Taxability of non-resident salary in the exclusive economic zone depended on the notification's effective date and no retrospective charge applied.

Salary earned by non-resident employees for services on an oil rig in the exclusive economic zone was held not chargeable to tax for assessment year 1983-84, because the Income-tax Act was extended to that territory only from 1-4-1983. The statutory fiction under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 applies only when a notification extends the enactment to the area, and that extension could not be given retrospective effect. As the income had accrued before the effective date, the exclusive economic zone was not taxable territory for the relevant previous year and the salary escaped tax.

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Issues: Whether salary earned by non-resident employees for services rendered on an oil rig operating in the exclusive economic zone was chargeable to tax for the assessment year 1983-84 in view of the notification extending the Income-tax Act to that with effect from 1-4-1983.

Analysis: The liability of a non-resident to tax depends on income accruing or arising in India during the previous year. The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 creates a statutory fiction by which the continental shelf and exclusive economic zone are treated as part of India only when the Central Government extends an enactment to those areas by notification. The notification extending the Income-tax Act to the continental shelf and exclusive economic zone operated only from 1-4-1983 and was limited to specified categories of income. On the materials considered, the exclusive economic zone was not taxable territory for the previous year relevant to assessment year 1983-84, and applying the notification to income already earned before that date would amount to giving it impermissible retrospective effect.

Conclusion: The salary income earned before 1-4-1983 was not chargeable to tax for assessment year 1983-84, and the assessee succeeded on the point.

Ratio Decidendi: A notification extending a taxing statute to a new territory operates only from its stated effective date, and income must have accrued in taxable territory during the relevant previous year before it can be brought to charge in the assessment year.

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