Place of service controls salary taxability for a non-resident seaman; income earned mostly outside India was not taxable in India.

Salary earned by a non-resident seaman for services rendered mostly outside India was treated as not accruing or arising in India under section 5(2)(b) of the Income-tax Act, 1961. The decisive factor was the place where the services were performed, not the place of the employment contract or the source of payment. Because the employee remained outside India for the accounting period except for eight days, and the remuneration was earned and received outside India, the brief presence in India did not justify apportionment of the salary as Indian income. The result was that the salary was not taxable in India.

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Issues: Whether salary earned by a non-resident seaman for services rendered mostly outside India accrued or arose in India so as to be taxable in India under section 5(2)(b) of the Income-tax Act, 1961.

Analysis: The assessee was employed as Chief Engineer of a vessel and remained outside India for the entire accounting period except for eight days. The agreement of employment was outside India and the remuneration was received outside India. The decisive factor for accrual of salary income was held to be the place where the services were rendered, not the place of contract or the source from which payment was made. Advances paid in foreign waters were treated as part payment of wages earned for services rendered outside India, and the brief presence in India did not justify apportionment of the salary as Indian income.

Conclusion: The salary income did not accrue or arise in India and was not taxable in India; the Revenue's appeal failed.

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