Foreign going Indian ship.

Will it constitute
"India"even when it is in international
waters.
 Published on July 21, 2020
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Nilesh Shah
Practicing Chartered Accountant
8 articles

Prior to the Notification issued by the Central Government in 1983, the term "India"referred
to 12 nautical miles from the shore/base line. After the Central Government issued
Notification in 1983 under the Territorial Waters, Continental Shelf, Exclusive Economic
Zone and Other Maritime Act,1976 vide deeming fiction, the extent of territorial waters came
to be extended by including continental shelf and also exclusive economic zone for a limited
specific purpose as provided in the Notification dated 1-4-1983.Certain areas were found to
contain oil and minerals outside 12 nautical miles. Therefore, under the Notification issued
under the Territorial Waters Act,1976 some of these areas where oil was located came to be
included as forming part of India and to those areas the Income tax Act was applied.
However, the Act was applied only to income which is derived in such areas from the
activities enumerated in the Notification viz extraction of oil,exploration of oil and minerals.
There is no Notification which included foreign going Indian Ships into the term "India"
under the Territorial Waters Act read with the Notifications issued thereunder. It cannot be
contended that the services rendered by the floating staff outside the territorial waters
constituted services being rendered in India. For the purposes of deciding the above question,
the relevant test to be applied is : which is the place where income accrues in cases where the
floating staff renders services outside the territorial waters. For the purposes of the Income
tax Act, execution of the contract in India, payment of salary in India, Ship bearing Indian
Flag are not relevant considerations.

The provisions of the Merchant Shipping Act are not in pari materia to the provisions of the
Income tax Act.

The said Merchant Shipping Act is not even a fiscal legislation. The provisions of the
Merchant Shipping Act are essentially invoked in cases of accidents. They provide for
payment of wages and compensation to seamen in cases of accidents.
They provide for contract and awards between the Union and the Shipping Companies
governing the terms and conditions of employment.

The international Law refers to the law of Flag in order to decide the nationality of the
Vessel. How the said provisions will apply to the Income tax Act ?

The Circular issued by the Board bearing no 586 dated 28th November,1990, though in the
context of deductions in the hands of employees, specifically lays down that, India, as
defined under section 2(25A) of the Income tax Act, does not extend to Indian Ships
operating beyond the Indian territorial waters.

The word "India"has also been defined under the General Clauses Act under section 2(28). It
does not include Indian Ships outside territorial waters of the country.