The Supreme Court of India has agreed to examine a crucial question regarding taxation of income earned by Merchant Navy officers working with foreign companies but credited into Indian bank accounts.
On August 18, 2025, a bench comprising Justice Pankaj Mithal and Justice Prasanna B. Varale granted leave in the matter and expedited the hearing, as the issue has wide legal implications.
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Background of the Case
The case arose from an appeal filed against the Punjab & Haryana High Court's judgment that upheld the decision of the Motor Accident Claims Tribunal (MACT). The Tribunal, while calculating compensation for the death of a Merchant Navy officer, deducted 30% towards income tax liability from the monthly salary of USD 3,200 earned by the deceased, who was employed with British Marine PLC, London.
The Tribunal initially awarded ₹36,04,000 as final compensation after applying the tax deduction. Later, the High Court enhanced the compensation to ₹1.01 crore by including 40% future prospects, but maintained the 30% deduction on account of income tax.
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Dissatisfied with this calculation, the widow of the deceased, Vandana, challenged the deduction before the Supreme Court.
Key Legal Issue
The central question before the Court is:
"Whether a person employed in the Merchant Navy as an officer and drawing salary in an account maintained in India is exempt from payment of income tax under the Income Tax Act, 1961. If exempted, was the Tribunal and the High Court wrong in applying a 30% deduction towards income tax while computing compensation?"
The bench 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."
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After hearing both sides, the Supreme Court:
- Granted leave in the matter and also in the cross petition.
- Expedited the hearing considering the importance of the issue.
- Ordered that both petitions will be taken up together.
The matter will now be heard in detail to decide whether such foreign-earned income, when credited to an Indian bank account, is taxable or exempt.
Case Title: Vandana & Ors. vs. Keshav & Ors.
Case No.: SLP (C) No. 5419/2019 (along with connected matter SLP (C) No. 23162/2019)
