Salary for services on foreign-going ship not taxable in India under Sections 9(1)(ii) and 15 Income Tax Act

HC held that salary earned by a non-resident individual for services rendered outside India on a foreign-going ship did not accrue or arise in India and was not taxable under s. 9(1)(ii) read with s. 15 of the IT Act. Relying on precedent that only salary "earned in India" is taxable, HC noted the assessee worked abroad for 225 days and the income in dispute accrued outside India. The Explanation to s. 9(1)(ii) did not alter this position. The Revenue's appeal was rejected and dismissed as devoid of merit.

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Issues:
1. Correctness and legality of the Tribunal's order in ITA No. 1137/Bang/2008.
2. Taxability of salary income earned by an individual under the status of "non-resident" for the assessment year 2005-06.
3. Interpretation of s. 5(2)(b) and s. 15 of the Income Tax Act, 1961 regarding the taxability of salary earned outside India.
4. Applicability of the principle established in the case of CIT vs. Avtar Singh Wadhwan (2001) to the present case.

Analysis:
1. The Revenue appealed against the Tribunal's order, challenging the taxability of an individual's salary income earned outside India. The assessee initially filed as a "non-resident," declaring income of Rs. 85,230 for the assessment year 2005-06. The Assessing Officer (AO) later deemed a portion of the salary received by the assessee as taxable in India under s. 5(2)(b), resulting in a tax demand. The CIT(A) overturned this decision, stating that the salary earned outside India was exempted from tax. The Tribunal upheld the CIT(A)'s decision, emphasizing that the salary was paid for work done outside India, making it non-taxable in India.

2. The Tribunal's decision was based on the interpretation of s. 5(2)(b) and s. 15 of the Income Tax Act, 1961. The Tribunal ruled that salary income is taxable on an accrual basis under s. 15, but only if the services are rendered in India. Since the salary in question was earned for work done outside India, it did not fall within the definition of taxable income in India. The Tribunal rejected the Revenue's argument that the salary should be considered taxable, emphasizing that services rendered outside India are not subject to Indian taxation.

3. The Tribunal referenced the case of CIT vs. Avtar Singh Wadhwan (2001) to support its decision. In that case, it was established that salary earned by a non-resident for services on a foreign-going Indian ship, away from Indian shores, was not taxable in India. The Tribunal applied the principle from this case to the present situation, highlighting that income earned outside India for work done outside India is not subject to Indian taxation.

4. The Tribunal dismissed the Revenue's appeal, stating that no substantial question of law was involved. It emphasized that the income earned by the assessee outside India did not accrue in India and was not deemed to have accrued in India. Therefore, the Tribunal upheld the decision that the salary income was not taxable in India. The appeal was dismissed, and no costs were awarded.

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