SEDCO FOREX INTERNATIONAL DRILLING INC. vs. THE COMMISSIONER OF INCOME TAX, DEHRADUN AND ANR

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ITA/117/2005HC UttarakhandUKHC01003003200503 May 2006Author: HON'BLE MR. JUSTICE P. C. VERMA2 pages
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What did the High Court hold?

The High Court decided the two questions of law as follows: Regarding Question 1, the Court held that the appellant had failed to satisfy the condition that 'the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State'. This finding was based on a prior decision of a Division Bench of the same High Court in the case of "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" (Income Tax Appeal No. 165 of 2001), decided on July 22, 2005, which had answered this question in favor of the Revenue. The principle here is that if remuneration is deductible in the other state, it impacts taxability. Regarding Question 2, the Court held that off-period salary was not taxable under section 9(1)(ii) read with the Explanation as it stood at the relevant time. This decision was based on the Hon’ble Apex Court's judgment in Civil Appeal Nos. 351-355 of 2005, "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another", JT 2005(9) SC 639. This judgment answered the question in favor of the assessee. The ratio is that salary earned during an 'off-period' is not taxable under the specified section. The appeal was disposed of accordingly.

What were the facts?

The appellant, Sedco Forex Intl. Drilling Inc., as agent for its employee Mr. Marcel Cloarec, filed an appeal against an order dated January 28, 2005, passed by the Income Tax Appellate Tribunal (Bench 'E', New Delhi) for the assessment year 1997-98. The appeal was preferred before the High Court of Uttaranchal at Nainital. The appellant and respondents were ready to argue the matter. The parties agreed that only two specific questions of law arose for determination, and the rest were not pressed. The appeal was disposed of based on the decision of these two questions.

What were the issues?

The Tribunal had to decide two questions of law: 1. Whether the learned I.T.A.T. has erred in law in holding that the appellant has failed to satisfy the condition that ‘the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State’? This question turns on the interpretation of provisions related to the deductibility of remuneration in another state. 2. Whether the Tribunal was right in holding that off-period salary was not taxable under section 9(1)(ii) read with the Explanation as it stood at the relevant time? This question concerns the taxability of salary earned during an 'off-period' under Section 9(1)(ii) of the Income Tax Act. Contentions: Assessee: The assessee did not explicitly present arguments for these specific questions in the provided text, but the outcome suggests their position was favored on the second issue. Revenue: The revenue's position was favored on the first issue. The judgment refers to prior decisions where the revenue's stance was upheld.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 117 of 2005

Sedco Forex Intl. Drilling Inc. as agent Of its employee Mr. Marcel Cloarec, a Company incorporated in the Republic of Panama having its registered office at No.8 Cquitino de la Guardia Street, City of Panama, Republic of Panama, present address C/o A.F. Ferguson & Co. Maker Towers, Cuffe Parade, Mumbai

………… Appellant

Versus

1.

The Commissioner of Income Tax, Dehradun, having office at Subhash Road, Dehradun 248001

2.

The Deputy Commissioner of Income Tax, Special Circle, Dehradun having its office a Subhash Road, Dehradun 248001

………Respondents

Ms. Menka Tripathi, Advocate for the appellant. Mr. S.K. Posti, Advocate for the respondents.

Date: May 03, 2006

Coram: Hon.P.C. Verma, J. Hon. B.C. Kandpal, J.

Both the parties are ready to argue the matter today.

2.

This appeal has been preferred against the order dated 28.01.2005 for the assessment year 1997-98, passed by the Income Tax Appellate Tribunal, (Bench ‘E’ New Delhi).

3.

The learned counsel for the parties agree that the following only two questions of law arise in this appeal for the determination. They do not press the rest of the questions framed in the appeal:-

1.

Whether the learned I.T.A.T. has erred in law in holding that the appellant has failed to satisfy the condition that ‘the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State’?

2.

Whether the Tribunal was right in holding that off period salary was not taxable under section 9(1)(ii) read with the Explanation as it stood at the relevant time?

4.

So far as the question No. 1 is concerned, this question has already been decided by Division Bench of this Court {in which one of us (P.C.Verma,J.) was a member} in case of “Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another”, which was decided on 22.07.2005 in In3come Tax Appeal No. 165 of 2001. In the said judgment, the question framed in the said appeal was answered in favour of the Revenue.

5.

The second question has also been decided by the Hon’ble Apex Court in Civil Appeal Nos.351-355 of 2005 “Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another, JT 2005(9) SC 639”. In view of the aforesaid decision of the Hon’ble Apex Court, this question is answered in favour of the assessee.

6.

In view of the above, we dispose of the appeal accordingly.

(B.C. Kandpal, J.)

(P.C. Verma, J.) Rajeev Dang

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