COMMISSIONER OF INCOME TAX vs. READING and BATES EXPLORATIONS CO.

ITA/522/2001HC UttarakhandUKHC01006287200320 July 2004Author: OTHER5 pages
AI SummaryPartly Allowed

What were the facts?

The appeal by the Revenue is against the ITAT's order for Assessment Year 1991-92. The assessee, Mr. H. Maron, is a non-resident foreign technician employed by Reading and Bates Exploration Company, which executed contracts in India. The assessee derived income from salaries. The core dispute revolves around the taxability of salary paid for 'off periods' when the technician was outside India, and whether free boarding and lodging at the rig constituted a perquisite. The ITAT had previously ruled on similar issues in other cases, with varying outcomes.

What did the High Court hold?

The High Court held that the salary paid for the 'off period' outside India is taxable in India under Section 9(1)(ii). The court reasoned that the contract, which included 'on' and 'off' periods, formed an integral scheme, and the 'off' period was not merely a rest period but often involved training or maintaining fitness for hazardous work on the rigs. This training had a nexus with the services rendered in India. The court noted that the employer paid the entire salary, including for the off period, from Indian operations, indicating the intention of the contracting parties. Therefore, the entire salary was deemed to accrue in India. Regarding the second issue, the court held that free food and beverages provided on the rig were a necessity due to the hazardous and continuous nature of the work, not a luxury or a perquisite, and thus their value could not be added to the assessee's income. The first question was answered in favour of the Revenue, and the second in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances, the ITAT was legally justified in holding that salary paid to the assessee for the off period outside India was not chargeable to Indian Income Tax under Section 9(1)(ii) of the Income Tax Act, 1961, especially when the ITAT itself had previously held such 'off period' salary to be taxable in India in other cases (ITA Nos. 5649/D/92, 1079/D/91, 411/D/93, and 1648/D/94). The Revenue argued that the off period salary is taxable in India, relying on previous ITAT rulings and the Explanation to Section 9(1)(ii). The assessee's contention regarding the off period salary is not explicitly recorded, but the ITAT's prior decisions suggest it was argued as not taxable. 2. Whether, on the facts and in the circumstances, the ITAT was legally correct in holding that free boarding and lodging facilities provided by the employer at the rig in high seas cannot be construed to be a perquisite. The Revenue's argument is not explicitly recorded, but the ITAT's finding implies it was argued that these facilities were perquisites.

Which sections of the Income-tax Act were involved?

Section 260A,Section 4,Section 5(2),Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

Assessment Year 1991-92

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 522 of 2001

The Commissioner of Income Tax, Dehradun and another

……… Appellants

Versus

Readings & Bates Exploration Co., As agent of Mr. H. Maron, C/o Arthur Anderson & Co., 426, World Trade Centre, Barakhamba Lane, New Delhi ……… Respondent

Mr. S.K. Posti, learned counsel for the Tax Department. Ms. Krishi Shukla, learned counsel for the respondent.

Date: 20.07.2004

Hon’ble P.C. Verma, A.C.J. Hon’ble P.C. Pant, J.

1.

This is an appeal under section 260A of the Income Tax Act, 1961 filed by the Revenue against the judgment and order dated 02.01.2001 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. Nos. 5803/Del/1995. 2. Mr. H Maron, respondent is a non-resident foreign technician employed by a foreign company, Reading and Bates Exploration Company which, in the year under consideration, executed contracts in India. During the year under consideration, respondent was in employment of this company and thus derived income from ‘salaries’ from it.

3.

The questions raised before us are as follows:-

QUESTI

The order continues below.

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