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TMI Blog1994 (11) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... e No. 5147/F. No. 133(79)/82 TPL, dated March 31, 1983, issued under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976, the salary received by the assessees for the services rendered in India became liable to tax under the Income-tax Act, 1961. The assessees filed their respective returns and paid tax on self-assessments. Thereafter, on the basis of the various opinions, the assessees filed revised returns on November 5, 1983, with " Nil " taxable income on the ground that the notification under the Territorial Waters, Continental Shelf and Exclusive Economic Zones Act was applicable only from the assessment year 1984-85 relevant to the previous year 1983-84. In other words, the assessees contended that the notification dated March 31, 1983, applies only prospectively and not retrospectively. The assessees' contention that the notification referred to earlier applies only from the assessment year 1984-85 onwards was not accepted by the Income-tax Officer, since according to him, the notification came into force with effect from April 1, 1983, and the provisions of the Income-tax Act, 1961, would apply to the continental shelf and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended on behalf of the Department before the Tribunal that in any event, Notification G. S. R. No. 304(E), dated March 31, 1983 is applicable to the assessment year 1983-84, and, therefore, the salary received by the assessees during the accounting year 1982-83 is liable for income-tax. The Tribunal, after considering the contentions of the Revenue and the assessees, found that while it is true that the law prevailing on the first day of the assessment year has to be applied for that year, still before applying such law, it must also be found that the income has accrued or arisen to the assessee in the taxable territories during the previous year relevant to the assessment year before it could be taxed on the basis of the law as on the first day of April. The Tribunal has further held that the continental shelf and the exclusive economic zone were not part of the taxable territory during the previous year relevant to the assessment year 1983-84. Accordingly, the Tribunal held that the salary income earned by the assessees prior to April 1, 1983, cannot be charged to tax under the provisions of the Income-tax Act, 1961, in the assessment year 1983-84. In that view of the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic zone of India with effect from the 1st day of April, 1983, that the continental shelf and exclusive economic zone became part of India long before the issue of Notification G. S. R. No. 304(E), with effect from October 5, 1963, when article 297 of the Constitution of India was amended by the Constitution (Fifteenth Amendment) Act, 1963, and that, therefore, the income earned by the assessees during the accounting year 1982-83 is subject to income-tax in the assessment year 1983-84. Learned senior counsel for the Revenue further contended that even assuming for the purpose of argument that the continental shelf and exclusive economic zone became part of India with effect from April 1, 1983, it makes no difference as far as the taxability of that income is concerned, because, the income-tax is levied on the basis of the law prevailing in the assessment year, on the income of the previous year and, therefore, the income earned by the assessees during the accounting year 1982-83 is taxable for the assessment year 1983-84 as per the law prevailing in the assessment year. According to learned senior counsel for the Revenue, the order of the Tribunal taking a different view and hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution does not itself define the terms " territorial waters ", " continental shelf " and " exclusive economic zone ", clause (3) of article 297 states at their limits shall be such as may be specified by Parliament. In 1976, Parliament implemented the amendments introduced to the Constitution of India in the years 1973 and 1976 by passing the Act known as the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Act 80 of 1976), relating to territorial waters, the continental shelf, the exclusive economic zone and maritime zones. The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (hereinafter referred to as " the Act "), under section 3(2) prescribes the limit of the territorial waters as 12 nautical miles from the nearest point of the appropriate baseline. Section 3(1) states that the sovereignty of India extends and has always extended to the territorial waters of India. Under section 6(1) of the Act, the continental shelf of India extends to a distance of 200 nautical miles from the baseline referred to in sub-section (2) of section 3 where the outer edge of the continental mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive economic zone and further provide that an enactment so extended shall have effect as if the continental shelf or the exclusive economic zone to which the enactment has been extended is a part of the territory of India. Thus sections 6(6) and 7(7) create a fiction by which, the continental shelf and the exclusive economic zone are to be deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by notification in the Official Gazette. Under Notification bearing G. S. R. No. 304(E), dated March 31, 1983, issued in exercise of the powers under sub-section (6) of section 6 and sub-section (7) of section 7 of the Act, the Central Government extended the Income-tax Act, 1961, to the continental shelf of India and the exclusive economic zone of India with effect from April 1, 1983, subject to the restriction that the Income-tax Act shall apply only in respect of income derived by every person from any of the following activities : (a) the prospecting for or extraction or production of mineral oils in the continental shelf of India or the exclusive economic zone of India ; (b) the provision of any services or faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make exemption, reduction in rate or modification in