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

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ITA/8/2005HC UttarakhandUKHC01002964200519 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 followed the Supreme Court's decision 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, was amended prospectively by the Finance Act 1999. Therefore, it could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in the present case was prior to 1999, the off-period salary was not taxable. The Court set aside the ITAT's order to the extent it upheld the taxation of off-period salary and directed that the appeal be allowed. No order as to costs was made.

What were the facts?

The appellant, M/s R & B Falcon Drilling Co., acting as agent for Mr. Mark Lyons, is appealing an order for the assessment year 1999-2000. The company employed foreign technicians for drilling operations in India, with a work schedule of 28 days on and 28 days off. The Assessing Officer taxed the salary earned during the 'off-period' when technicians were outside India. The Commissioner of Income Tax (Appeals) upheld this, but the Income Tax Appellate Tribunal (ITAT) partly allowed the assessee's appeal. The High Court is now considering the appeal against the ITAT's order.

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 (Supra)". This judgment held that the Explanation to Section 9(1)(ii) was amended prospectively by the Finance Act 1999 and could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in dispute (1999-2000) was prior to the amendment, the off-period salary should not be taxable. Revenue's Contention: The judgment does not record any specific arguments made by the revenue. However, it references a prior Division Bench decision of the same High Court in favour of the revenue in the case of Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd.

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. 08 of 2005

M/s R & B Falcon Drilling Co., As agent of Mr. Mark Lyons ...............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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