New Delhi, Aug. 27 -- When the widow of a merchant navy officer challenged a court ruling that slashed her compensation by treating part of her husband's salary as taxable in India, she set in motion a case that has now reached the Supreme Court-and could decide the tax fate of thousands who earn abroad but receive their income into Indian banks.

The dispute stems from an appeal against a ruling by the Punjab & Haryana High Court, which upheld the Motor Accident Claims Tribunal's (MACT) decision in the compensation case. While calculating damages for the officer's death, the MACT deducted 30% of his monthly salary as income tax liability. His widow contested that deduction, bringing the matter before the Supreme Court.

The issue before ...