READINGandBATES DRILLING CO.AGENT PATRICK BRYNE vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/134/2004HC UttarakhandUKHC01004910200406 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal, answering the sole question of law in favour of the assessee. The Court noted 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 (Supra)". In that case, the Apex Court held that 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 applied retrospectively to assessment years prior to the amendment. The Supreme Court had set aside the Division Bench judgment of the High Court in the Sedco Forex case on this ground. Applying the same principle, the High Court held that since the assessment year in the present case was also prior to 1999, the assessee could not be taxed on the off-period salary. The appeal was allowed, and the question was answered accordingly.

What were the facts?

The appellant, M/s Reading & Bates Exploration Co. as Agent of Mr. Patrick Bryne, is appealing an order dated July 9, 2004, passed by 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 spent outside India, to which the technicians were entitled after rendering services in India, was not taxable in India. The Assessing Officer (AO) calculated perquisites and added them to the income, also levying interest under Section 234B for non-payment of advance tax. The Commissioner of Income Tax (Appeals) upheld 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 period spent outside India was not taxable in India. The specific provision under challenge is Section 9(1)(ii) of the Income Tax Act, 1961, concerning income deemed to accrue or arise in India. Revenue's Contention: The revenue contended that the off-period salary was taxable in India. The revenue relied on the Division Bench judgment of the High Court in CIT vs. Sedco Forex International Drilling Co. Ltd. (2003) 264 ITR 320. The revenue's position was that the Explanation to Section 9(1)(ii), as it stood, made such salary 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. 134 of 2004

M/s Reading & Bates Exploration Co. as Agent of Mr. Patrick Bryne …….… 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’s 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 asseessees 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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