JUDGMENT
S.H. Kapadia, J.
1. The following question of law has been referred to us under Section 256(1) of the Income-tax Act, 1961, for opinion at the instance of the Department :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the salary received by the assessee from the Shipping Corporation of India-employer during the period of account relevant to the assessment year 1974-75 was not taxable in India ?”
2. The assessment for 1974-75 was completed on August 28, 1975, by the Assessing Officer. Subsequently, at the instance of the assessee-employee, the Commissioner of Income-tax, Bombay, set aside the assessment order holding that the assessee was a non-resident. The Commissioner of Income-tax, Bombay, however, remanded the matter back to the Assessing Officer to decide the tax liability in the light of the contract of employment as per Section 5(2)(b) and Section 9(l)(ii) of the Income-tax Act. After the remand, the Assessing Officer by his order dated March l6, 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 eight days during the relevant accounting year 1973-74. However, the Assessing Officer 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 Assessing Officer, the matter was carried in appeal to the Appellate Assistant Commissioner 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 eight 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. Mr. Desai, learned senior counsel appearing on behalf of the Department, contended that the assessee was a marine engineer on an Indian ship. He contended that the ship constituted territory of India even when it operated outside India. He relied upon the definition of the term “India”
in Section 2(25A). He relied upon the provisions of the Merchant Shipping Act in support of his contentions. He contended that, in the present matter, the assessee cannot be treated as a non-resident as he was employed on an Indian ship which continued to be the territory of India even when it operated outside territorial waters. He further contended, that the Shipping Corporation of India had its office in India. That, the contract was executed in India. That, the funds of the Shipping Corporation of India had been utilised for paying salary to the assessee though he remained outside India and since the SCI was an Indian company the accrual was within India. Reliance was placed on Sections 5(2)(b) and 9(l)(ii) in support of his above contention.
4. Per contra, Mr. Patil, learned counsel appearing on behalf of the assessee, submitted that, in the present case, the Commissioner of Income-tax, Bombay, had decided the status of the assessee as non-resident. This was vide order under Section 264 of the Income-tax Act, dated October 26, 1978, when the Commissioner of Income-tax, Bombay, remanded the matter back to the Assessing Officer only to decide a limited question as to whether the income accrued in India. He contended that once the status of the assessee, on the facts, came to be declared by the Commissioner of Income-tax and once, on the facts, the revisional authority found that the assessee was a non-resident the only limited question which the Assessing Officer 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 Assessing Officer 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 Commissioner of Income-tax came to the conclusion on status that the assessee was an NRI, it was not open to the Assessing Officer to re-examine that question. He contended that Section 5(1) of the Act refers to the range of total income of a resident whereas Section 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 the facts, the revisional authority found that the services were rendered outside India. He also relied upon the provisions of Section 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 Section 6 refers to actual physical presence of an indi-
vidual 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. v. CIT , in which it has been laid down by the Supreme Court after examining the scope of Sections 4, 5(2) and Section 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 the U. K. 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.
