Seaman taxability when employed on foreign ship on Inward Remittance

[abrahamap]

dear sir
Let me introduce myself as a seafarer Mr A P Abraham, an Indian national, Chief Engineer with International Andromeda shipping, Monte – carlo, Monaco, who worked on board NIS vessels registered at Oslo, Norway during the years 1999 – 2008. Presently the Income tax department of India is conducting enquiries regarding taxation of my income earned on board these vessels during the above mentioned periods.
The wages earned on board the ship was transferred on my instruction from the ship to my bank in Bangalore NRE account through a bank account in Mumbai set up by my employer through their agents in Mumbai. The ITO's point is that the money was received by me in India, and hence as per section 5.2, I am liable to tax. The contract was signed by me In India though the signing authority clearly states on the document that it is done on behalf of foreign principals. Even showing foreign inward remittance certificate, the ITO is looking for ways and means to tax like DTAA with norway, residential status etc. Whereas for a seafarer, there is no residence status in any country, nor can he open an account or operate an account in any country.
I request you kindly to let me know if there are similar pertinent cases which I can cite to the ITO.

[jss]

Scope of Total Income is covered in IT Act Section 5.
IT Act Section 5(2). For Nonresident in India:
The total income assessable to tax is
a. Income received or is deemed to be received in India in such year by or on behalf of such person; or
b. Income accrues or arises or is deemed to accrue or arise to him in India during such year.

[neptune_12us]

Good day,

  Being a sailor on a foreign flagged ship for over twenty years can assure you that wages are in not taxable irrespective of the mode of transfer into your accounts from your principals as long as you were fulfilling the NRI requirement if 183 days abroad every financial year. Kindly contact an IT specialist to solve your problem.
Regards

[neptune_12us]

With respect to my earlier reply here is a link from DG Shipping:
"Personal Income Tax on Seafarers
An Indian seafarer who is employed on a foreign vessels for 183 days or more in a year is entitled to non-resident status as per Section 6 of the Income Tax Act, 1961 and therefore eligible for income tax exemption. The CBDT has however held that an Indian seafarer who is employed on foreign-going Indian vessels will be entitled to such status only if he spends 183 days or more outside Indian territorial waters. In other words this means the amount of time spent at Indian ports or in Indian territorial waters will be reckoned as spent in India, neutralising the claim of such a person for non-resident status.
The Board has also held that a seafarer employed on Indian coastal vessels is not entitled to count the period spent on board such vessels towards non-resident status and the exemption from tax is hence not available to him."

Another link that covers personal income tax on seafarers:
http://www.livemint.com/2008/06/26231953/Buying-ships-Great-But-who-w.html

[MyTaxes_Expert]

Yes, they are eligible for non-resident status. But nonresidents must pay tax on income as per section 5(2).

[abrahamap]

In continuation to me being forced to pay tax with intrest, I appealed to the IT appealate and my case was heard in March 2010 and ruled in my favor. But the Department is still not convinced and is procceding to the tribunal and onward to the High Court. The money has not been refunded even after 3 months - the due period.
In the meantime the govt is trying to re-write the DTAA agreement. I heard from my CA that an amendament was re-written basis 1974 retrospective. I am not clear about which topic it is.
Below is a news item which caught my eye..............
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FinMin to arm tax authorities with data related to DTAAs
Srivastava New Delhi, July 9 (PTI) The Finance Ministry has decided to arm its tax authorities with exhaustive financial and personal data of Indian residents who use the exemption clauses under the Double Taxation Avoidance Agreement (DTAA) and escape paying taxes in one of the countries. The ministry will request countries, including the US and Switzerland to supplement their data on Indian residents with PAN card information and other vital details.
The move, aimed at checking the violation of the DTAA, has been prompted after Indian tax authorities found that vital data, sent by countries under the DTAA, of Indian residents working or doing businesses in these offshore locations were lacking data on Permanent Account Number (PAN), date of birth, name of parents and their Indian addressess. "The information is required to check the fraudulent misuse of this treaty.

The data will be received on an annual basis," a source said. The PAN card data will provide overall data on a taxpayer''s financial transactions and dealings, the source added.

The Foreign Taxation division in the Finance Ministry is the nodal agency to receive such information from various countries under the DTAA agreement. According to top sources, the authorities have also decided to send these monetary and investment details -- exceeding Rs one crore -- of such Indian residents to its investigation wing to check possible cases of tax evasion.

The I-T department will also send all this information to its advanced taxpayer database and send it to all the assessing officers across the country through the Chief Commissioners of Income Tax (CCITs). India has DTAAs with almost 75 countries.

Under the Exchange of Information article in the DTAAs with various countries, "some countries automatically exchange at regular intervals, information relating to payments made by enterprises to persons claiming to be resident of India." The payments mostly relate to dividends, interests, royalties, salaries and wages, fees, pensions among others.

The country is also re-negotiating the treaty with Mauritius and other countries while it is entering into such treaties with other nations like Bermuda, British Virgin Islands, Cayman Island, Gibraltar, Guernsey, Isle of Man, Jersey, Netherlands Antilles and Macau.
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In continuation of my meetings with the ITO, the view is that all Indian citizens should pay tax on global income if they cannot prove residency in another country. Like wise those who cannot show proof of receipt and transfer from abroad to India.
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Mean time I was able to locate another aggrieved party in similar circumstances, whose case has been decided in his favor by the Appeal court and Tribunal, but the IT Dept is filing a a case in the High Court. So it seems that any seamen , when hanging up the boots, have to approach the IT dept for making all his/her monies into a resisdential account. And it is then that they will be held accountable. Those who are not filing the returns that is. Please take note.

[abrahamap]

I have been served notice by IT tribunal for the above related NRI income on 14.08.2010. There is an earlier ruling in ITT - Bangalore (01.04.2010), regarding similar circumstances, in which the case was ruled in favor of assessee.
Now the hearing is expected after nearly 2 years.

[abrahamap]

I am presently under scrutiny for another 2 years than the earlier report. In all, my understanding so far is that first of all, it is important not to come under IT department scrutiny. For this it is better that one is not involved in any high cash purchases as long as one remains an NRI and for a further 2 years after return. Even then it is better to go for loan purchases. For those in scrutiny, it is better to spend the cash so earned abroad and send remittances as required for family maintenance and pay tax thereon and not bother about NRI time completion.  Because the problems involved is huge as the department is awaiting a supreme court verdict on this issue. This could take next 10-15 years. So for this time period all seafarers - BE ALERT. And lead a quiet life.