Prospective territorial extension of income tax law barred tax on pre-extension income and lay-off salary outside India.

A taxing notification extending the Income-tax Act to the continental shelf and exclusive economic zone operated prospectively from 1 April 1983 and, absent express retrospective language, did not apply to income of the earlier previous year relevant to assessment year 1983-84. On that basis, income accruing before the territorial extension could not be taxed merely because the assessment year fell after the notification. Salary paid for a lay-off period outside India was likewise not chargeable under section 9(1)(ii), because the Act had not yet applied to that territory during the relevant period. The reference was answered in favour of the assessee.

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Issues: (i) Whether the notification extending the Income-tax Act to the continental shelf of India applied to income of the previous year relevant to assessment year 1983-84; (ii) Whether salary paid for the lay-off period outside India was chargeable under section 9(1)(ii) of the Income-tax Act, 1961.

Issue (i): Whether the notification extending the Income-tax Act to the continental shelf of India applied to income of the previous year relevant to assessment year 1983-84.

Analysis: The notification extended the Income-tax Act to the continental shelf and exclusive economic zone with effect from 1 April 1983. The decisive question was whether that extension could be applied to income accrued in the earlier previous year. The Court followed the view that, in the absence of an express retrospective provision, income accruing during a period when the Act was not applicable in the relevant territory could not be taxed merely because the assessment year fell after the extension.

Conclusion: The notification did not apply to income of the previous year relevant to assessment year 1983-84, and the issue was decided in favour of the assessee.

Issue (ii): Whether salary paid for the lay-off period outside India was chargeable under section 9(1)(ii) of the Income-tax Act, 1961.

Analysis: Since the continental shelf extension operated only from 1 April 1983 and the salary in question related to the period outside India when the Act was not yet applicable to that territory, the salary could not be treated as income chargeable under section 9(1)(ii).

Conclusion: The salary for the lay-off period outside India was not chargeable to tax, and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered entirely in favour of the assessee, confirming that the territorial extension of the Income-tax Act did not fasten tax liability on income earned before its effective application to the continental shelf.

Ratio Decidendi: A taxing notification extending the territorial reach of the Act operates prospectively unless it expressly provides otherwise, and income accruing in a period when the Act was not applicable to the relevant territory cannot be taxed merely because the assessment year falls after the extension.

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