SEDCO FOREX INTERNATIONAL DRILLING INC. vs. COMMISSIONER OF INCOME TAX

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ITA/110/2004HC UttarakhandUKHC01004889200412 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 noted that the question of law was identical to that decided by a Division Bench of the same court in CIT vs. Sedco Forex International Drilling Co. Ltd. (2003) 264 ITR 320. However, the Supreme Court, in the case of Sedco Forex International Drill Inc. and Others vs. Commissioner of Income Tax, Dehradun and Another (JT 2005(9) SC 639), had set aside the High Court's judgment. The Supreme Court held that the Explanation to Section 9(1)(ii) was amended prospectively by the Finance Act 1999 and could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in the present case (1994-95) was prior to 1999, the assessee could not be taxed on the off-period salary based on the Supreme Court's ruling. The question of law was answered in favour of the assessee.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., a non-resident company, received salary for its employee, Mr. S. Rothel, who worked on drilling rigs. The employee typically spent 28/35 days on the rigs followed by a similar period off the rigs. The assessee contended that salary earned during the 'off-period' was not taxable in India as no services were rendered in India for that period. The Assessing Officer disagreed, holding the off-period salary taxable under Section 9(1)(ii). The Commissioner of Income Tax (Appeals) upheld this. The Income Tax Appellate Tribunal partly allowed the assessee's appeal. The present appeal is against the Tribunal's consolidated order for assessment year 1994-95.

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? Assessee's contention: The assessee argued that salary earned during the off-period, when the employee was not rendering services in India, should not be taxable in India. Revenue's contention: The revenue contended that the off-period salary was taxable under Section 9(1)(ii) of the Income Tax Act, 1961, as interpreted by the authorities below.

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.110 of 2004

Sedco Forex International Drilling Inc. as agent of its employee Mr. S.Rothel 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

Mr. Arvind Vashisth, Advocate for the appellant. Mr. S.K. Posti, Advocate for the respondents.

Dated: December 13, 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 30.01.2004 for the assessment year 1994-95, passed by the Income Tax Appellate Tribunal, (Bench ‘B’ New Delhi).

3.

Brief facts of the case-giving rise to this appeal are that appellant is a non-resident in receipt of salary from the appellant in terms of the service contract. The appellant

normally resides on the rigs for a period of 28/35 days and thereafter he is off the rigs for 28/35 days. On the basis of this, it was the claim of the assessee that off-period salary is not assessable to tax in India, as there were no services rendered in India for which the payment was made. The Assessing Officer held that off-period salary is chargeable to tax u/s 9(1)(ii) and accordingly taxed the salary. In 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 Rajeev Dang

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