The Supreme Court recently agreed to examine whether income credited in an Indian bank account, while working with a foreign entity, is exempt from payment of income tax under the Income Tax Act, 1961.

The matter came up before a bench of Justice Pankaj Mithal and Justice Prasanna B. Varale in an appeal against the Punjab & Haryana High Court’s judgment upholding a 30% deduction towards tax liability while computing compensation in a motor accident claim.

Facts:

The deceased in the case was employed with British Marine PLC, London, as a Merchant Navy Officer, earning USD 3,200 monthly. The Motor Accident Claims Tribunal (MACT) deducted 30% of his income towards tax before awarding final compensation of ₹36,04,000 to his wife, the appellant. The High Court, while enhancing compensation to ₹1.01 crores by adding 40% for future prospects, upheld the deduction.

Challenging this, the appellant argued that salary earned abroad by a Merchant Navy officer—even if credited into an Indian account—was not taxable in India, and that the deduction applied by the Tribunal and High Court was therefore unwarranted.

Granting leave, the Supreme Court framed the central issue as:

“One of the legal issues arising in this matter is whether a person employed in merchant navy as an officer and drawing salary in the accounts maintained in India is exempt from payment of income tax. In the event, he is exempted from payment of tax, the Tribunal ought not to have applied any deduction on account of income tax.”

Noting that the question carries wider implications for compensation calculations as well as for tax liability of Indian seafarers, the Court has expedited the hearing.

Case Title: Vandana & Ors. v. Keshav & Ors.

For Petitioner: Mr. Aditya Hooda, Adv. Dr. Surender Singh Hooda, AOR Mr. Gagan Gupta, Sr. Adv. Mr. Rajeev Maheshwaranand Roy, AOR Mr. Nilesh Kumar, Adv. Mr. P Srinivasan, Adv.

For Respondent: Mr. Gagan Gupta, Sr. Adv. Mr. Rajeev Maheshwaranand Roy, AOR Mr. Nilesh Kumar, Adv. Mr. P Srinivasan, Adv.