THE COMMISSIONER OF INCOME TAX vs. M/S HUGHES SERVICE PVT. LTD. AGENT MR. MORRISON

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ITA/560/2001HC UttarakhandUKHC01004970200406 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court decided both issues against the appellants (Revenue). For the first issue, concerning the taxability of salary for the off period outside India, the Court held that the Hon'ble Apex Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another" (JT 2005(9) SC 639) was binding. This decision answered the question in favour of the assessee, implying that such salary is not chargeable to Indian Income-Tax. For the second issue, regarding the substance allowance comprising free boarding facilities, the Court referred to its own Division Bench decision in "Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. and connected cases" ((2003) 264 ITR 320). This precedent held that free boarding facilities provided by the employer on a rig were not a perquisite under Section 17(2)(iii) and their value could not be added to the assessee's income. Consequently, the appeal was dismissed.

What were the facts?

The appeal was filed by the Commissioner of Income Tax, Dehradun and the Assistant Commissioner of Income Tax, Dehradun against an order dated March 20, 2001, passed by the Income Tax Appellate Tribunal (Delhi Bench 'SMC-I') in ITA No.1696(Del) of 1994. The dispute pertains to Assessment Year 1990-91. The assessee is Hughes Services (FE) Pvt. Ltd., acting as an agent for Mr. Marison B.W. The appeal challenges the Tribunal's decision regarding the taxability of salary paid for an 'off period' outside India and the taxability of a 'substance allowance' comprising free boarding facilities provided on a rig at high seas.

What were the issues?

The Tribunal had to decide two substantial questions of law: 1. Whether the salary paid to the assessee for the off period outside India was not chargeable to Indian Income-Tax under Section 9(1)(ii) of the Income Tax Act, 1961, despite the Tribunal's previous contradictory rulings and a reference on this issue to the High Court. 2. Whether the substance allowance, comprising free boarding facilities provided by the employer on board a rig in high seas, could be construed as a perquisite under Section 17(2)(iii) of the Income Tax Act, 1961. The Appellants (Revenue) argued that the Tribunal was legally incorrect in its findings on both issues, citing its own previous orders that held 'off period' salary as taxable and questioning the interpretation of 'perquisite' for the boarding facility. The Respondent (Assessee) contended that the salary for the off period outside India was not taxable in India and that the boarding facility was not a perquisite. The judgment notes the Revenue's reliance on previous ITAT orders and the Assessee's reliance on the substance of the transaction.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii),Section 17(2)(iii)

AI-generated summary — verify with the full judgment below

COURT NO.2

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No.560 of 2001

1.

The Commissioner of Income Tax, Dehradun.

2.

Asstt. Commissioner of Income Tax, Dehradun … Appellants

Versus

Hughes Services (FE) Pvt. Ltd., As agent of Mr. Marison B.W. C/o G.C. Nagalia (Advocate) 20-A New Road, Dehradun … Respondent

Dated: December 06, 2005

Mr. S.K. Posti, Advocate for the appellants. Mr. V.K. Bisht, Advocate for the respondent.

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

Hon. J.C.S. Rawat, J.

This appeal is against the order dated 20.03.2001, passed by the Income Tax Appellate Tribunal, (Delhi Bench ‘SMC-I’ New Delhi) in ITA No.1696(Del) of 1994. The dispute relates to the Assessment Year 1990-91. 2. The substantial questions of law raised in the appeal are as follows:

“Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct to hold that the salary paid to the assessee for the off period outside India was not chargeable to Indian Income-Tax Act in terms of Section 9(1)(ii) of the I.T. Act, 1961, whereas the Ld. ITAT has itself held, vide order dated 25.03.1992 in ITA No.5649/D/92, dated 28.07.1999 in ITA No.1079/D/91, dated 24.01.2000 in ITA No.411/D/93 and dated 15.05.2000 in ITA No.1648/D/94 that off period salary is taxable in India

and vide order dated 18.11.1996 in R.A. No.443 to 511/D/96 has referred question of law on this issue for esteemed opinion of this Court.”

“Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was legally correct in holding the substance allowance comprising free boarding facility provided by the employer on board the rig in high seas cannot be construed to be perquisite?”

3.

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

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