The Supreme Court of India in Vandana & Ors. v. Keshav & Ors. has raised a pivotal question concerning the taxation of income earned by merchant navy officers employed abroad but drawing their salaries in Indian bank accounts.¹ The Court granted leave to appeal in a dispute where the Motor Accident Claims Tribunal (MACT) had deducted income tax from the compensation awarded to the dependents of a deceased merchant navy officer, prompting a legal contest over whether such income was, in fact, taxable.²
This issue is not merely procedural but implicates broader questions of statutory interpretation under the Income-tax Act, 1961,³ and the jurisprudential understanding of “residential status” in Indian tax law. The resolution of this matter will have significant consequences for thousands of Indian seafarers employed in international merchant fleets, many of whom maintain strong financial ties to India.
I. Background and Procedural History
The case arose from a fatal accident claim in which the Tribunal initially awarded compensation to the deceased’s dependents. However, in computing compensation, the Tribunal applied deductions for income tax liability, treating the salary drawn in India as taxable.⁴ The Punjab and Haryana High Court upheld the Tribunal’s approach in FAO No. 3065/2013, decided on September 28, 2018.⁵
The petitioners approached the Supreme Court by way of Special Leave Petition, contending that the deceased, being a merchant navy officer employed outside India, was not liable to pay income tax on his earnings under the provisions of Section 5 read with Section 6 of the Income-tax Act, 1961.⁶
II. The Legal Question: Residency, Source of Income, and Exemption
The Supreme Court framed the central issue: **whether a person employed in the merchant navy, drawing salary in India, is exempt from payment of income tax.**⁷
The question hinges on two statutory determinants:
- Whether the individual qualifies as a “non-resident” under Section 6 of the Income-tax Act; and
- Whether the situs of accrual of income is India merely because the salary is credited in an Indian bank account.
The jurisprudence of the Supreme Court has emphasized that residence, not citizenship, governs Indian tax liability.⁸ In CIT v. S.G. Pgnatale, the Gujarat High Court held that salary received in India for services rendered abroad does not amount to income "earned in India."⁹ Likewise, the Delhi High Court in UTI v. P. Laxman Das underscored that “receipt” in India for tax purposes must be distinguished from “remittance” to India.¹⁰
III. Implications for Motor Accident Claims
The outcome of Vandana v. Keshav will directly affect the computation of compensation in motor accident claims involving non-resident Indians and expatriate workers. If the Court holds that such income is exempt, Tribunals will be precluded from deducting hypothetical tax liabilities, thereby enhancing the quantum of compensation to dependents. Conversely, affirming the deduction would reduce compensatory awards and establish a precedent for stricter interpretation of “income taxable in India.”
IV. Conclusion
The decision in Vandana v. Keshav promises to clarify a long-standing ambiguity in Indian tax jurisprudence. By determining whether merchant navy officers drawing salaries in India are subject to income tax, the Court will address not only the scope of statutory liability but also the rights of dependents seeking just compensation under the Motor Vehicles Act. The broader ramifications extend beyond accident claims to India’s tax regime for global labor mobility.
Footnotes
- Vandana & Ors. v. Keshav & Ors., SLP (C) No. 5419/2019, Record of Proceedings (Sup. Ct. Aug. 18, 2025)
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- Id.
- Income-tax Act, No. 43 of 1961, § 5, India Code (1961).
Keshav v. Vandana, FAO No. 3065/2013 (P&H HC Sept. 28, 2018). - Id.
- Income-tax Act § 6 (residency provisions).
- Vandana, SLP (C) No. 5419/2019 (Sup. Ct. Aug. 18, 2025).
- CIT v. R. D. Aggarwal & Co., (1965) 56 I.T.R. 20 (S.C.).
- CIT v. S.G. Pgnatale, (1980) 124 I.T.R. 391 (Guj. HC).
- UTI v. P. Laxman Das, (1998) 229 I.T.R. 497 (Del. HC).