THE COMMISSIONER OF INCOME TAX vs. ATWOOD OCEANIES INTERNATIONAL

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ITA/150/1999HC UttarakhandUKHC01025177200306 July 2004Author: OTHER3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Continental Shelf and Exclusive Economic Zone became part of the taxable territory of India only from April 1, 1983, by virtue of notification No. GSR-304(E) dated March 31, 1983, issued under sections 6(6) and 7(7) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976. For income to be taxable, it must accrue within the territory to which the Income Tax Act applies. Since the foreign technician earned salary income before April 1, 1983, by working on oil rigs located beyond 12 nautical miles (i.e., beyond the territorial waters and outside the then-defined taxable territory), the income was not taxable for Assessment Year 1983-84. The Court's view was supported by judgments in Commissioner of Income-tax Vs. Ronald William and others (215-ITR page 638) and McDermott International Vs Union of India (173-ITR-155). The Court answered both questions in the affirmative, in favour of the assessee.

What were the facts?

The appeal by the Revenue concerns Assessment Year 1983-84 and challenges an order of the Income Tax Appellate Tribunal. The dispute pertains to the taxability of salary income earned by a foreign employee, Mr. A. Mackenzie, of Atwood Oceanics International S.A. Mr. Mackenzie worked on an offshore drilling rig operating for ONGC off the west coast of India. The income was earned during the accounting year ending March 31, 1983. A notification issued on March 31, 1983, made the Income Tax Act applicable to the Continental Shelf and Exclusive Economic Zone from April 1, 1983. The assessee is Atwood Oceanics International S.A. as agent of Mr. A. Watt, and the revenue is the Commissioner of Income Tax, Meerut.

What were the issues?

1. Whether the Income Tax Appellate Tribunal was legally correct in treating the continental shelf and exclusive economic zone as not forming part of India prior to April 1, 1983, for the purposes of the Income Tax Act, 1961? (Question of law) 2. Whether the Appellate Tribunal was justified in holding that salary income earned by respondent-employees for services rendered prior to April 1, 1983, on a rig located offshore outside India's territorial waters, was not chargeable to tax under the Income Tax Act, 1961, for Assessment Year 1983-84? (Question of mixed law and fact) Assessee's contentions: The salary income earned by the foreign technician prior to April 1, 1983, on oil rigs located beyond territorial waters was not taxable in India as the Continental Shelf and Exclusive Economic Zone became part of the taxable territory only from April 1, 1983, vide notification dated March 31, 1983. The income did not accrue in a taxable territory prior to this date. Revenue's contentions: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 260A,Section 6(6),Section 7(7)

AI-generated summary — verify with the full judgment below

Assessment Year 1983-84

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

I.T.A. No. 383 of 2001 (Old No. 150/1999)

The Commissioner of Income Tax, Meerut and another

……… Appellants

Versus

Atwood Oceanics International S.A. As agent of Mr. A. Watt

……… Respondent

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

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, 1961 filed by the Revenue against the judgment and order dated 29.10.1998 passed by the Income Tax Appellate Tribunal, New Delhi in I.T.A. No. 5843/Del/90. 2. Mr. A. Mackenzie is the employee of M/s Atwood Oceanics International S.A., who was employed during the relevant previous year on the offshore drilling rig operating off the west coast for oil exploration in the continental shelf of India for ONGC.

3.

The questions raised before us are as follows:

1.

Whether the learned Income Tax Appellate Tribunal was legally correct to treat the continental shelf to the exclusive economic zone as not forming part of India prior to 1.4.1983 for the purpose of Income Tax Act, 1961?

2.

Whether the learned Appellate Tribunal was justified in holding that the salary income earned by the respondent- employees for services rendered prior to 1.4.1983 in a rig

located in the off-shore areas outside the territorial waters of India, was not chargeable to Tax under the Income Tax Act, 1961, for the Assessment Year 1983-84?

4.

Heard learned counsel for the parties and perused the record.

5.

As this Court has discussed in Income Tax Appeal No. 438 of 2001; The Commissioner of Income Tax, Meerut & another Vs Atwood Oceanics International S.A. as agent of Mr. Gene Little dated 16th October, 2003, the reasoning regarding these questions is given in the following paragraph:

6.

In this appeal we are concerned regarding taxability of income earned by a foreign technician, employee, on the rigs located in the continental shelf and the economic zone but beyond territorial waters of India during the accounting year ending 31st March, 1983. On 31st March 1983, Government of India issued notification No. GSR- 304(E) under section 6(6) and section 7(7) of Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act 1976(hereinafter referred to for the sake of brevity as the said Act 1976). By the said notification the provisions of the Income Tax Act were made applicable from 1.4.1983 to the Continental Shelf and Exclusive Economic Zone. It is important to note that in this case we are concerned with the concept of Taxable Territory of India under Income Tax Act, 1961. This is important as it is only by virtue of notification dated 31st March 1983 that the Continental Shelf and the Exclusive Economic Zone became part of the taxable territory w.e.f. 1.4.1983. To levy the tax the income must accrue in the territory to which the Income Tax Act applies. In this case Article 297 of the Constitution is not relevant. For the purposes of deciding this matter the only relevant issue is whether the income earned by a non-resident accrued in a taxable territory prior to 1.4.1983. On facts, it is clear

that the foreign technician had earned salary income before 1.4.1983 by working on the oil rigs, located beyond 12 nautical miles and therefore, he has not taxable for assessment year 1983-84. Our view is supported by the judgment of the Madras High Court in the case of Commissioner of Income-tax Vs. Ronald William and others reported in 215-ITR page 638 and also by the judgment of the Bombay High in 173-ITR-155. 8. For the reasons aforesaid, we answer both the above questions in the affirmative i.e. in favour of the assessee and against the Department.

9.

Appeal is dismissed accordingly. No order as to costs.

(P.C. Pant, J.)

(P.C. Verma, A.C.J.)

Dt. 06.07.2004. HN

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