The Income Tax Appellate Tribunal, Jaipur Bench, has held that an Indian citizen employed as a seafarer on foreign ships qualifies for the extended 182-day stay threshold under Explanation 1(a) to Section 6(1)(c) of the Income Tax Act, 1961, when leaving India for employment outside India. Since the assessee stayed in India for only 158 days during the relevant previous year, he was correctly classified as a non-resident, making his foreign-sourced salary income non-taxable in India.
Background & Facts
The Dispute
The appellant, Mahesh Dadhich, a license holder as master/ship captain, was engaged on LPG tankers with Selendia Ship Management and VR Ship Management Companies as a seafarer. During the assessment year 2015-16 (previous year 2014-15), he served outside India for 207 days and earned salary income of Rs. 48,86,295/-. The Assessing Officer treated him as a resident in India under Section 6(1)(c) of the Act, thereby taxing his global income including the salary earned outside India. The appellant contested this, claiming non-resident status under Explanation 1(a) and (b) to Section 6(1)(c).
Key Facts
- The appellant is an Indian citizen holding a license as master/ship captain
- He was employed with foreign shipping companies: Selendia Ship Management and VR Ship Management
- During the previous year 2014-15, he served outside India for 207 days:
- 23rd May to 6th September 2015 (107 days)
- 5th December 2014 to 14th March 2015 (100 days)
- He earned salary income of Rs. 48,86,295/- for services rendered outside India
- The salary was received in his NRE account
- The number of days of stay in India during the previous year 2014-15 was 158 days (undisputed)
- In the preceding four years, his cumulative stay in India exceeded 365 days
- The AO applied Section 6(1)(c) with the 60-day threshold and held him resident
- The CIT(A) confirmed the AO's findings in an ex parte order
Procedural History
- 30.01.2023: Assessment order passed by the Assessing Officer
- 28.12.2022: Show cause notice issued by the AO
- 06.01.2023: Reply filed by the appellant to the show cause notice
- 02.12.2025: Order passed by the National Faceless Appeal Centre (NFAC), Delhi (referred to as Ld. CIT(A)) under Section 250 of the Act
- 27.07.2026: Date of hearing before the ITAT, Jaipur Bench
- 26.10.2026: Date of pronouncement of the order by the ITAT
The Parties' Positions
Appellant's Position: The appellant contended that as an Indian citizen leaving India for employment outside India, he falls under the second limb of Explanation 1(a) to Section 6(1)(c), which substitutes "sixty days" with "one hundred and eighty-two days". Alternatively, Explanation 1(b) applies as he, being outside India, came on a visit to India. In either case, the threshold becomes 182 days, and since his stay was only 158 days, he is a non-resident.
Respondent's Position: The Revenue authorities applied Section 6(1)(c) without considering Explanation 1(a) or (b), treating the appellant as resident because he satisfied both conditions: stay exceeding 60 days in the relevant year and 365 days in the preceding four years.
Relief Sought
The appellant sought a declaration that he is a non-resident for AY 2015-16, that his salary income of Rs. 48,86,295/- earned outside India is not taxable in India, and that the assessment order and appellate order be set aside.
The Legal Issue
The central question was whether an Indian citizen employed as a seafarer on foreign ships, who leaves India for the purposes of employment outside India, qualifies for the extended 182-day stay threshold under Explanation 1(a) to Section 6(1)(c) of the Income Tax Act, 1961, or whether the basic 60-day threshold under Section 6(1)(c) applies.
Arguments Presented
For the Appellant
Ld. Counsel for the appellant argued that Explanation 1(a) to Section 6(1)(c) contains two independent limbs: (i) a citizen of India leaving India as a member of the crew of an Indian ship, and (ii) a citizen of India leaving India for the purposes of employment outside India. The second limb squarely applies as the appellant left India for employment outside India with foreign shipping companies. Consequently, the reference to "sixty days" in Section 6(1)(c) stands substituted by "one hundred and eighty-two days". Additionally, Explanation 1(b) also applies as the appellant, being outside India, came on a visit to India, producing the same legal consequence. Reliance was placed on DIT v. Prahlad Vijendra Rao (Karnataka HC), Utanka Roy v. DIT (Calcutta HC), and Rajeev Biswas v. Union of India (Calcutta HC) which consistently held that salary earned for services rendered outside India on foreign ships is not taxable in India for non-residents.
For the Respondent
The Revenue authorities contended that the appellant satisfied the conditions of Section 6(1)(c) - stay exceeding 60 days in the relevant year and 365 days in the preceding four years - and therefore was correctly treated as a resident. The assessment order was a mere reproduction of the show cause notice without appreciating the appellant's reply or considering Explanation 1 to Section 6(1)(c).
