Pralay Pradyotkanti Ghosh v. ITO (IT) (2024)

⚓ Pralay Pradyotkanti Ghosh vs. ITO (IT)

ITAT Ahmedabad on Taxability of Salary Earned in International Waters under India–Singapore DTAA (2024)

📌 Background

The determination of whether salary earned by a non-resident Indian (NRI) for services rendered in international waters constitutes income accruing or arising in India under Section 9(1)(ii) of the Income-tax Act, 1961, has been a recurring issue, particularly for employees in offshore oil and maritime sectors.

In Pralay Pradyotkanti Ghosh v. ITO (IT) [(2024) 208 ITD 163 (Ahd)(Trib.)], the Ahmedabad Bench of the ITAT examined whether salary received by an Indian engineer from a Singapore-based employer for work performed in the Bay of Bengal (international waters) could be taxed in India.

The Tribunal held that such income was exempt, as the assessee was a non-resident and the work was performed in international waters, not in Indian territory as per law or under the India–Singapore DTAA.

📂 Facts of the Case

• Assessee: Mr. Pralay Pradyotkanti Ghosh, an engineer working as an Underwater Inspector on offshore fields.
• Employment: Employed by a Singapore-based foreign company engaged in maritime engineering services.
• Nature of Work: Performed underwater inspection duties at oil fields in the Bay of Bengal, located in international waters.
• Assessment Year: 2018–19.
• Income: Received salary from the foreign employer, which was remitted abroad.
• Return of Income: Claimed the salary as exempt, being earned outside India.
• Assessing Officer’s (AO) Findings:
  • Held that oil fields in the Bay of Bengal fell within India’s Exclusive Economic Zone (EEZ).
  • Since the EEZ is part of “India” under Section 2(25A) of the Income-tax Act, the AO concluded that the work was performed within Indian territory.
  • Added the salary to taxable income under Sections 5(2)(b) and 9(1)(ii).
• CIT(A) Decision: Affirmed the AO’s view, stating that the assessee’s employment activities occurred within India’s economic jurisdiction.

❓ Point of Dispute

Whether the salary income received by a non-resident Indian from a Singapore-based employer for services performed on vessels operating in international waters (Bay of Bengal) constituted income deemed to accrue or arise in India under Section 9(1)(ii), or whether it was exempt under the India–Singapore DTAA.

📑 Submissions by the Assessee

• Non-Resident Status:
  • The assessee was a non-resident during the year under Section 6 of the Income-tax Act.
• Work Performed in International Waters:
  • His duties were performed onboard vessels in the Bay of Bengal, outside India’s territorial waters (12 nautical miles limit).
  • Therefore, services were not rendered in India.
• Legal Definition of “India”:
  • Under Section 2(25A) of the Act, “India” includes territorial waters, continental shelf, and EEZ only to the extent that rights have been extended by notifications under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976.
  • The Government notification restricted extension of Indian law only for certain specified activities like mineral exploration and resource exploitation—not for foreign ship navigation or employment of foreign workers.
• Freedom of Navigation:
  • Cited Section 7(9) of the 1976 Maritime Zones Act, which grants freedom of navigation to foreign ships in India’s EEZ.
  • Since the assessee was employed on a foreign vessel, not carrying out any activity covered by Indian notifications, he was not deemed to be working in India.
• DTAA Protection:
  • Under Article 8 of the India–Singapore DTAA, income from shipping and air transport in international traffic is taxable only in the State of residence (i.e., Singapore).
  • Therefore, the salary received for services rendered on a foreign ship in international waters was not taxable in India.

📑 Submissions by the Revenue

• The Revenue argued that since the Bay of Bengal falls within India’s Exclusive Economic Zone (EEZ), as per Section 2(25A), the assessee’s services were performed within Indian territory.
• Therefore, salary income was deemed to accrue or arise in India under Section 9(1)(ii).
• The AO further contended that the DTAA did not apply because the assessee was an individual employee, not a shipping enterprise.

⚖️ Legal Principles & Tribunal’s Findings

1. Scope of Indian Territory – Section 2(25A) and Maritime Zones Act

The Tribunal analyzed the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 and observed:

• India’s sovereign rights over the EEZ are limited and functional, not territorial.
• Section 7(9) of the Act grants freedom of navigation to foreign ships in the EEZ.
• Only activities specifically notified—such as resource exploration or marine research—are deemed to be part of “India” for tax purposes.

Since the assessee’s activities did not fall within these notified operations, his work in international waters could not be treated as work done in India.

2. Non-Resident Employment Income – Section 5(2)(b)

Under Section 5(2)(b), income of a non-resident is taxable in India only if it is earned or accrued in India.
Here, both:

• The employer was foreign (Singapore-based), and
• The services were rendered outside India.
  Hence, the salary did not accrue or arise in India.

3. Application of India–Singapore DTAA

The Tribunal emphasized that Article 8 of the India–Singapore DTAA governs income derived from shipping and air transport in international traffic.
Since the assessee’s salary arose from employment in international waters on a vessel operated by a Singapore enterprise, the income was taxable only in Singapore, not in India.

4. Exemption of Salary Income

Accordingly, the salary received from the Singapore employer was exempt in India, as it was:

• Earned outside India,
• Paid by a foreign employer, and
• Covered under the DTAA protection.

5. Deletion of Addition

The Tribunal set aside the orders of the AO and CIT(A), directing deletion of the addition made to the assessee’s income.

🏁 Held

✅ The assessee was a non-resident for the relevant year.
✅ The services were rendered in international waters, not within Indian territory.
✅ The assessee had no business connection or source of income in India.
✅ Salary from the Singapore employer was exempt from Indian taxation under the India–Singapore DTAA (Article 8).
✅ The addition made by the AO under Sections 5(2)(b) and 9(1)(ii) was deleted.

✅ Practical Impact for Taxpayers

• Relief for Offshore Workers: Salary earned in international waters by NRIs employed by foreign companies is not taxable in India.
• Clarity on EEZ Interpretation: Confirms that freedom of navigation in the EEZ excludes such employment from Indian taxation scope.
• DTAA Protection for Employees: Employees engaged in shipping, air transport, or related offshore services can rely on Article 8 of DTAAs for relief.
• Compliance Tip: NRIs should maintain clear evidence of non-resident status, employment contracts, and foreign salary receipts.

🔑 Key Takeaways

1. International Waters ≠ India: The EEZ is not part of India’s taxable territory for employment income unless specific notified activities are carried out.
2. Non-Resident Exemption: Salary earned abroad by a non-resident for foreign employment remains exempt under Section 5(2).
3. DTAA Supremacy: India–Singapore DTAA Article 8 overrides domestic law where applicable.
4. Maritime Act Interpretation: Section 7(9) ensures that foreign ship operations in international waters retain tax neutrality.

📢 Why This Case Matters

The Pralay Pradyotkanti Ghosh (2024) ruling provides crucial clarity for offshore and marine professionals, especially NRIs employed by foreign enterprises in international waters.

It reinforces that India’s EEZ jurisdiction is functional, not territorial, ensuring that non-resident employees working aboard foreign ships are not taxed merely due to proximity to Indian shores.

The decision upholds the principles of international maritime law, harmonizing India’s tax jurisprudence with OECD norms and ensuring fair treatment for global maritime workers.

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