SEDCO FOREX INT. DRILLING AGENT MR. KEITH STEVENS vs. THE COMMISSIONER OF INCOME TAX and ANR

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ITA/145/2005HC UttarakhandUKHC01003023200523 March 2006Author: HON'BLE MR. JUSTICE P. C. VERMA2 pages
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What did the High Court hold?

The High Court decided the appeal by addressing the two agreed-upon questions of law. For the first question, concerning the deductibility of remuneration, the Court held that it had already been decided by 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). In that prior judgment, the question was answered in favour of the Revenue. For the second question, regarding the taxability of off-period salary under section 9(1)(ii), the Court referred to a decision of the Hon'ble Apex Court in "Sedco Forex International Drill Inc. and others Vs. Commissioner of Income Tax, Dehradun and Another" (JT 2005(9) SC 639). Following the Apex Court's ruling, this question was answered in favour of the assessee. The appeal was disposed of in view of these decisions.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., acting as an agent for its employee Mr. Keith Stevens, filed an appeal against the consolidated 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 against the Commissioner of Income Tax, Dehradun, and the Assistant Commissioner of Income-Tax, Special Range, Dehradun. The High Court of Uttaranchal at Nainital was hearing the appeal. Both parties were ready to argue the matter. The parties agreed that only two specific questions of law were to be determined, and the rest were not pressed.

What were the issues?

The Tribunal had to decide two questions of law: 1. Whether the learned I.T.A.T. erred in law in holding that the appellant 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 international taxation. 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 periods when an employee is not actively working in India. Contentions: Assessee: The judgment does not explicitly record the assessee's arguments for either question. However, the outcome of the second question suggests the assessee argued that off-period salary was not taxable. Revenue: The judgment does not explicitly record the revenue's arguments for either question. However, the outcome of the first question suggests the revenue argued that the condition regarding non-deductibility of remuneration was not met by the appellant.

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

THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No.145 of 2005

Sedco Forex International. Drilling Inc. as agent of its employee Mr. Keith Stevens a company incorporated in the Republic of Panama having its registered office at No.8, Acquitino 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 Assistant Commissioner of Income-Tax, Special Range, Dehradun having office At Subhash Road, Dehradun-248001

................ Respondents

Ms. Menka Tripathi, Advocate for the appellant. Mr. Pitamber Maulekhi, Advocate for the respondents.

Dated: March 23, 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 consolidated 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 a 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 Income 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 No1 has also been decided by 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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