M/S HUGHES SERVICES PVT. LTD. vs. THE COMMISSIONER OF INCOME TAX

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ITA/230/2000HC UttarakhandUKHC01015077200407 March 2006Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal, holding that the assessee could not be taxed for the off-period salary. The Court relied on the Supreme Court's decision in Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. (reported in (2003) 264 ITR 320), which was later affirmed by the Apex Court in Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another (JT 2005(9) SC 639). The Apex Court had held that the Explanation to Section 9(1)(ii) was amended prospectively by the Finance Act 1999 and could not be applied retrospectively to previous years. Since the assessment year in dispute (1992-93) was prior to the amendment's effective date, the assessee could not be taxed on the off-period salary. The question of law was answered in favour of the assessee.

What were the facts?

M/s Hughes Services (Far East) Pvt. Ltd., acting as agent for Mr. Cooley Larry Wayne, filed an appeal against an order dated 15.05.2000 by the Income Tax Appellate Tribunal (ITAT), Bench 'C', New Delhi, for the assessment year 1992-93. The assessee had a contract with ONGC for cementing services, involving 28 days of work followed by 28 days off. The assessee left India during the off-period. The Assessing Officer taxed the salary paid for this off-period. The Commissioner of Income Tax (Appeals) dismissed the assessee's first appeal. The ITAT partly allowed the assessee's second appeal. The High Court is now hearing the appeal against the ITAT's order.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in treating the amount paid for the off-period as income earned in India, in view of the explanation to Section 9(1)(ii) of the Income Tax Act, 1961, when no services were rendered in India during that period, and considering that the amendment to the explanation, which regards payments for off or leave periods as income accrued in India, was effective only from 01.04.2000. Assessee's Contention: The assessee argued that the amount paid for the off-period should not be treated as income earned in India because no services were rendered in India during that time. They also highlighted that the amendment to the explanation to Section 9(1)(ii), which would deem such payments as income accrued in India, was prospective and effective only from 01.04.2000, thus not applicable to the assessment year in question. Revenue's Contention: The judgment does not record specific arguments made by the revenue.

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. 297 of 2001 (Old No. 230/2000)

M/s Hughes Services (Far East) Pvt. Ltd. as Agent of Mr. Cooley Larry Wayne ……………… Appellant

Versus

The Commissioner of Income Tax, Meerut ………………… Respondents

Mr. V.K. Bist, Advocate for the appellant. Mr. Pitamber Maulekhi, Advocate for the respondent.

Dated: March 7, 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 15.05.2000 for the assessment year 1992-93, passed by the Income Tax Appellate Tribunal, (Bench ‘C’ New Delhi).

3.

Briefly stated facts are that the appellant had entered into a contract with ONGC for cementing services which is an essential part of drilling process on rig. For the execution of the contract, the appellant was employed and put to services. 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 on the facts and in the circumstances of the case, Tribunal is legally justified in treating the amount paid for the off period as the income earned in India in view of the explanation to Section 9(1)(ii) while admittedly no service has been rendered during off period in India and inasmuch as, the subsequent amendment made in the explanation w.e.f. 01.04.2000 shows that the amount paid for off period or leave period is regarded as the income accrued in India only w.e.f. 01.04.2000”?

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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