SEDCO FOREX INT. DRILLING INC. vs. THE COMMISSIONER OF INCOME TAX and ANR.

ITA/40/2005HC UttarakhandUKHC01004235200521 December 2005Author: HON'BLE MR. JUSTICE M. M. GHILDIYAL2 pages

AI SummaryPartly Allowed

What did the High Court hold?

The High Court decided the two questions based on previous pronouncements. For the first question, regarding exemption under Article 16 of the DTAA, the High Court referred to its own judgment dated July 22, 2005, in Income Tax Appeal No. 165 of 2001 (Sedco Forex International Inc. Vs. The Commissioner of Income Tax, Dehradun and another). This prior judgment had answered the question in the negative, meaning in favour of the Department and against the appellant. For the second question, concerning the taxability of 'off period' salary under Section 19(1)(ii) of the Income Tax Act, the High Court relied on the Apex Court's judgment reported in JT 2005 (9) SC 639 (Sedco Forex International Drill Inc. and others Vs. Commissioner of Income Tax, Dehradun and Anr.). This Supreme Court judgment had answered the question in favour of the assessee/appellant and against the Department. Consequently, the appeal was disposed of following these judgments.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., acting as an agent for its employee Mr. Paul Culling, filed an appeal against an order by the Income Tax Appellate Tribunal, New Delhi, dated October 29, 2004. The Tribunal had rejected the appellant's claim for exemption from double taxation for the assessment year 1998-99, holding that 'off period' salary was taxable in India. The appellant is a company incorporated in the Republic of Panama. The appeal was filed before the High Court of Uttaranchal at Nainital.

What were the issues?

The High Court had to decide two questions of law: 1. Whether, on the facts and circumstances of the case, the Tribunal erred in law by holding that exemption under Article 16 of the Double Taxation Avoidance Agreement (DTAA) between India and the UK was not available to the appellant's technician? 2. Whether, on the facts and circumstances of the case, the Tribunal erred in law by holding that 'off period' salary was taxable in India under Section 19(1)(ii) of the Income Tax Act? Contentions: Assessee: The assessee contended that exemption under Article 16 of the DTAA should have been available and that 'off period' salary should not be taxable in India. The assessee relied on the judgment in Sedco Forex International Inc. Vs. The Commissioner of Income Tax, Dehradun and another (Income Tax Appeal No. 165 of 2001) for the first issue and the Supreme Court judgment in Sedco Forex International Drill Inc. and others Vs. Commissioner of Income Tax, Dehradun and Anr. (JT 2005 (9) SC 639) for the second issue. Revenue: The judgment does not record specific arguments from the revenue for either issue, but it notes that the High Court's previous decision in Income Tax Appeal No. 165 of 2001 was in favour of the Department and against the appellant on the first question.

Which sections of the Income-tax Act were involved?

Section 19(1)(ii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL.

Income Tax Appeal No. 40 of 2005

Sedco Forex International Drilling Inc. as agent of its employee Mr. Paul Culling a company incorporated in 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

The Commissioner of Income Tax, Dehradun having office at Subhash Road, Dehradun.

The Deputy Commissioner of Income Tax, Special Circle, Dehradun, having its office at Subhash Road, Dehradun.

…………..Respondents

Hon’ble M.M. Ghildiyal, J. Hon’ble B.S. Verma, J.:

Heard Ms. Menka Tripathi, learned counsel for the appellant and Sri S.K. Posti, learned standing counsel for respondent.

Appellant has preferred this appeal against the order passed by Income Tax Appellate Tribunal, New Delhi dated 29.10.2004 rejecting the claim in respect of exemption from double taxation of the appellant for the assessment year 1998 ‐99 and holding that off period salary is liable to be taxed in India.

Two questions have risen for decision, which are as under:

Whether on the facts and circumstances of the case the Tribunal erred in law holding that the exemption under Article 16 of DTAA between India and UK was not available to the appellate technician?

Whether on the facts and circumstances of the case the Tribunal erred in law for holding off period salary was taxable in India under Section 19 (1) (ii) of the Income Tax Act? Hon’ble Apex Court reported in JT 2005 (9) SC 639 (Sedco in favour of assessee / appellate and against the department.

Following the above mentioned judgments, the question are decided accordingly.

In view of the above, the appeal is disposed of. No order as costs.

(B. S. Verma, J) (M.M. Ghildiyal, J.)

December 21, 2005 SKSharma

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