1986 (8) TMI 444 - AT - Income Tax

Summary

Issues:
1. Taxability of salary earned by the assessee in India for assessment year 1974-75.

Detailed Analysis:
The primary issue in this case before the Appellate Tribunal ITAT Mumbai was whether the salary earned by the assessee, who was the Chief Engineer of a vessel outside the territorial limits of India, is taxable in India for the assessment year 1974-75. The initial assessment treated the assessee as a "resident" despite claiming status as a "non-resident," prompting a revision petition by the assessee. The CIT directed the ITO to re-examine the taxability of the salary income, leading to subsequent assessments and appeals.

The Revenue contended that since the employer, Shipping Corporation of India, is an Indian company with its office in India and utilized funds from India to pay the salary, the income accrued within Indian limits under section 5(2)(b). On the other hand, the assessee argued that the situs of the agreement or source of payment is not determinative, emphasizing that the place where services were rendered is crucial in determining where the income accrued, citing various legal precedents.

Upon considering the submissions and legal authorities, the Tribunal held that the location where services were rendered is pivotal in determining the accrual of income. The Tribunal emphasized that the place of the agreement or source of payment is not decisive, but rather where the services were actually provided. The Tribunal referenced case law and clarified that the place of payment is not a decisive factor in determining taxability, emphasizing that the income earned by the assessee outside India is not taxable in India.

Additionally, the Tribunal examined the Service Conditions for floating Staff Personnel of Shipping Corporation of India and clarified that the advance payments made to the assessee were based on earnings in foreign waters, indicating that substantial income was earned outside Indian territories. The Tribunal also referenced a CBDT circular regarding advances paid to seamen in foreign currency, supporting the position that income earned outside India qualifies for deduction under the IT Act.

Ultimately, the Tribunal concluded that the salary income earned by the assessee outside India as a Chief Engineer of a vessel is not taxable in India. Therefore, the appeal by the Revenue was dismissed, upholding the decision of the AAC that the salary is not subject to taxation in India for the assessment year in question.