India’s Supreme Court is poised to hear a landmark petition that could reshape how income earned abroad—but credited into Indian bank accounts—is taxed for Merchant Navy officers. At issue is whether such foreign-earned salary can be exempted from Indian income tax under the Indian Income Tax Act, 1961.
Background: Vandana & Ors. vs. Keshav & Ors.
The case stems from a motor-accident compensation claim arising from the death of a Merchant Navy officer who worked for British Marine PLC, London, earning USD 3,200 per month.
- Motor Accident Claims Tribunal (MACT) awarded ₹36,04,000 as final compensation—including a 30% deduction interpreted as tax liability on the officer’s foreign salary.
- Punjab & Haryana High Court upheld the 30% tax deduction but enhanced the award to ₹1.01 crore by adding 40% for future prospects.
Unconvinced, the widow (Vandana) challenged the income-tax deduction, asserting that the salary earned abroad should be exempt from Indian taxation despite being credited to an Indian account.
Legal Issue Before the Supreme Court
On August 18, 2025, a bench of Justices Pankaj Mithal and Prasanna B. Varale granted leave to hear the matter, emphasizing its wide legal and practical implications.
The central question:
“Whether a person employed in Merchant Navy as an officer and drawing salary in accounts maintained in India is exempt from payment of income tax. If exempted, whether the Tribunal and the High Court erred in deducting 30% income tax while calculating compensation?”
The Court notably observed:
“In the event he is exempted from payment of tax, the Tribunal ought not to have applied any deduction on account of income tax.”
Legal Framework & Precedents
1. Section 5 – Scope of Total Income
- Residents (Ordinary) are taxed on worldwide income.
- Non-Residents are taxed only on income received or accruing in India.
2. Section 6 – Residential Status
- Merchant Navy officers often qualify as Non-Resident Indians (NRIs) if they spend fewer than 182 days in India during a financial year.
3. Receipt vs. Remittance
- Receipt refers to the first occasion an individual gains control over income.
- Remittance is a subsequent transfer of already received funds.
- Courts have held that salary earned and received abroad, then remitted to India, does not count as income received in India.
4. Judicial Precedents
- CIT v. S.G. Pgnatale (Gujarat, 1980)
- CIT v. Dr. R.L. Bhargava (Delhi, 2004)
- UTI v. P. Laxman Das (Supreme Court, 2000)
These cases establish that foreign-earned income, credited to Indian accounts later, isn’t taxable for non-residents.
Analysis: Why This Matters
- Seafarers (especially Merchant Navy officers) often work abroad and remit their earnings to India. A favorable ruling would affirm that these salaries are not taxable in India, aligning with their non-resident status.
- Compensation law across accident claims will be affected—removing tax deductions from awards may significantly benefit applicants.
- Tax jurisprudence: This case could set a clear precedent regarding what constitutes “receipt” in India, a foundational concept in global income taxation.
- Broader implications for expatriates and NRIs, extending beyond maritime professionals to others who earn abroad and remit earnings to India.
Conclusion
The Supreme Court’s forthcoming decision in Vandana & Ors. vs. Keshav & Ors., SLP (C) No. 5419/2019 (and associated matter SLP (C) No. 23162/2019), represents a critical juncture in tax and compensation law. If the Court rules that income earned and received abroad—but remitted to India—is exempt, it will uphold established legal norms and protect the rights of thousands of seafarers and expatriate workers.
Shippys.org will continue to monitor updates closely—this ruling could have far-reaching consequences across the maritime, legal, and taxation domains.
Leave a comment