Non-resident salary received in India remains taxable even when services are rendered outside India.

Salary received in India by a non-resident employee was held taxable on the receipt basis even though the services were rendered on board an Indian ship outside the territorial waters of India. The Tribunal also treated the salary as accruing in India because the employment contract was entered into in India and the resulting rights were enforceable in India. Section 9(1)(ii) and its Explanation were read as applying to services rendered in India, and not as excluding salary received in India for services rendered outside India. The non-resident's challenge therefore failed.

---

---

Issues: Whether salary received by a non-resident employee for services rendered on board an Indian ship floating outside the territorial waters of India was taxable in India; whether such salary could be said to accrue or arise in India or be treated as income earned in India under the deeming provision relating to salaries.

Analysis: The decisive fact was that the salary was received in India. Under the charging scheme for non-residents, income received in India is taxable irrespective of where it accrues or arises. The Tribunal also accepted that the services were rendered outside India and that the older fiction treating an Indian ship as a floating island had lost force. However, that did not assist the assessee, because the receipt of salary in India was sufficient to attract tax under the receipt basis. On accrual, the contract of employment was entered into in India and the rights flowing from it were enforceable in India, so the salary was also treated as having accrued or arisen in India. The deeming provision in section 9(1)(ii), read with its Explanation, was held to apply to services rendered in India and not to exclude salary received in India for services rendered outside India. The Explanation was treated as clarificatory and not as supporting the assessee's construction.

Conclusion: The salary was taxable in India and the assessee's contention was rejected.

Final Conclusion: The appeal failed because the salary was includible in the total income on both receipt and accrual principles, and the special deeming rule for salaries did not bar taxation on these facts.

Ratio Decidendi: For a non-resident, salary received in India is taxable notwithstanding that the services were rendered outside India, and section 9(1)(ii) with its Explanation does not exclude such income from charge.

---