If NRI received certain amount from his own account outside India through proper banking channels, income shall not be said to accrue or arise in India.   

Case: Deputy Commissioner of Income Tax vs. Madhusudan Rao

Facts:

The assessee being a NRI individual was a Chairman of an Indian company. He received salary income from the company. The assessee filed its return disclosing the salary income. In addition, assessee had shown an amount as credit to the capital account under the head ‘NRI A/c’ and applied the fund towards shares, gifts to relatives and personal expenses.

The AO issued show cause notice for the amount credited in capital account. On this, assessee put forward that a loan was obtained by him from a company outside India. The said loan amount was transferred from Mauritius to NRI A/c of assessee.

After receiving the explanation, AO concluded that, as the assessee was single shareholder of the company, the funds in the hands of the assessee was unexplained and thus treated it as income of assessee under section 68/69/69A/69C.

Appeal was made to the Commissioner (Appeals). CIT(A) asked for the creditworthiness of the company granting loan to the assessee. On satisfactory explanation, it was held that the transaction was genuine and thus, additions shall be deleted.

Aggrieved by the order, appeal was made to the Tribunal.

Held:

The tribunal noticed that:

• During assessment proceedings, assessee furnished enough evidences in support of inward remittance of funds including a certificate from a company.
• AO verified from the website of SEBI and found that the company is listed under Monopolies and Restrictive Trade Practices Act, 1969 thus, concluding that company is genuine.
• Regarding the amount, assessee explained that the amount was transferred from his own bank account in Mauritius to the NRI account in India.
• Regarding creditworthiness of company, CIT (A) examined and concluded it as a genuine.

In view of above consideration it was held that assessee’s own fund abroad was remitted to India and this inward remittance cannot be considered as unaccounted income of assessee.

In another case, tribunal held that money being received outside India cannot be taxed under section 5(2) unless it is proved that such money is relatable to the income accrued or arising in India. Section 68 or 69, have limited application in the case of non-resident. These would be applicable in the case of non-resident only with reference to those amounts whose origin of source can be located in India.

Thus, in this case, Section 5(2) is not applicable as the amount was received from assessee’s own account outside India and no income has accrued or arisen in India. Hence, amount remitted to India from a source outside India shall not be taxed if such amounts are not income as per Act.

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