READING and BATES EXPLORATION CO. vs. THE COMMISSIONER OF INCOME TAX

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ITA/84/2003HC UttarakhandUKHC01009133200304 March 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 sole question of law in favour of the assessee. The Court relied on the Supreme Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another". 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 and could not be applied retrospectively. Since the assessment year in dispute (1991-92) was prior to 1999, the amended Explanation could not be applied. Therefore, the off-period salary was not taxable in India. The appeal was allowed, and the question was answered accordingly. No order as to costs.

What were the facts?

The appellant, Reading & Bates Exploration Co. as agent of K.F. Henson, is in appeal against a consolidated order dated April 19, 2001, passed by the Income Tax Appellate Tribunal (ITAT), Bench 'E', New Delhi, for the assessment year 1991-92. The assessee employed technicians for drilling operations in India, with a work schedule of 28 days on the rig and 28 days off the rig outside India. During the off period, employees were required to be available to the company. The assessee contended that salary earned outside India during the off period was not taxable in India under Section 9(1)(ii) and its Explanation. The Assessing Authority and the Commissioner of Income Tax (Appeals) held the off-period salary taxable as leave salary. The ITAT partly allowed the 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? The assessee contended that the salary earned outside India during the 28 days off period was not taxable in India under Section 9(1)(ii) and its Explanation, as the income was not earned in India. The revenue contended that the off-period salary was taxable in India and was in the nature of leave salary. The parties agreed that this was the sole question of law arising for determination, and other framed questions were not pressed.

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.84 of 2003

Reading & Bates Exploration Co. As agent of K.F. Henson, C/o M/s Hangia & Co. D-11, Greater Kailash, Enclave-I, New Delhi 110048

……….. Appellant

Versus

The Commissioner of Income Tax, Dehradun

…………. Respondent

Ms. Krishi Shukla, Advocate for the appellant. Mr. Pitamber Maulekhi, standing counsel for the respondents.

Dated: March 4, 2006

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

Both the parties are ready to argue the matter today.

2.

This appeal has been preferred against the consolidated order dated 19.04.2001 for the assessment year 1991-92, passed by the Income Tax Appellate Tribunal, (Bench 'E' New Delhi).

3.

Brief facts of the case-giving rise to this appeal are that the appellant during the year under consideration employed technicians for execution of contracts in India relating to drilling operation at a rig. In view of the contract of employment and work schedule the normal work schedule of the employees was 28 days on the rig and 28 days off the rig outside India. During the 28 days outside India, the employees were required to be

available to the Company for one or more of the purposes described in the work schedule. On the basis of this stipulation, the contention of the assessee was that the assessee’s employees did not earn any income in India during the 28 days off period and as such the salary received outside India during off period was excluded from the income subject to tax in India under Section 9(1)(ii) and explanation there under. The Assessing Authority has held that the off period salary would be taxable in India and the same was in the nature of leave salary. On appeal, the Commissioner of Income Tax (Appeals), Dehradun affirmed the order of the Assessing Authority. In the second appeal, the Income Tax Appellate Tribunal partly allowed the appeal.

4.

The learned counsel for the parties agree that only the following question of law arises in the appeal for the determination and they do not press the rest of the questions framed in the appeal:

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.

into civil Appeal Nos. 351-355 of 2005. 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" 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 R. Dang

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