1988 (4) TMI 24 - HC - Income Tax

Income beyond territorial waters not taxable under Income-tax Act, 1961. Invalid tax notice to ONGC. Refund ordered.

The court held that income accrued beyond India's territorial waters during the accounting year 1982-83 is not subject to the Income-tax Act, 1961. The ... Income From Offshore Activity, Notice U/S 226(3) Issues Involved:1. Applicability of Income-tax Act, 1961, to income accrued in the continental shelf or economic zone beyond territorial waters before the notification date.2. Validity of notice u/s 226(3) of the Income-tax Act, 1961, issued to ONGC for tax dues of the petitioner.3. Refund of the amount deposited by ONGC to the respondents.Summary:1. Applicability of Income-tax Act, 1961:The primary issue was whether the income accrued within the continental shelf or economic zone but beyond the territorial waters of India during the accounting year April 1, 1982, to March 31, 1983, is subject to income-tax u/s 1961. The court held that income-tax is levied on income accrued during the previous accounting year. Since the territory where the income arose was beyond 12 nautical miles and the Income-tax Act was not applicable during that accounting year, income-tax cannot be levied on such income. The notification dated March 31, 1983, extending the Income-tax Act to the continental shelf and economic zone, did not have an express provision to cover income accruing in the previous year. Therefore, the income arising in the accounting year April 1, 1982, to March 31, 1983, is not subject to the Income-tax Act, 1961.2. Validity of Notice u/s 226(3):The ONGC was directed to deposit Rs. 82,59,862 due to Hyundai Heavy Industries Co. Ltd. (respondent No. 7) for the alleged tax dues of the petitioner. The court found that the ONGC was not liable to pay any part of the amount to the petitioner as the contract was between ONGC and Hyundai Heavy Industries Co. Ltd., and the petitioner had a subcontract with Hyundai Heavy Industries Co. Ltd. The notice u/s 226(3) was in violation of the provisions of the section as the amount was not due to the petitioner from ONGC. Moreover, since the petitioner was not liable to pay tax on income accrued in the accounting year 1982-83 for work done beyond 12 nautical miles, the notice was deemed invalid.3. Refund of Amount:The court directed respondents Nos. 1 to 5 to refund the amount to respondent No. 7 with interest at the rate of 15% per annum as prescribed u/s 244. The ONGC was instructed to hand over the amount together with interest to the seventh respondent. Respondents Nos. 1 to 5 were also ordered to pay the petitioner the costs of the petition.Conclusion:The court made the rule absolute in terms of prayers (a), (b), and (c), directing the immediate return of the amount to ONGC with interest, which ONGC should then transfer to respondent No. 7. Respondents Nos. 1 to 5 were also directed to bear the petitioner's costs.