1988 (3) TMI 95 - AT - Income Tax

Summary

Issues:
1. Taxability of salary earned by an Indian citizen working on a ship registered in India outside the territorial waters of India.

Analysis:
The primary issue in this appeal before the Appellate Tribunal ITAT BOMBAY-C was whether the salary earned by an Indian citizen working on a ship registered in India outside the territorial waters of India is taxable. The assessee, a captain of a ship registered in India, contended that he was a non-resident and thus his salary income was not taxable. However, the Income Tax Officer (ITO) held that since the assessee was an employee of an Indian company, his income was taxable. The Commissioner also ruled in favor of taxability, stating that the ship partook the characteristics of the territory of the country to which it is identified, thereby considering the services rendered by the assessee as within India.

Regarding the legal arguments presented, the assessee relied on the interpretation of section 2(25A) which defines 'India' and excludes a ship registered in India. Additionally, the assessee highlighted the exemption granted under section 80RRA of the Income Tax Act and referenced section 4 of the Indian Penal Code to support the position that a ship registered in India is not normally considered part of India. Conversely, the Departmental Representative argued that the control of the ship was in India, the salary was paid in India, and tax was deducted in India. The representative also cited international law and previous tribunal decisions to support the position that an attack on an Indian ship is considered an attack on India.

In its analysis, the Tribunal considered various legal provisions and precedents. The Tribunal noted that under section 2(25A), 'India' includes territories mentioned therein, implying that an Indian ship is included in 'India'. The Tribunal also referenced the Citizenship Act to support the view that a ship registered in India is considered part of India. Furthermore, the Tribunal addressed the argument related to the exemption under section 80RRA, pointing out that its availability to the assessee indicated that the income would otherwise be taxable in India.

Ultimately, the Tribunal held that the salary paid to the assessee would be subject to income tax. The Tribunal emphasized the need to avoid unreasonable results in interpretation, highlighting that not taxing salary earned by a person working on an Indian ship outside territorial waters would lead to an anomalous situation compared to taxing a person working on an Indian ship within territorial waters. Consequently, the appeal was dismissed, affirming the taxability of the salary earned by the assessee while working on the ship registered in India.