Offshore salary taxation: non-resident pay for work on a foreign ship outside territorial waters was held non-taxable in India.

A non-resident's salary for services performed on a foreign ship in the Exclusive Economic Zone was held not taxable in India because the work was outside territorial waters and was not shown to fall within offshore activities specifically covered by the applicable notification. The note also records that a valid scrutiny notice under section 143(2) did not need to be reissued merely because the Assessing Officer changed, and that the assessment was not barred by limitation where the draft assessment order was issued within time and the section 144C procedure was followed. The procedural objections therefore failed, while the offshore salary addition was deleted.

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Issues: (i) Whether the assessment was barred by limitation under the applicable procedure. (ii) Whether a fresh notice under section 143(2) of the Income-tax Act, 1961 was required on change of incumbent Assessing Officer. (iii) Whether salary earned by a non-resident for work performed on a foreign ship in the Exclusive Economic Zone was taxable in India.

Issue (i): Whether the assessment was barred by limitation under the applicable procedure.

Analysis: The assessment was completed after issuance of the draft assessment order under the special procedure. The draft order had been issued within the permissible period and the final order followed the statutory sequence under section 144C of the Income-tax Act, 1961.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether a fresh notice under section 143(2) of the Income-tax Act, 1961 was required on change of incumbent Assessing Officer.

Analysis: The initial notice under section 143(2) had been validly issued after selection for scrutiny. The statutory scheme did not require repetition of the notice every time the incumbent Assessing Officer changed, so long as the assessee had been afforded due opportunity in the assessment proceedings.

Conclusion: The issue was decided against the assessee.

Issue (iii): Whether salary earned by a non-resident for work performed on a foreign ship in the Exclusive Economic Zone was taxable in India.

Analysis: The controversy turned on the interaction between the definition of India, the territorial and maritime zones legislation, the notification extending the Act to specified offshore activities, and the rule taxing income accruing from services rendered in India. The work was performed on a foreign ship beyond territorial waters, and the activities were not shown to fall within the specified taxable offshore activities covered by the notification. The residential status as non-resident was also accepted on the record.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The procedural objections failed, but the addition relating to salary income from offshore work was deleted, leaving only partial relief to the assessee.

Ratio Decidendi: Salary earned by a non-resident from services performed beyond territorial waters on a foreign ship is not taxable in India unless the services fall within the offshore activities specifically brought within the Act by the applicable notification.

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