT Holds Foreign Tax Return and TRC Not Mandatory to Disbelieve Non-Resident's Claim:

The ITAT Bangalore has held that Non-resident's foreign salary cannot be treated as taxable in India merely for want of foreign tax returns.
ITAT Remits Salary Taxation Issue

The assessee is a non-resident who had filed his return of income under Section 139(1) of the Income Tax Act. Subsequently, his assessment was reopened on the basis of credible information and notice under Section 148 of the Act was issued. The assessee did not file a return in response to the notice under Section 148. The AO thereafter issued notices under Section 142(1), seeking various details.
The AO observed that salary income had not been declared and that credits in the assessee's NRE account were received in US dollars. Based on this, the AO concluded that the assessee was working for a foreign company. Since the assessee was an eligible assessee, the AO passed a draft assessment order under Section 144C. The assessee filed objections before the Dispute Resolution Panel (DRP), but the objections were rejected. The AO subsequently passed the final assessment order, making additions towards salary and interest income.
Before the Tribunal, the assessee submitted that he was a non-resident during the relevant assessment year and was employed abroad. The salary was earned in connection with his foreign employment, received in US dollars and credited to his NRE account. It was argued that the absence of foreign tax returns, TRC or proof of foreign tax payment could not be a valid basis for treating salary earned abroad by a non-resident as taxable under the Income Tax Act.
The Tribunal noted that the Greek company had undertaken a project for Samsung Heavy Industries Co. Ltd. in the Republic of Korea and had deputed the assessee as a Supervisor to supervise vessel construction at the Korean project site. The assessee worked as an electrician and his salary was fixed in US dollars and credited to his Axis Bank account. The Tribunal also considered the assessee's passport, which contained several entries showing his arrival into and departure from India. These documents, according to the Tribunal, established that the assessee was a non-resident during the relevant period.
The Tribunal held that the AO and DRP could not disregard the assessee's claim merely because foreign tax returns, TRC and details of tax paid abroad had not been furnished.The Tribunal further noted that the NRE account supported the assessee's claim that the salary was received in US dollars. It therefore held that the assessment order was not in accordance with the provisions of the Act.
The Tribunal set aside the assessment order and remitted the matter to the AO for fresh adjudication. Accordingly, the appeal filed by the assessee was allowed for statistical purposes.
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Saima
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Delhi, Delhi, India
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