COM. INCOME TAX vs. READINGH and BATES CO.

ITA/36/2002HC UttarakhandUKHC01002827200420 July 2004Author: OTHER5 pages
AI SummaryPartly Allowed

What were the facts?

The appeal by the Revenue concerns Assessment Year 1993-94, challenging a judgment of the Income Tax Appellate Tribunal (ITAT). The assessee, Mr. R.B. Carrington, is a non-resident foreign technician employed by Reading and Bates Exploration Company, which executed contracts in India. The assessee derived income from salaries during his employment. The ITAT had previously ruled on similar matters concerning off-period salaries and free boarding facilities. The present appeal is filed under Section 260A of the Income Tax Act, 1961, against the ITAT's order dated 22.06.2001 in I.T.A. Nos. 399/Del/1996.

What did the High Court hold?

The High Court held that the salary paid for the off-period is taxable in India. The Court reasoned that the contract for ON and OFF periods forms an integral part of the employment scheme. Even if the off-period involved training abroad, it was directly connected to the hazardous work on oil rigs in India, making the assessee mentally and physically fit. Therefore, the payment for the off-period was income earned in India under Section 9(1)(ii). The Court noted that the employer's conduct of paying the entire salary from Indian operations further supported this view. Regarding the second issue, the Court held that free food and beverages provided at the rig were a necessity due to the arduous 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 Court answered the first question in favor of the department and against the assessee, and the second question in favor of the assessee and against the department.

What were the issues?

1. Whether, on the facts and 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 salaries to be taxable in India in multiple prior orders (dated 25.3.1992, 28.7.99, 24.1.2000, and 15.5.2000)? 2. Whether, on the facts and 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? Assessee's contentions: Not recorded. Revenue's contentions: The Revenue argued that off-period salary is taxable in India, citing previous ITAT judgments. They also contended that training undergone during the off-period abroad was connected to services rendered in India, making the salary taxable. The conduct of the contracting parties, where the employer paid the entire salary from Indian operations, indicated the intention for it to be taxable in India. For the second issue, the Revenue argued that the free boarding facilities were a necessity due to the hazardous nature of the work and not a perquisite.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Assessment Year 1993-94

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 36 of 2002

The Commissioner of Income Tax, Dehradun and another

……… Appellants

Versus

Readings & Bates Exploration Co., As agent of Mr. R.B. Carrington, 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. 399/Del/1996. 2. Mr. R.B. Carrington, 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 a

The order continues below.

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