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

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ITA/105/2004HC UttarakhandUKHC01004884200412 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA2 pages
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What did the High Court hold?

The High Court decided the appeal based on previously rendered judgments. For the first issue, concerning the deductibility of remuneration and its taxability in another state, the Court followed its own Division Bench decision in "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" dated July 22, 2005. That judgment had answered this question in favour of the Revenue. For the second issue, regarding the taxability of off-period salary under section 9(1)(ii), the Court followed the decision of 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). This Supreme Court judgment answered the question in favour of the assessee. Consequently, the appeal was disposed of in light of these pronouncements, with the first issue favouring the revenue and the second favouring the assessee.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., acting as an agent for its employee Mr. Doug Lacroix, filed an appeal against a consolidated order dated January 30, 2004, passed by the Income Tax Appellate Tribunal (ITAT), Bench 'F', New Delhi, for the assessment year 1994-95. The appeal was preferred against the Commissioner of Income Tax, Dehradun, and the Assistant Commissioner of Income-Tax, Special Range, Dehradun. The parties agreed to limit the appeal to two specific questions of law, abandoning the rest. The High Court was to determine these questions based on prior judicial pronouncements.

What were the issues?

The High Court was asked to decide two questions of law: 1. Whether the ITAT erred in holding that the appellant failed to satisfy the condition that 'the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State'? This question pertains to the deductibility of remuneration and its taxability in another state. 2. Whether the ITAT 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? This question concerns the taxability of salary earned during periods when the employee was not actively working. Arguments: Assessee: The assessee relied on the Supreme Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another" for the second question. Revenue: The revenue's position on the first question was supported by a previous Division Bench judgment of the High Court in "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" which answered the question in favour of 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. 105 of 2004

Sedco Forex International Drilling Inc. as agent of its employee Mr. Doug Lacroix 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 ‘F’ New Delhi).

3.

The learned counsel for the parties agree that the following only two questions of law arise in this appeal for the

determination. They do not press the rest of the questions framed in the appeal:-

1.

Whether the learned I.T.A.T. has erred in law in holding that the appellant has failed to satisfy the condition that ‘the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State’?

2.

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?

4.

So far as the question No.1 is concerned, this question has already been decided by Division Bench of this Court {in which one of us (P.C. Verma,J.) was a member} in case of “Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another”, which was decided on 22.07.2005 in Income Tax Appeal No.165 of 2001. In the said judgment, the question framed in the said appeal was answered in favour of the Revenue.

5.

The second question has also been decided by the Hon’ble Apex Court in Civil Appeal Nos.351-355 of 2005 “Sedco of Income Tax, Dehradun and Another, JT 2005(9) SC 639”. In view of the aforesaid decision of the Hon’ble Apex Court, this question is answered in favour of the assessee.

6.

In view of the above, we dispose of the appeal accordingly.

(J.C.S. Rawat, J.)

(P.C. Verma, J.)

Rajeev Dang

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