COMMISSIONER OF INCOME TAX vs. READING and BATES .

ITA/33/2002HC UttarakhandUKHC01006235200320 July 2004Author: OTHER5 pages
AI SummaryPartly Allowed

What were the facts?

The Revenue (Commissioner of Income Tax, Dehradun) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1993-1994. The assessee, Reading & Bates Exploration Co., acting as agent for Mr. Taylor K.L., a non-resident foreign technician, derived income from salaries. Mr. Taylor was employed by a foreign company that executed contracts in India. The dispute centers on whether salary paid to the assessee for periods spent outside India ('off periods') was chargeable to Indian Income Tax, and whether free boarding facilities provided at a rig in high seas constituted a perquisite. The ITAT had previously ruled on similar matters, sometimes finding off-period salary taxable and sometimes not.

What did the High Court hold?

The High Court held that salary paid for the 'off period' outside India was indeed taxable in India under Section 9(1)(ii) of the Income Tax Act, 1961. The Court reasoned that the 'on' and 'off' periods formed an integral part of the employment contract, which was for two years with an alternating time schedule. The 'off' period was not merely a rest period but often involved training directly connected to the hazardous work on the oil rigs in India, thus constituting services rendered in India. The Court noted that the employer's conduct in paying the entire salary from Indian operations further indicated the intention of the contracting parties. Regarding free boarding facilities, the Court held that given the hazardous and arduous nature of the work on the rig, free food and beverages were a necessity, not a luxury, and therefore could not be added to the assessee's income as a perquisite. The appeal was partly allowed, with the first question 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 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 multiple prior decisions (ITA Nos. 5649/D/92, 1079/D/91, 411/D/93, and 1648/D/94)? 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 could not be construed as a perquisite? Assessee's Contentions: The judgment does not record specific contentions for the assessee on these issues, other than implicitly through the ITAT's prior rulings and the arguments presented by the Revenue. The assessee's position, as inferred from the questions, is that off-period salary is not taxable in India and free boarding is not a perquisite. Revenue's Contentions: The Revenue argued that 'off period' salary is taxable in India, citing the integral nature of 'on' and 'off' periods in the contract and the fact that training during the 'off' period was connected to services rendered in India. The Revenue also contended that the ITAT's prior decisions on 'off period' salary were inconsistent and that the current decision was legally incorrect. The Revenue's arguments regarding the second question are not explicitly detailed but are implied by the appeal against the ITAT's finding.

Which sections of the Income-tax Act were involved?

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

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. 33 of 2002

The Commissioner of Income Tax, Dehradun and another

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

Versus

Reading & Bates Exploration Co., As agent of Mr. Taylor K.L., 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 22.06.2001 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. Nos. 403/Del/1996. 2. Mr. Taylor K.L., 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 consideration, respondent was in employment of this company and thus derived income from 'salaries' from it.

3.

The questions ra

The order continues below.

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