READING andBATES DRILLING CO.AGENT MICHALE SCHMIDT vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/163/2004HC UttarakhandUKHC01004932200406 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
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What did the High Court hold?

The High Court held that the Tribunal was not right in its initial stance, but ultimately allowed the appeal in favour of the assessee. 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 (JT 2005(9) Sc 639). The Apex Court had held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, was amended by the Finance Act 1999 and this amendment was prospective. Therefore, it could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in the present case (1998-99) was prior to the amendment, the assessee could not be taxed on the off-period salary. The High Court answered the question of law in favour of the assessee, setting aside the Tribunal's order to the extent it upheld the taxability.

What were the facts?

The appellant, Ms/ Reading & Bates Exploration Co. as Agent of Mr. Michael Schmidt, is in appeal against the consolidated order dated 09.07.2004 of the Income Tax Appellate Tribunal (Bench 'B' New Delhi) for the assessment year 1998-99. The assessee employed foreign technicians for offshore oil drilling. A claim was made that salary for 28 days of 'off-period' spent outside India was not taxable in India. The Assessing Officer (AO) added the value of perquisites for this period to the income and levied interest under Section 234B for non-payment of advance tax. The CIT(A) affirmed the AO's order. 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? Assessee's contention: The assessee argued that the salary for the 28-day off-period, during which the technicians were entitled to stay outside India, was not taxable in India. The assessee relied on the principle that the Explanation to Section 9(1)(ii) was amended prospectively and should not apply retrospectively to assessment years prior to the amendment. Revenue's contention: The revenue contended that the off-period salary was taxable in India. The revenue initially relied on the High Court's decision in CIT vs. Sedco Forex International Drilling Co. Ltd. (2003) 264 ITR 320, which held such salary to be taxable.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii),Section 234B,Section 208

AI-generated summary — verify with the full judgment below

COURT NO.2

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 163 of 2004

Ms/ Reading & Bates Exploration Co. as Agent of Mr. Michael Schmidt

……………Appellant

Versus

The Commissioner of Income Tax, Dehradun

……………. Respondent

Ms. Krishi Shukla, Advocate for the appellant. Mr. S.K. Posti, Advocate for the respondents.

Dated: December 6, 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 09.07.2004 for the assessment year 1998-99, passed by the Income Tax Appellate Tribunal, (Bench ‘B’ New Delhi).

3.

Brief facts of the case-giving rise to this appeal are that the appellant during the year under consideration employed foreign technicians for carrying on the work off shore oil drilling. As per terms of employment and nature of operation carried on by these persons, they were entitled to spend 28 days out of India after rendering services in India. On the basis of this, it was the claim of the assessee that the salary for 28 days off period, which they were entitled to stay out of India was not liable to be taxed in India. The Assessing Authority worked out

value of perquisites at the rate of Rs.270/- to Rs.290/- per day and added the same to the income. The A.O. also levied interest under Sec.234-B of the Income-Tax Act, as the assessees did not pay advance tax in terms of Sec. 208 of the Income Tax Act. 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 Rajeev Dang

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