THE COMMISSIONER OF INCOME TAX and ORS vs. READING and BATES EXPLORATION

ITA/24/2003HC UttarakhandUKHC01006225200320 July 2004Author: OTHER5 pages
AI SummaryPartly Allowed

What were the facts?

The appeal is filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1993-1994. The assessee, Mr. T. Duthie, is a non-resident foreign technician employed by Reading & Bates Exploration Company, which executed contracts in India. The assessee derived income from 'salaries' during his employment. The dispute concerns the taxability of salary paid for 'off' periods outside India and the taxability of free boarding facilities provided at the rig.

What did the High Court hold?

The High Court decided the first question in favour of the Revenue and against the assessee, and the second question in favour of the assessee and against the Revenue. Regarding the first question, the Court held that the 'off' period salary is taxable in India. The Court reasoned that the 'off' period, along with the 'on' period, forms an integral part of the two-year contract, which involves alternating time schedules. Even if the 'off' period was a standby arrangement or involved training, it had a nexus with the services rendered in India, as the assessee had to remain fit for hazardous work on the oil rigs. The payment for the 'off' period was therefore considered income earned in India under section 9(1)(ii). The Court noted that the employer paid the entire salary, including for the 'off' period, from the income of Indian operations, indicating the intention of the contracting parties. For the second question, the Court held that free food and beverages provided at the rig were a necessity, not a perquisite, given the hazardous and arduous nature of the work. Therefore, their value could not be added to the assessee's income.

What were the issues?

1. Whether, on the facts and in the circumstances, the ITAT was legally correct 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 several prior decisions (ITA Nos. 5649/D/92, 1079/D/91, 411/D/93, and 1648/D/94)? The Revenue argued that the 'off' period salary is an integral part of the contract and directly linked to services rendered in India, citing the Explanation to section 9(1)(ii) which deems income earned in India even if the contract is executed or payment is made outside India. The Assessee's argument is not explicitly recorded, but it is implied they contended the 'off' period was not a rest period and the salary was not for services rendered in India. 2. Whether, on the facts and in the circumstances, the ITAT was legally correct in holding that free boarding facilities provided by the employer at the rig in high seas cannot be construed as a perquisite? The Revenue's argument is not explicitly recorded. The Assessee argued that free food and beverages were a necessity due to the hazardous and continuous nature of work on the rig, not a luxury or perquisite.

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

2004:UHC:2054

Assessment Year 1993-1994

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 24 of 2003

The Commissioner of Income Tax, Dehradun and another

............. Appellants

Versus

Reading & Bates Exploration Co., As agent of Mr. T. Duthie, 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 21.08.2001 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. Nos. 335/Del/1996. 2. Mr. T. Duthie, respondent is a non-resident foreign technician employed by a foreign company, Reading & Bates Exploration Company which, in the year under consideration, executed contracts in India. During the year 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:-

QUESTIONS:

1.

Whether on t

The order continues below.

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