M/S B.J.SERVICE CO. vs. INCOME TAX APPELLATE TRIBUNAL and ORS.

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ITA/18/2004HC UttarakhandUKHC01004862200414 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal. It held that the assessment year in dispute was prior to 1999. The Court referred to the Supreme Court's decision in Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another, which held that the Explanation to Section 9(1)(ii) was amended by the Finance Act, 1999, and this amendment was prospective. Therefore, it could not be applied retrospectively to previous years. Since the assessment year in the present case was prior to the amendment, the assessee could not be taxed on the off-period salary. The question of law was answered in favour of the assessee. No order as to costs was made.

What were the facts?

The assessee, M/s B. J. Services Co. Middle East, acting as an agent for Mr. Peter Grubic, entered into a contract with ONGC for cementing services. The contract stipulated 28 working days followed by 28 off days. The Assessing Officer taxed the salary earned during the off-period, which the assessee spent outside India. The Commissioner of Income Tax (Appeals) upheld this decision. The assessee appealed to the Income Tax Appellate Tribunal, which partly allowed the appeal. The present appeal is filed against the Tribunal's consolidated order dated February 3, 2004, for the assessment year 1997-98.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is 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 service was rendered in India during the off period, and considering that the subsequent amendment to the explanation, effective from April 1, 2000, regards such payments as income accrued in India only from that date? Assessee's Contention: The assessee argued that no services were rendered in India during the off period, and the amendment to Section 9(1)(ii) making off-period salary taxable in India was prospective, effective from April 1, 2000. Therefore, it should not apply to the assessment year in question, which was prior to this amendment. Revenue's Contention: The revenue contended that the amount paid for the off period should be treated as income earned in India, relying on the explanation to Section 9(1)(ii).

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 18 of 2004

M/s B. J. Services Co. Middle East, as Agent of Mr. Peter Grubic Vikas Centre, 2nd Floor, S.V. Road, Santacruz (W), Mumbai.

….Appellant

Versus

1.

Income Tax Appellate Tribunal, Delhi Bench ‘D’ New Delhi

2.

Commissioner of Income Tax (Appeals), Dehradun

3.

Assistant Commissioner of Income Tax, Special Circle, Dehradun ……………. Respondents

Mr. V.K. Bist, Senior Advocate for the appell nt. a Mr. S.K.Posti, Advocate for the respondents.

Dated: December 14, 2005

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

Both the parties are ready to argue the matter today.

2.

This appeal has been preferred against the consolidated order dated 03.02.2004 for the assessment year 1997-98, passed by the Income Tax Appellate Tribunal, (Bench ‘D’ New Delhi).

3.

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.

converted into Civil Appeal Nos.351-355 of 2005. The Hon’ble Apex Court in “Sedco Forex International Drill Inc. 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 Rajeev Dang

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