Income: Salary: Accrual: A.Y. 2005-06: Salary earned by non-resident for services performed on board a ship: Does not accrue in India: Not taxable in India.

The assessee is a non-resident individual. For the A.Y. 2005-06, the Assessing Officer added an amount of Rs.10,00,131, treating the same as income deemed to have been received in India as per section 5(2) (b) of the Income-tax Act, 1961. The said amount is the salary earned by the assessee for services performed on board a ship outside the shores of India. The Commissioner (Appeals) and the Tribunal deleted the addition.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“(i) The Revenue does not dispute that the assessee had worked on board a ship and during the relevant period the assessee had stayed outside India for a period of 225 days and the salary that was earned by him was on account of the work discharged by him on board during the said period which is outside the shores of India.

(ii) The criteria of applying the definition of section 5(2)(b) would be such income which is earned in India for the services rendered in India and not otherwise. U/s. 15 even on accrual basis salary income is taxable i.e., it becomes taxable by implication. However, if services are rendered outside India such income would not be taxable in India.

(iii) The number of days worked by the assessee outside India as extracted in the assessment order when taken into consideration it would emerge that assessee was working outside India for a period of 225 days and the income in question earned by assessee has not accrued in India and is not deemed to have accrued in India.”