5. We find merit in the contentions advanced on behalf of the assessee. Section 5(1) of the Income-tax Act, deals with the scope of total income. It states, inter alia, that subject to the provisions of the Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which is received or is deemed to be received in India or which accrues to him in India or which accrues to him outside India during such year. In other words, the total income of a resident Indian shall, inter alia, include even income which accrues to him outside India. On the other hand, Section 5(2) indicates the meaning of accrual of income. It states, inter alia, that the total income of any previous year of a non-resident shall include all income from whatever source derived which is received by him in India or which accrues to him in India. In other words, broadly, in the case of a resident Indian all income which accrue to him whether in or outside India is taxable whereas in the case of a non-resident only income which accrues to him in India or which is received by him in India is taxable. Therefore, consequently, in the case of a non-resident if income accrues outside India, the same is not taxable. Section 6 indicates the meaning of residence in India. Section 6 lays down that for the purposes of the Income-tax Act, an individual is said to be a resident in India if he is in India for a prescribed period. Therefore, Section 6 emphasises physical presence of the person in India. Under Section 9(l)(ii), it is laid down as to what type of income shall be deemed to accrue or arise in India. The above section states that where the salary is earned in India it shall be regarded as income arising in India. There is an Explanation also to the above section which, inter alia, declares that income of the above nature payable for services rendered in India shall be regarded as income earned in India. This Explanation clearly indicates that where salary is payable for services rendered in India, the same shall be regarded as income earned in India. Therefore, the relevant test to be applied is where the services have been rendered. If the services were rendered in
India then the salary income shall constitute income arising in India. It is, therefore, contended by the Department that, in this case, since the foreign-going ship was an Indian ship, it continued to remain territory of India even outside India by virtue of the provisions of the Merchant Shipping Act and, therefore, the services rendered by the marine engineer on an Indian ship, outside India, would amount to services being rendered in India. As regards the foreign-going Indian ship contention advanced, we may state at the outset that in the case of CITv. Indo Oceanic Shipping Co. Ltd. (2001] 247 ITR 247 (Bom) decided vide Income-tax Reference No. 444 of 1995, we have come to the conclusion that Section 2(25A) which defines the term “India” does not cover foreign-going Indian ships for the purposes of deduction in the hands of the employer. We have also held in the said judgment that the provisions of the Merchant Shipping Act cannot be read into the provisions of the Income-tax Act. In that connection, we have also relied upon the Board Circular No. 586 (see [1990] 186 ITR (St.) 167), dated November 28, 1990. The said circular also applies to the facts of this case. Secondly, in this case, on the facts, the Commissioner of Income-tax found that the assessee was a non-resident during the relevant period. That question was concluded. The matter was remanded only to decide as to whether the income accrued to a non-resident in India or outside India. It is in this light we have discussed the scope of Sections 5, 6 and 9(l)(ii) as also the judgment of the Supreme Court in the case reported in Performing Right Society Ltd. v. CIT[1977] 106 ITR 11. Reading the above Sections, it is clear that the relevant test to be applied to decide the above question is the place where the services were rendered in order to decide as to where the income accrued. This test has been also applied by the Supreme Court in the above judgment reported in Performing Right Society Ltd. v. CIT [1977] 106 ITR 11 where the entire contract except performance by way of broadcasting was outside India. Only the broadcasting was done in India. It was held that the source of income was not relevant for the purposes of ascertaining whether the income accrued in India or outside India. The Supreme Court laid down in that judgment that the question as to whether a certain income accrued in India within Section 5(2) was a pure question of fact. It will depend on the facts of each case. Applying the above test and in view of our judgment in Income-tax Reference No. 444 of 1995-CIT v. Indo Oceanic Shipping Co. Ltd. [2001] 247 ITR 247 (Bom), we hold that the income accrued to the non-resident assessee outside India during the relevant period.
6. Before concluding this judgment, we may point out that in this case we are concerned with the assessment year 1974-75. The matter was remanded back by the Commissioner of Income-tax, Bombay, to the Assessing Officer as the contract was not placed before the Assessing Officer. While remanding the matter, the Commissioner of Income-tax directed the
Income-tax Officer to proceed on the footing that the assessee was a nonresident. It was contended on behalf of the Department before us that the order of the Commissioner of Income-tax, Bombay, holding the assessee to be a non-resident, was passed under Section 264 of the Income-tax Act against which no appeal was maintainable. Hence, it was urged that when the matter came back before the Commissioner of Income-tax (Appeals) and the Tribunal, the question as to whether the assessee was a non-resident should also have been decided. We find force in this argument. However, looking to the period, which has elapsed, we do not wish to remit the matter back. Further, we find that the question as to whether the Indian ship constituted the territory of India was never raised by the Department before the authorities under the Act. Suffice it to state that this judgment is confined only to the facts of the case. Hence, we do not wish to once again reopen the said question regarding the status of the assessee in this case. Moreover, in our judgment in Income-tax Reference No. 444 of 1995-CIT v. Indo Oceanic Shipping Co. Ltd. [2001] 247 ITR 247 (Bom), we have observed that the above question is a question of fact. It will depend on the facts and circumstances of the case. This case is decided purely on the facts of the present matter.
7. Accordingly, the above question is answered in the affirmative, i.e., against the Department and in favour of the assessee.
8. Accordingly, the reference is disposed of.
9. C. C. expedited.