R and B FALCON DRILLING COMPANY AGENT OF GIOVANNI vs. THE COMMISSIONER OF INCOME - TAX DEHRADUN

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ITA/21/2005HC UttarakhandUKHC01002972200519 April 2006Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal, answering the question of law in favour of the assessee. The Court noted that the assessment year in dispute was prior to 1999. It relied on the Supreme Court's judgment in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another (Supra)". The Supreme Court had held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, amended by the Finance Act 1999, was prospective. Consequently, it could not be applied retrospectively to assessment years prior to the amendment. Since the assessment year in the present case was before 1999, the off-period salary could not be taxed. The question of law was answered accordingly, and the appeal was allowed with no order as to costs.

What were the facts?

The appellant, M/s R & B Falcon Drilling Co., acting as agent for Mr. Giovanni Spader, is in appeal against an order dated 21.09.2004 passed by the Income Tax Appellate Tribunal (Bench ‘A’ New Delhi) for the assessment year 1999-2000. The appellant employed foreign technicians for drilling operations in India, with a roster of 28 working days followed by 28 off days. During the off-period, technicians left India. The Assessing Officer taxed the salary earned during these off-periods. The Commissioner of Income Tax (Appeals) dismissed the assessee's appeal, upholding the taxation. The Income Tax Appellate Tribunal, however, partly allowed the assessee's appeal.

What were the issues?

1. 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? Assessee's Contention: The assessee relied on the Supreme Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another" (JT 2005(9) SC 639). This decision held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, amended by the Finance Act 1999, was prospective and could not be applied retrospectively to assessment years prior to 1999. Therefore, the off-period salary for the assessment year in dispute, which was prior to 1999, could not be taxed. Revenue's Contention: The judgment does not record specific arguments from the revenue. However, it notes that a Division Bench of the High Court had previously ruled in favour of the revenue in an identical case (CIT vs. Sedco Forex International Drilling Co. Ltd., (2003) 264 ITR 320), before the Supreme Court's intervention.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

COURT NO.2

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 21 of 2005

M/s R & B Falcon Drilling Co., As agent of Mr. Giovanni Spader ............ Appellant Versus

The Commissioner of Income Tax, Dehradun ............... Respondent

Ms. Krishi Shukla, Advocate for the appellant. Mr. Pitamber Maulekhi, Advocate for the respondent.

Dated: April 19, 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 21.09.2004 for the assessment year 1999-2000, passed by the Income Tax Appellate Tribunal, (Bench ‘A’ New Delhi).

3.

Briefly stated facts are that the appellant during the year consideration employed foreign technicians for execution of contracts in India relating to drilling operation at a rig in India. As per terms of the services, 28 days was working days and 28 days was off days. After working for 28 days on the Board, the appellant had gone outside India and could not stay in India for 28 days. The Assessing Officer taxed the off-period salary. In the first appeal, the Commissioner of Income Tax (Appeals), Dehradun after

relying on its earlier order dismissed the appeal. In the second appeal preferred by the assessee, the Income Tax Appellate Tribunal, Delhi partly allowed the appeal.

4.

The question of law framed in the memo of appeal for our determination is as follows:-

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?

5.

Ltd., which was converted into Civil Appeal Nos.351-355 of 2005. The Hon’ble Apex Court in “Sedco 639” has held that since the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961 was amended by the Finance Act 1999 and was prospective, therefore, it could not be made applicable in the previous years i.e. to say that no retrospective effect can be given to the Explanation, if the assessment proceedings are pending after the said amendment and accordingly the judgment of Division Bench of this Court was set aside as the assessment year in dispute was prior to 1999. 6. In the present case also, the assessment year is prior to 1999, thus the assessee cannot be taxed in view of the law laid down by the Hon’ble Apex Court “Sedco Forex Rajeev Dang

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