The Court's Analysis
The Tribunal examined the statutory scheme of Section 6(1) and its Explanations. It noted that Section 6(1)(a) requires 182 days stay in the relevant year, which was not fulfilled (158 days). Section 6(1)(c) requires 60 days in the relevant year and 365 days in preceding four years - both conditions were factually satisfied. However, Explanation 1(a) provides that for a citizen of India who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply as if for the words "sixty days", the words "one hundred and eighty-two days" had been substituted.
"Explanation 1(a) to the Section 6(1) of the Act makes the statutory requirement regarding the number of days of stay clear and unambiguous and leaves no room for interpretation. From the above, it is evident that Explanation 1 to Section 6(1) contains three distinct limbs. Explanation (a) comprises two independent limbs, namely: (i) a citizen of India who leaves India as a member of the crew of an Indian ship, and (ii) a citizen of India who leaves India for the purposes of employment outside India. Explanation (b) constitutes the third limb and applies to a citizen of India, or a person of Indian origin, who, being outside India, comes on a visit to India during the previous year. In each of these three situations, the reference to 'sixty days' in clause (c) of Section 6(1) stands substituted by 'one hundred and eighty-two days'."
The Tribunal accepted the appellant's submission that the first limb of Explanation 1(a) (crew of Indian ship) was not invoked since he served on foreign ships. However, the second limb - citizen leaving India for employment outside India - directly applied. The legislative history confirmed this: the Finance Act 1990 brought crew of Indian ships on par with crew of foreign ships employed outside India, and the Finance Act 2015 further clarified this position. The Bombay High Court in CIT v. M/s Indo Oceanic Shipping Co. Ltd. and CIT v. Avtar Singh Wadhwan had held that Indian ships operating beyond territorial waters do not come within the term "India" under the Act, and CBDT Circular No. 586 dated 28.11.1990 indicated crew outside India for more than 182 days would not be treated as resident.
The Tribunal found that irrespective of whether the case fell under the second limb of Explanation 1(a) or Explanation 1(b), the threshold under Section 6(1)(c) becomes 182 days. Since the appellant stayed in India for only 158 days, he could not be treated as a resident. The interpretation adopted by the AO was contrary to the plain language of the statute.
The Verdict
The appellant succeeded. The ITAT set aside the order of the NFAC dated 02.12.2025 and the assessment order dated 30.01.2023. The Tribunal held that Mahesh Dadhich was a non-resident for AY 2015-16, and his salary income of Rs. 48,86,295/- earned for services rendered outside India on foreign ships was not taxable in India. The appeal was allowed in favour of the assessee.
What This Means For Similar Cases
Employment Outside India Triggers Extended Threshold
The judgment reinforces that the second limb of Explanation 1(a) to Section 6(1)(c) - "a citizen of India who leaves India for the purposes of employment outside India" - operates independently of the Indian ship crew limb. Any Indian citizen taking up employment outside India, regardless of the nature of employment or the flag of the vessel, qualifies for the 182-day substitution. Practitioners must ensure this limb is specifically invoked when the assessee's employment contract is with a foreign entity and services are rendered outside India.
- The two limbs of Explanation 1(a) are distinct and alternative; satisfying either triggers the 182-day threshold
- Employment with a foreign shipping company on foreign ships squarely falls under "employment outside India"
- No requirement to prove the vessel is an "Indian ship" under the Merchant Shipping Act when relying on the second limb
Dual Coverage Under Explanation 1(a) and 1(b)
The Tribunal's observation that the appellant's case also falls under Explanation 1(b) provides a valuable alternative argument. Where an assessee is employed outside India and visits India during the previous year, both Explanations apply concurrently, each substituting 60 days with 182 days. This dual coverage strengthens the non-resident claim and should be pleaded in the alternative.
- Explanation 1(b) applies to a citizen of India who, being outside India, comes on a visit to India
- The same 182-day substitution operates under Explanation 1(b)
- Pleading both Explanations creates a fallback position if one limb is contested
Plain Language Prevails Over Administrative Practice
The Tribunal emphasized that Explanation 1(a) "makes the statutory requirement regarding the number of days of stay clear and unambiguous and leaves no room for interpretation." The AO's failure to consider the Explanation - and the assessment order being a mere reproduction of the show cause notice - was fatal. This underscores that administrative convenience cannot override statutory text, and authorities must engage with the specific Explanation invoked by the assessee.
- Assessment orders must address the specific Explanation relied upon by the assessee
- Mechanical application of Section 6(1)(c) without examining Explanation 1 is legally unsustainable
- CBDT Circular No. 586 (1990) and subsequent judicial precedents support the extended threshold for seafarers
