Prospective tax extension to maritime zones bars income tax on salary earned before the notified effective date.

Article 297 does not, by itself, make the continental shelf and exclusive economic zone part of the taxable territory under the Income-tax Act. Under the Maritime Zones Act, an enactment applies to those areas only when extended by notification, and the extension operates from the notified effective date unless retrospective effect is expressly stated. Because the Income-tax Act was extended to those areas only from 01.04.1983, salary earned there during the previous year 1982-83 was outside the tax net and could not be treated as income accrued or arisen in India for assessment year 1983-84.

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Issues: Whether the continental shelf and exclusive economic zone were part of India for income-tax purposes before the notification dated 31.03.1983, and whether salary income earned there prior to 01.04.1983 was chargeable to tax in assessment year 1983-84.

Analysis: Article 297 of the Constitution of India concerns the Union's rights in the territorial waters, continental shelf and exclusive economic zone, but it does not by itself make those areas part of the taxable territory for the Income-tax Act. The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 distinguishes between territorial waters, where sovereignty extends, and the continental shelf and exclusive economic zone, where India has only limited sovereign rights. Under sections 6(6) and 7(7) of that Act, an enactment can apply to those areas only when extended by notification, and the legal fiction operates from the date of such extension. The notification extending the Income-tax Act to those areas was made effective only from 01.04.1983 and contained no express retrospective provision. Since the assessees earned the salary during the previous year 1982-83, when those areas were not part of the taxable territory for income-tax purposes, the income could not be treated as income accrued or arisen in India during that previous year. The principle that assessment-year law applies does not permit tax to be imposed on income that arose in a territory not then governed by the Act, absent a specific deeming or retrospective provision.

Conclusion: The continental shelf and exclusive economic zone were not part of India for income-tax purposes before the notification dated 31.03.1983, and the salary income earned prior to 01.04.1983 was not chargeable to tax in assessment year 1983-84. The issue is decided in favour of the assessee and against the Revenue.

Final Conclusion: The reference was answered in the affirmative on the stated question of law, resulting in rejection of the Revenue's challenge and confirmation that the impugned salary income was outside the tax net for assessment year 1983-84.

Ratio Decidendi: A notification extending a fiscal enactment to a territory operates prospectively from its effective date unless a retrospective effect is expressly provided, and income arising before such extension cannot be taxed merely because it falls in the assessment year in which the Act later became applicable.

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