1994 (11) TMI 33 - HC - Income Tax

Summary

Issues Involved:

1. Whether the continental shelf and exclusive economic zone formed part of India prior to the notification dated March 31, 1983.
2. Whether the salary income earned by the assessees prior to April 1, 1983, is chargeable to tax under the Income-tax Act, 1961, in the assessment year 1983-84.

Summary:

Issue 1: Continental Shelf and Exclusive Economic Zone as Part of India Prior to Notification

The court examined whether the continental shelf and exclusive economic zone were part of India before the notification dated March 31, 1983. It referenced Article 297 of the Constitution and sections 6 and 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976. The court noted that while territorial waters are part of India, the continental shelf and exclusive economic zone are not unless a notification extends Indian law to these areas. The Tribunal provided eight reasons supporting this view, including the necessity of sections 6(6) and 7(7) for extending laws to these areas and the implications of the Finance Act, 1981, and related legislative practices. The court agreed with the Tribunal that prior to April 1, 1983, these areas were not part of India for tax purposes.

Issue 2: Taxability of Salary Income Earned Prior to April 1, 1983

The court considered whether the salary income earned by the assessees before April 1, 1983, was taxable under the Income-tax Act, 1961, for the assessment year 1983-84. The court noted that the notification dated March 31, 1983, extended the Income-tax Act to the continental shelf and exclusive economic zone from April 1, 1983. However, for income to be taxable, it must have accrued in the taxable territory during the previous year. Since the continental shelf and exclusive economic zone were not part of India during the previous year relevant to the assessment year 1983-84, the income earned there was not taxable. The court referenced past legislative practices and judicial decisions, including CIT v. Valliammai Achi and similar cases, which supported this interpretation. The court concluded that the salary income earned by the assessees prior to April 1, 1983, was not chargeable to tax for the assessment year 1983-84.

Conclusion:

The court held that the continental shelf and exclusive economic zone were not part of India prior to the notification dated March 31, 1983, and that the salary income earned by the assessees before April 1, 1983, was not taxable for the assessment year 1983-84. The question referred to the court was answered in the affirmative and against the Revenue.