COMMISSIONER OF INCOME TAX Vs. AVTAR SINGH WADHWAN

JUDGEMENT

(1.) THE following question of law has been referred to us under S. 256(1) of the IT Act for opinion at the instance of the Department : "Whether, on facts and in the circumstances of the case, the Tribunal was right in holding that the salary received by the assessee from Shipping Corporation of India employer during the period of account relevant to the asst. year 1974 75 was not taxable in India."

(2.) THE assessment for 1974 75 was completed on 28th Aug., 1975, by the AO. Subsequently, at the instance of the assessee employee, the CIT, Bombay, set aside the assessment order holding that the assessee was a non resident. The CIT, Bombay, however, remanded that matter back to the AO to decide the tax liability in the light of the contract of employment as per S. 5(2)(b) and s. 9(1)(ii) of the IT Act. After the remand, the AO by his order dt. 16th March, 1981, came to the conclusion that the assessee was a marine engineer on board the ship which was an Indian ship owned by the Shipping Corporation of India. He further came to the conclusion that the said ship on which the assessee was working did not touch the Indian coast except for about 8 days during the relevant accounting year 1973 74. However, the AO came to the conclusion that since the assessee was an employee of the Shipping Corporation of India and since he earned salary as per contract with the Shipping Corporation of India, the income accrued to him in India as per the above sections. Being aggrieved by the order passed by the AO, the matter was carried in appeal to AAC who came to the conclusion that the salary was not taxable in India. Being aggrieved, the Department carried the matter in appeal to the Tribunal. By the impugned judgment, the Tribunal came to the conclusion that the assessee had worked outside India during the relevant accounting year except for 8 days. That, the salary was received by him outside India. That, the place of contract was not relevant. That, the source from which payment was made was not relevant. That, what was relevant was the place where the service was rendered. That, the place at which income accrued was the place where the service was rendered. That, since the income was earned in foreign waters, it had accrued to the assessee outside India. Accordingly, the appeal was dismissed. Hence, this reference.

(3.) PER contra, Mr. Patil, learned counsel appearing on behalf of the assessee, submitted that, in the present case, CIT, Bombay, had decided the status of the assessee as non resident. This was vide order under S. 264 of the IT Act, dt. 26th Oct., 1978, when the CIT, Bombay, remanded the matter back to the AO only to decide a limited question as to whether the income accrued in India. He contended that once the status of the assessee, on facts, came to the declared by CIT and once, on facts, the revisional authority found that the assessee was a non resident the only limited question which the AO was required to decide, on remand, was the place where the income accrued in this case. He contended that, in this case, we are concerned with the question regarding accrual of income. He contended that what is relevant for the purposes of deciding the said question is the place where the services are rendered and not the place where the contract was executed. He contended that once the assessee was found to be an NRI having worked outside India in a given year for about 357 days, the only question which the AO was required to decide, on remand, was whether the income by way of salary accrued to the assessee in India. He contended that once the CIT came to the conclusion on status that the assessee was an NRI, it was not open to the AO to re examine that question. He contended that S. 5(1) of the Act refers to the range of total income of a resident whereas S. 5(2) shows accrual of income. He points out that this distinction is very important. He contended that, in the present matter, the Department has never argued the point which is now canvassed viz., that because the services were rendered on an Indian ship, the income accrued to the assessee in India. He contended that, on facts, the revisional authority found that the services were rendered outside India. He also relied upon the provisions of S. 6(1) which states that an individual is said to be resident in India if he is in India for a period amounting in all to 182 days or more. He contended that S. 6 refers to actual physical presence of an individual in India. He contended that once the assessee was found to be an NRI then the only question which was required to be decided was the place where the services were rendered because that was the relevant test to decide where the income accrued. He relied upon the judgment in the case of Performing Right Society Ltd. & Anr. vs. CIT & Ors. 1976 CTR (SC) 429 : (1977) 106 ITR 11 (SC) : TC 39R.200, in which it has been laid down by the Supreme Court after examining the scope of ss. 4, 5(2) and S. 9 that the place of accrual of income is the place where one renders the service. That, the question as to the source of income was not relevant. In that matter, the contract was entered into in UK. The contract was regarding performing rights. The contract was performed in India. In the circumstances, it was held that the income accrued in India because the services were rendered pursuant to the contract in India.