respect of income-tax in favour of persons who are in the business of prospecting for or extraction or production of mineral oils, etc. The intention of the Legislature can also be seen from the Memorandum explaining the provisions in the Finance Bill, 1981. The relevant portions of the Memorandum are as under--- '31. Measures for facilitating the association or participation of foreign companies in oil exploration and production. ---- The provisions of the Income-tax Act extend to the whole of India. For this purpose, India includes the territorial waters up to 12 nautical miles from the nearest point of the appropriate baseline. Under the existing provisions, in the case of non-residents only income accruing or arising to or received in India is chargeable to income-tax. 32. The Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976, provides that the exclusive economic zone of India is an area adjacent to the territorial waters and the limit of such zone is 200 nautical miles from the baseline. In this exclusive economic zone, the Central Government has sovereign rights for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said notification, dated 31st March, 1983, was self-speaking as according to that notification, the Income-tax Act had been extended to these areas only with effect from 1st April, 1983. In other words, the Income-tax Act did not apply to these areas prior to that date. The Tribunal held that prior to 1st April, 1983, the provisions of the Income-tax Act were not applicable to the continental shelf and the exclusive economic zone of India (see paragraphs 10 and 11 at pages 576 and 577). (7) A plain reading of article 1(3) of the Constitution of India would indicate that it is only the land mass and the territorial waters to the extent of 12 nautical miles from the baseline of the different States of India and the sea-bed and sub-soil underlying such waters that would form part of the territory of India and to which the Income-tax Act would originally extend. (See Seervai's Constitutional Law of India, Third edition, Vol. II, pages 1804, 1805, paragraph 19.41). (8) The Assessing Officer has also proceeded on the basis that the income arising to the assessees on account of their services in these areas is chargeable only because of the said notification extending the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a provincial subject even within the territorial waters of India. Thus, it is clear from a reading of article 297 that the said article confers on the Union certain rights in respect of the continental shelf and the exclusive economic zone, to enable the Union to exploit these areas as against the States and there is nothing in the said article 297 to show that the continental shelf and the exclusive economic zone always formed part of the territory of India, even prior to the issue of Notification G. S. R. No. 304(E), dated March 31, 1983, as contended by learned senior counsel for the Revenue. As rightly pointed out by learned senior counsel appearing for the assessees, if the contention of learned senior counsel for the Revenue that in view of article 297, the continental shelf and the exclusive economic zone always form part of India is accepted, it would render sections 6(6) and 7(7) of the Act and the notification issued by the Central Government in G. S. R. No. 304(E), dated March 31, 1983, redundant. Again such a contention of learned counsel for the Revenue cannot be countenanced as it runs counter to the provisions contained in article 1(3) of the Constitution. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, Notification G. S. R. No. 304(E), dated March 31, 1983, could have been made effective only from a particular assessment year. Learned senior counsel for the Revenue further contended that the assessment orders passed by the Assessing Officer in the present batch of cases are legal and proper, because, what is being taxed is the income of the previous year as per the law applicable for the assessment year 1983-84. In support of his contention, learned senior counsel for the Revenue relied on the following decisions : 1. Union of India v. Madan Gopal Kabra [1954] 25 ITR 58 (SC) ; and 2. CIT v. H. E. H. Mir Osman Ali Bahadur [1966] 59 ITR 666 (SC). However, we are unable to accept the above contention of learned senior counsel for the Revenue. By virtue of the notification issued by the Central Government in G. S. R. No. 304(E), dated March 31, 1983, the Income-tax Act, 1961, is extended to the continental shelf of India and the exclusive economic zone of India with effect from April 1, 1983, subject to the restriction and modification, that the said Act shall apply only in respect of income derived by every person from all or any of the activities mentioned th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On March 31, 1983, since the continental shelf and exclusive economic zone were not part of India, the services rendered by the assessees in the exclusive economic zone, till March 31, 1983, cannot be considered as services rendered in India and, therefore, such income cannot be treated as income accruing or arising to the assessees during the accounting year 1982-83 in India. As already pointed out, by Notification G. S. R. No. 304(E), dated March 31, 1983, the Income-tax Act was made applicable to the continental shelf and exclusive economic zone, from April 1, 1983, i.e., to say from the assessment year 1983-84. But the income-tax is actually levied on income which accrued during the previous accounting year which is from April 1, 1982, to March 31, 1983. Inasmuch as the territory in which the income arose was beyond 12 nautical miles, the Income-tax Act was not applicable to such income during the accounting year 1982-83. Therefore, income-tax cannot be levied on income which accrued during the said period when the territory in which it accrued was not part of India and consequently, not governed by the Income-tax Act, 1961. In CIT v. Valliammai Achi [1938] 6 ITR 720 (Mad), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arising in British India in the 'previous year' is assessable under the Income-tax Act though