Income Tax Appellate Tribunal - Mumbai
Capt. A.L. Kapoor vs First Income-Tax Officer on 25 March, 1988
Equivalent citations: [1989]28ITD296(MUM)
ORDER
K.R. Dixit, Judicial Member
1. We are concerned in this appeal with the question whether the salary earned by an Indian citizen working on a ship registered in India outside the territorial waters of India can be taxed.
2. The assessee was a captain of a ship registered in India. For the period relevant to the assessment year in question, he was on the main land of India only for 6 days, while for the remaining period, he was on board the ship registered in India. The assessee's contention was that he was a non-resident and so the salary income was not taxable. The ITO however held that since the assessee was an employee of the Indian company, his income was taxable. He has noted that although the assessee had claimed that the Maritime Union had approached the Central Board of Direct Taxes, no exemption certificate was produced before him. Before the Commissioner, the assessee relied upon the interpretation of Section 2(25A) which defines 'India' and does not include ship registered in India. He also contended that since the services were rendered outside India, i.e., on the ship, the salary was not earned in India and so it was not taxable. The Commissioner relied upon Section 2(2) of the Citizenship Act 1955, according to which a person is said to be a citizen of the place in which the ship is registered if he is born on such ship. Therefore, according to him, the ship partook the characteristic of the territory of the country to which it is identified. Thus, according to him, the assessee had not rendered services outside India, but within India and therefore, he dismissed the appeal.
Before us, the learned counsel for the assessee made the following submissions :
(1) The assessee had been granted the exemption under Section 80RRA of the IT Act. (2) under Section 4 of the Indian Penal Code, the provisions thereof were applicable "also to any offence committed by.... (1) ...
(2) any person on any ship or aircraft registered in India wherever it may be."
He emphasised the aforesaid word 'also' and argued that this provision clearly showed that normally speaking, the ship registered in India was not part of India and that it was only by the fiction introduced by the said Section 4 that it was so regarded. He relied upon the decision of the Tribunal in the case of Garware Shipping Corpn. Ltd. v. ITO [1984] 7 ITD 118 (Bom.).
On the other hand, the learned Departmental Representative emphasised that the control of the ship was in India and that the salary was paid in India and tax deducted in India. He also argued that in international law, an attack on the Indian ship was an attack on India. He also relied upon the decision of the Madras Bench of this Tribunal in Fourth ITO v. Capt. B.N. Rao [1984] 7 ITD 536. Lastly, he pointed out that there was no proof that salary was paid in India.
It can be seen that the crucial question is whether the assessee can be said to be a resident of India which means that we have to decide the question whether the ship which was registered in India on which the assessee was working is part of India or not. Even if the assessee is not regarded as a non-resident, the question would arise whether it can be said that the income has accrued or arisen or is deemed to have accrued or arisen to him in India during such year under Section 5(2)(b). under Section 9(1)(ii) Explanation, salary income payable for services rendered in India shall be regarded as income earned in India and is therefore, income deemed to accrue or arise in India. Therefore, again the question is whether the salary earned while working on the ship was earned in India which means that we have to decide the same question whether the ship registered in India is a part of India.
The learned counsel for the assessee had relied upon the provisions of the Indian Penal Code. But, we should look to the provisions of the Income-tax Act. under Section 2(25A) 'India' is deemed to include certain territories which are mentioned therein. This implies that this alone would normally not be included in India. Therefore, by implication, an Indian ship is included in 'India'. Secondly, the provisions of the Citizenship Act on which the learned Commissioner has relied also show that a ship registered in India is to be considered as part of India. Further, on behalf of the assessee, it was pointed out that Section 80RRA exemption has been granted to the assessee. This, on the contrary, is an argument in favour of the Revenue because the very fact that the relief under Section 80RRA is available to the assessee would show that otherwise the income in question would be taxable in India. It is true that the Tribunal in the aforesaid case of Garware Shipping Corpn. Ltd. (supra), has held that "the term outside India indicates outside the territorial boundaries of India". However in that decision, the implications of Section 2(25A) of the Indian Citizenship Act and the general position that a ship registered in India is part of India has not been taken into account. This is a well accepted position. The following' quotations from Introduction to International Law by J.G. Starke (8th Edition), are in support thereof:
For the purposes of territorial jurisdiction, besides actual territory, it has been customary to assimilate the following to State territory :
(a)...
(b) A ship bearing the national flag of the State wishing to exercise jurisdiction.
(c)...(at p. 264).
Floating Island--A ship bearing the national flag of a State is for purposes of jurisdiction treated as if it were territory of that State, on the principle that it is virtually a floating island.
Further, if we were to accept the position that a person working on an Indian ship outside the territorial waters of India would not be taxed on the salary so earned, it would lead to an anomalous position because another person working on Indian ship but within the territorial waters of India would be taxed on the salary earned by him. Moreover, the former would not pay the tax at all because he would not have perhaps entered the territorial waters of any other State while other persons having salary income have to pay the taxes. These unreasonable results have to be avoided in the process of interpretation.
3. For all the above reasons, we hold that the salary paid to the assessee would be subject to income-tax. The appeal is dismissed.