Taxability of offshore rig salary before extension of the Income-tax Act turned on accrual outside taxable territory.

Income is taxable only if it accrues in territory to which the Income-tax Act applies. The article states that, before 1 April 1983, the continental shelf and exclusive economic zone were not within the Act's taxable reach, because the 31 March 1983 notification took effect only from that date. Salary earned for services on an offshore rig beyond territorial waters before the notification therefore accrued outside the taxable territory and was not chargeable for assessment year 1983-84. Article 297 was treated as irrelevant on these facts, and the departmental appeals failed.

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Issues: (i) Whether the continental shelf formed part of India for purposes of the Income-tax Act, 1961 before 1 April 1983. (ii) Whether salary earned for services rendered on an offshore rig before 1 April 1983 in the area beyond territorial waters was chargeable to tax for assessment year 1983-84.

Issue (i): Whether the continental shelf formed part of India for purposes of the Income-tax Act, 1961 before 1 April 1983.

Analysis: The taxable reach of the Income-tax Act depended on whether the income accrued in a territory to which that Act applied. The notification issued on 31 March 1983 under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 made the Income-tax Act applicable to the continental shelf and exclusive economic zone only from 1 April 1983. Before that date, those areas were not within the taxable territory for the relevant purpose.

Conclusion: The question was answered in the affirmative in favour of the assessee and against the Department.

Issue (ii): Whether salary earned for services rendered on an offshore rig before 1 April 1983 in the area beyond territorial waters was chargeable to tax for assessment year 1983-84.

Analysis: Since the salary was earned before the notification took effect and the rig was located beyond 12 nautical miles, the income had accrued before the area became part of the taxable territory under the Income-tax Act. Article 297 was held to be irrelevant to the issue of taxability under the Income-tax Act in these facts.

Conclusion: The question was answered in the affirmative in favour of the assessee and against the Department.

Final Conclusion: The departmental appeals failed, and the income earned before 1 April 1983 from services on the offshore rig was held not taxable under the Income-tax Act, 1961 for assessment year 1983-84.

Ratio Decidendi: Income is taxable only if it accrues in a territory to which the Income-tax Act applies, and a later notification extending the Act to a maritime zone does not make earlier accruals taxable retrospectively.

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