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TMI Blog1984 (7) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... as agent, have rendered services under an agreement and the ONGC filed returns of income in all the cases as representative-assessee. At the assessment stage, it was pleaded that the remuneration paid or payable outsideIndiato the non-residents or else to the residents who are not originally residents inIndia, be regarded as income accrued or arisen not inIndia. The ITO did not accept the contentions despite the reliance of the assessee on the reported decision of the Gujarat High Court in the case of CIT v. S.G. Pgnatale [1980] 124 ITR 391. The ITO framed the assessment, inter alia, on the reasoning that all the persons, who have worked for the ONGC, were stationed atBombay, inIndiaand it is a well established fact that the salaries earned and the services rendered by those persons were inIndia. In appeals, common contentions raised by the ONGC at the first appellate stage, read as under : "The admitted facts of this case are, that the appellant, (foreign technician) has been assessed in the status of resident but not ordinarily resident. The learned representative of the appellant, submitted that the facts of the instant case are almost similar as that of CIT v. S.G. Pgnatale [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the learned authorised representatives of the parties. For the revenue, strong reliance has been placed on the Explanation inserted with retrospective effect from1-4-1979by the Finance Act, 1983. This Explanation has been added to section 9(1)(ii) of the Income-tax Act, 1961 ('the Act') and reads as under : "Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ;" 4. With the insertion of this Explanation retrospectively from1-4-1979, by the Finance Act, 1983, the relevant provision, of law, viz., section 9(1)(ii) stands as under : "(1) The following incomes shall be deemed to accrue for arise inIndia-- (ii) income which falls under the head 'Salaries', if it is earned inIndia. Explanation : For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ;" 5. Shri J.S. Rao, the learned senior representative, has in view of this provision strongly contended that salary earned in India means payment recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eanings. One is the narrow meaning of rendering of services, etc. The word 'earned' is also used in the wide sense treating income as earned only if the assessee has contributed to its accrual or arising by rendering services and in respect of which a debt is created in his favour. Unless there is a debt in favour of the assessee by reason of his rendering services it cannot be said to be 'income earned' in the wide sense. There is a difference in the language used in clause (ii) and clause (iii) of section 9(1) of the Income-tax Act, 1961. In clause (ii) the Legislature has referred to income which falls under the head 'Salaries', if it is earned inIndia. In clause (iii) income chargeable under the head 'Salaries', payable by the Government to a citizen ofIndia, for service outsideIndiahas been referred to. Therefore, if the Legislature wanted to indicate that the word 'earned', in the context of salaries, was to have the narrower meaning, it would have specifically said so by referring in clause (ii) to the rendering of services at a particular situs. In view of the clear indication given by the Legislature itself by using a different phraseology in clause (iii) as compared with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inIndia. I am directed to invite a reference to your letter No. MF/29/73, dated 12-7-1973, and to say that income of the foreign 'non-resident' contractor attributable to the drilling operations confined to the off-shore areas about 80 miles off the Indian coast, will not be regarded as income accruing or arising within India within the meaning of section 5(1)(a) of the Income-tax Act, 1961, as such areas were not part of 'India' for the purposes of the said Act. If the business of drilling operations is undertaken by a foreign company and the control and management of its affairs is situated wholly inIndia, the company would become resident inIndiaand its entire income would be liable to be taxed inIndia. Yours faithfully, Sd/- (M.S. Unninayar) Director." It is clarified here that section 5 deals with the topic 'Scope of total income' and it also defines income deemed to be received, income accrues, income arises and deemed to accrue or arise inIndiaalso. If, according to the above-mentioned letter, for the purposes of section 5, drilling operations confine to off-shore areas and the resultant income therefrom is not to be taken as accruing or arising in India since thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial waters, the continental shelf, the exclusive economic zone or any other maritime zone of India, means the limit of such waters, shelf or zone with reference to the mainland ofIndiaas well as the individual or composite group or groups of islands constituting part of theterritoryofIndia." According to section 3 of the said Act, sovereignty ofIndiastands extended as under : "(1) The sovereignty ofIndiaextends and has always extended to the territorial waters ofIndia(hereinafter referred to as the territorial waters) and to the seabed and subsoil underlying, and the air space over such waters. (2) The limit of the territorial waters, is the line every point of which is at a distance of 12 nautical miles from the nearest point of the appropriate base line. (3) Notwithstanding anything contained in sub-section (2), the Central Government may, whenever it considers necessary so to do having regard to International Law and State Practice, alter by notification in the Official Gazette, the limit of the territorial waters. (4) No notification shall be issued under sub-section (3) unless resolutions approving the issue of such notification are passed by both Houses of Parliame ..... X X X X Extracts X X X X X X X X Extracts X X X X
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