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

ITA/527/2001HC UttarakhandUKHC01002833200420 July 2004Author: OTHER5 pages
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What were the facts?

The Revenue (Commissioner of Income Tax, Dehradun) filed an appeal under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1991-92. The respondent, Readings & Bates Exploration Co., acted as an agent for Mr. R. Smart, a non-resident foreign technician employed by a foreign company that executed contracts in India. Mr. Smart derived income from salaries during his employment. The appeal challenges the ITAT's decision regarding the taxability of salary paid for 'off periods' outside India and the taxability of free boarding and lodging facilities provided at the rig.

What did the High Court hold?

The High Court answered the first question in the negative, in favour of the department and against the assessee. The Court held that the salary paid for the 'off period' outside India was taxable in India under Section 9(1)(ii). The reasoning was that the ON and OFF periods formed an integral part of the contract, and the off period, which included training and maintaining fitness for hazardous work on the rigs in India, had a nexus with the services rendered in India. The Court noted that the employer paid the entire salary from Indian operations, indicating the intention of the contracting parties. Therefore, the entire salary for both periods was taxable in India. Regarding the second question, the Court answered in the affirmative, in favour of the assessee and against the department. The Court held that free food and beverages provided on the rig, given the hazardous, arduous, and continuous nature of the work, were a necessity and not a luxury, and thus not a perquisite whose value could be added to the assessee's income.

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 IT Act, 1961, especially when the ITAT itself had previously held such 'off period' salary to be taxable in India in earlier orders (ITA Nos. 5649/D/92, 1079/D/91, 411/D/93, and 1648/D/94)? (Question of law and fact, concerning Section 9(1)(ii)). 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 as a perquisite? (Question of law and fact, concerning perquisites). Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Revenue argued that the ITAT's earlier decisions consistently held 'off period' salary as taxable in India. They contended that the contract for ON and OFF periods formed an integral part of the employment scheme, and even if the services were rendered outside India, the salary was for services rendered in India, making it taxable under Section 9(1)(ii). They also argued that training during the off period was connected to the hazardous work on the rigs in India, making the payment for the off period taxable.

Which sections of the Income-tax Act were involved?

Section 260A,Section 9(1)(ii),Section 4,Section 5(2),Section 2(45)

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. 527 of 2001

The Commissioner of Income Tax, Dehradun and another

……… Appellants

Versus

Readings & Bates Exploration Co., As agent of Mr. R. Smart, 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. 5791/Del/1995. 2. Mr. R. Smart, 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:-

QUEST

The order continues below.

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