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2024 (7) TMI 841 - AT - Income TaxValidity of assessment order passed beyond the time limit prescribed u/s 153 - HELD THAT - We concur with the Ld.CIT(A)'s observation that the assessment order dated 22/10/2021 was issued within the statutory time limit as prescribed by Section 144C(4) of the Act. The provision of draft assessment order u/s 144C of the Act is intended to benefit the assessee by allowing an opportunity to resolve contentious issues before the final order is passed. Further it is noted from the submission by the assessee before Ld.CIT(A) that the Continuous Discharge Certificate (CDC) and passport entries are sufficient evidence to prove that the assessee was non-resident during the financial year under consideration and the same was verified by the AO. Passing the Assessment Order by the successor AO without issuing fresh notice u/s. 143(2) of the Act up on change - Issuance of a fresh notice u/s 143(2) of the Act by each successor AO is not mandated by law. The procedural compliance of issuing the initial notice was adhered to, and the appellant was afforded an adequate opportunity to be heard. Consequently, this ground of appeal is dismissed. Income deemed to accrue or arise in India - Addition of salary income in the hands of assessee being earned from the activity within India - assessee contented that the assessee is in employment with Singapore based company, and place of duty is on ship engaged in underwater inspection of platforms, appurtenances, and pipelines in the KG-06 Oil Fields in the Bay of Bengal, specifically within international waters - whether the salary income earned by the assessee is exempt under the Income Tax Act, 1961, given the nature and location of the employment? - HELD THAT - As per Section 2(25A) of the Income Tax Act, 'India' includes its territorial waters, the seabed and subsoil underlying such waters, the continental shelf, the Exclusive Economic Zone (EEZ), and other maritime zones as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976. Operations on a foreign ship within the EEZ, especially those not involving direct interaction with the seabed or subsoil, are not automatically considered as services rendered within 'India' for tax purposes. Notification No. GSR 304(E) specifically extends the Act ONLY in respect of income derived from specified activities. CIT(A) has failed to consider the fact that sub-section 9 of section 7 of The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 gives freedom of navigation to foreign ships and therefore employees working on such ships who are not carrying out activities as specified by the said notification are not deemed to be working in India. Section 9(1)(ii) of the Income Tax Act, 1961 states that income earned from services rendered in India is taxable. Since the assessee's duties, which are not covered by Notification No. GSR 304(E), are performed on a foreign ship operating beyond the territorial waters (though within the EEZ) it can be concluded that the services are not rendered in India. Given the facts and relevant legal provisions if the assessee qualifies as an NRI under Section 6 of the Income Tax Act, the salary income earned from services performed outside the territorial waters of India is exempt under the Act. Since AO has passed his order u/s. 143(3) r.w.s. 144C(3) of the Act and that he has verified the CDC of the assessee, it is concluded that AO has confirmed the residential status as Non-resident. Therefore, as a result of the discussion made hereinabove, the salary income earned by the assessee is exempt income . Thus, this ground of assessee s appeal is allowed and the addition is hereby deleted.
Issues Involved:
1. Whether the assessment order dated 22/10/2021 was passed beyond the time limit prescribed under Section 153 of the Income Tax Act. 2. Whether the assessment order was passed without issuing a fresh notice under Section 143(2) upon the change of the Assessing Officer. 3. Whether the salary income of Rs. 61,74,262/- earned by the assessee from working on a foreign ship beyond the territorial waters of India is taxable under the Income Tax Act. Issue-wise Detailed Analysis: Issue 1: Time Limit for Assessment Order The Assessee contended that the assessment order dated 22/10/2021 was passed beyond the time limit prescribed under Section 153 of the Income Tax Act. The Ld.CIT(A) dismissed this ground, stating that the draft assessment order was passed on 03/09/2021, and the final assessment order was passed on 22/10/2021, which is within the time limit provided under Section 144C(4) of the Act. The provision of the draft assessment order is a beneficial provision for the assessee, allowing an opportunity to resolve contentious issues before the final order is passed. The Tribunal concurred with the Ld.CIT(A)'s observation and dismissed this ground of appeal. Issue 2: Issuance of Fresh Notice under Section 143(2) The Assessee argued that the assessment order was passed without issuing a fresh notice under Section 143(2) upon the change of the Assessing Officer. The Ld.CIT(A) dismissed this ground, concluding that the notice under Section 143(2) was issued by the erstwhile AO after the selection of the case for scrutiny. It was also noted that there is no recurring obligation for each successor AO to issue a fresh notice under Section 143(2). The Tribunal agreed with this conclusion, stating that the procedural compliance was adhered to, and the appellant was given an adequate opportunity to be heard. Consequently, this ground of appeal was dismissed. Issue 3: Taxability of Salary Income Earned Beyond Territorial Waters The core issue revolved around whether the salary income of Rs. 61,74,262/- earned by the assessee from working on a foreign ship beyond the territorial waters of India is taxable under the Income Tax Act. The Assessee contended that his place of duty was on a foreign ship engaged in underwater inspection within the Exclusive Economic Zone (EEZ) of India, which is not part of India as per Section 2(25A) of the Act. The Ld.CIT(A) dismissed this ground, stating that the income earned by the assessee is for activities within India and is taxable under Section 5(2) r.w.s. 9(1)(ii) of the Act. The Tribunal analyzed the relevant legal provisions and facts, noting that the EEZ extends up to 200 nautical miles from the baseline but does not constitute territorial waters. Operations on a foreign ship within the EEZ are not automatically considered as services rendered within 'India' for tax purposes. Notification No. GSR 304(E) extends the Income Tax Act only in respect of income derived from specified activities, which did not include the activities performed by the assessee. The Tribunal concluded that the salary income earned by the assessee from services performed outside the territorial waters of India is exempt under the Act, given the assessee qualifies as an NRI under Section 6 of the Income Tax Act. Consequently, the addition of Rs. 61,74,262/- was deleted, and this ground of the assessee's appeal was allowed. Conclusion: The Tribunal dismissed the grounds related to the time limit for the assessment order and the issuance of a fresh notice under Section 143(2). However, it allowed the ground related to the taxability of the salary income, concluding that the income earned by the assessee from services performed outside the territorial waters of India is exempt under the Income Tax Act. The appeal of the Assessee was partly allowed.
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