the place of accrual has ceased to be a part of British India in the year of assessment (vide CIT v. Valliammai Achi [1938] 6 ITR 720 (Mad)). " In the three decisions referred to above, the courts were considering a situation which arose out of certain territory ceasing to form part of the taxable territory on the first day of the assessment year. The present case is a converse case in which we are concerned with a situation where the territory which did not form part of India during the previous year but formed part of India for purpose of levy of income-tax during the assessment year 1983-84, and, therefore, the ratio of the three decisions referred above is directly applicable to the facts of the present case. In view of our finding recorded earlier that the continental shelf and exclusive economic zone, where the assessees worked and earned salaries in the accounting year 1982-83, did not form part of India during the accounting year, but formed part of India after the expiry of the accounting year 1982-83, with effect from April 1, 1983, by virtue of Notification No. G.S.R. 304( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1963-64 onwards (see Kanga and Palkhivala's Law and Practice of Income-tax, 7th edition, vol. 1, pages 58, 59). Therefore, it is clear that whenever the Legislature wanted the income of a previous year arising in territories which did not form part of India when the income arose to be assessed to tax in India, it deemed these territories to be part of India during the previous year for the purposes of the Income-tax Act. 47. According to the facts appearing in the present cases, neither the Legislature nor the Central Government has made any such provision. In fact, it is seen that sections 6(6) and 7(7) of the Territorial Waters Act indicate an intention to the contrary, inasmuch as they specifically provide for the operation of the enactment only from the date of its extension and deem the continental shelf and the exclusive economic zone to be a part of India only from the date of the notification and not earlier. " Now, let us consider the decisions heavily relied on by learned senior counsel for the Revenue. In Union of India v. Madan Gopal Kabra [1954] 25 ITR 58 (SC), the respondent resided and carried on business in the District of Jodhpur in Rajasthan which was one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. After the extension of the Act to the Hyderabad State the charge was under the Act and not under the provisions of the previous law. Thereafter, the charge as well as the manner of computation of income did not depend upon the pre-existing law, but only upon the provisions of the Act. Applying the said principles to the instant case, it is manifest that after January 26, 1950, the assessee ceased to be a ruling chief and he was, therefore, liable to assessment under the Act. If he was assessable to tax, the statutory charge on his income during the previous year was only traceable to the Act, which was retroactive in operation to that extent. His right to exemption, if any, under international law during the accounting year was irrelevant to the question of taxation under the Act, as the said law ceased to apply to him during the assessment year. " In that case, the respondent, who prior to January 26, 1950, was the Nizam of Hyderabad, claimed exemption from tax under the Indian Income-tax Act, 1922, for the assessment year 1950-51. By virtue of the amendment introduced to the Indian Income-tax Act, 1922, by the Finance Act, 1950, by inserting section 2(14A), the Indian Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less to say that when there was an amendment to the Indian Income-tax Act, 1922, in the form of section 2(14A) by the Finance Act of 1950, the said Act with its amendment has retrospective effect. But, in the present case, there is no amendment to the Income-tax Act, 1961, similar to the one introduced to the Indian Income-tax Act, 1922, by the Finance Act, 1950, inserting section 2(14A). On the other hand, in the present case, there is only a notification issued by the Central Government in G.S.R. No. 304(E), dated March 31, 1983, which came into force on April 1, 1983, and the said notification dated March 31, 1983, cannot be interpreted so as to make it operative retrospectively. It is a settled position of law that a subordinate authority cannot exercise its powers in such a manner that its action has retrospective effect (vide ITO v. M. C. Ponnoose [1970] 75 ITR 174 (SC) and Bakul Cashew Co. v. STO [1986] 159 ITR 565 (SC)). Therefore, it cannot be held that Notification No. G.S.R. 304(E), dated March 31, 1983, is bringing to charge income which had accrued prior to the date of its coming into force as that would have the effect of giving retrospective effect to the said notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year relevant to the assessment year 1983-84. A notice under section 226(3) of the Income-tax Act, 1961, was also issued to the O.N.G.C. requesting them to pay forthwith any amount held by it for or on account of H of whom the petitioner was a sub-contractor which was complied with by the O.N.G.C. In that case, the question arose whether, by virtue of the notification which came into effect from April 1, 1983, the income which had accrued to the employees of the petitioner within the area of the continental shelf or economic zone, and beyond the territorial waters of India, in the accounting year April 1, 1982, to March 31, 1983, was subject to income-tax under the Income-tax Act, 1961. The learned single judge of the Bombay High Court held that the relevant assessment year is 1983-84, when the Income-tax Act, 1961, was made applicable to the continental shelf and the exclusive economic zone of India by virtue of Notification No. G.S.R. 304(E), dated March 31, 1983. The learned judge further found that the income-tax is actually levied on income which accrued during the previous accounting year 1982-83, and as the territory in which the income arose was beyond 12 nautical miles ..... X X X X Extracts X X X X X X X X Extracts X X X X
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