Non-resident's salary for work on Indian-flag ship abroad: taxability turns on where services are rendered, not ship "territory"; not taxable

For a non-resident, salary is chargeable in India only if it is received/deemed received in India or accrues/arises (or is deemed to accrue/arise) in India under ss. 5, 6 and 9(1)(ii) of the Income-tax Act; the decisive test under the Explanation to s. 9(1)(ii) is where the services are rendered. The Revenue contended that services on an Indian-flag vessel outside India were "in India" because the ship remained Indian territory under the Merchant Shipping Act, but this factual contention had not been raised before the tax authorities and was not reopened in reference jurisdiction. The HC therefore upheld the Tribunal's view that the salary was not taxable in India and answered the reference against the Revenue.

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Issues Involved:
The judgment addresses the question of whether the salary received by the assessee from the Shipping Corporation of India during the relevant accounting year 1974-75 was taxable in India.

Summary:

Assessment and Remand:
The assessment for 1974-75 was initially set aside by the Commissioner of Income-tax, Bombay, who remanded the matter back to the Assessing Officer to determine the tax liability based on the contract of employment. The Assessing Officer concluded that the salary earned by the assessee in India due to his employment with the Shipping Corporation of India.

Department's Argument:
The Department argued that the assessee, being a marine engineer on an Indian ship, should be considered a resident as the ship was deemed to be Indian territory even when operating outside India. They emphasized that the contract was executed in India and the funds for salary payment were from an Indian company.

Assessee's Argument:
The assessee's counsel contended that the focus should be on where the services were rendered, not where the contract was executed. They highlighted that the Commissioner had already determined the assessee's non-resident status and the only question was whether the income accrued in India.

Court's Decision:
The court analyzed the relevant sections of the Income-tax Act, emphasizing that income accrual in India is crucial for taxation. They cited precedents and held that income earned outside India by a non-resident is not taxable in India. The court also noted that the question of the ship's territory was not raised earlier and decided the case based on the specific facts presented.

Conclusion:
The court ruled in favor of the assessee, determining that the income accrued outside India during the relevant period. The judgment was specific to the case at hand, and the court declined to revisit the question of the assessee's status. The reference was disposed of accordingly.

Judge(s): S. H. Kapadia, V. C. Daga.

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