READING and BATES EXPLORATION CO.AGENT R.C.JUSTINIC vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/159/2004HC UttarakhandUKHC01004927200406 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 issue was decided by a Division Bench of the same High 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 by the Finance Act 1999 and was prospective. Therefore, it could not be applied retrospectively to assessment years prior to 1999. As the assessment year in the present case (1994-95) was prior to 1999, the assessee could not be taxed on the off-period salary in view of the Apex Court's ruling. The appeal was allowed, and the question was answered accordingly.

What were the facts?

The assessee, Ms/ Reading & Bates Exploration Co. as Agent of Mr. R.C. Justinic, is appealing an order dated 09.07.2004 passed by the Income Tax Appellate Tribunal (Bench 'B' New Delhi) for the assessment year 1994-95. The assessee employed foreign technicians for offshore oil drilling. The issue arose from the claim that salary for 28 days spent outside India, as per employment terms, was not taxable in India. The Assessing Officer added perquisites for this period and levied interest under Section 234-B for non-payment of advance tax. The CIT(A) 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 (Assessment Year 1994-95)? Assessee's contention: The assessee contended that salary for the period spent outside India was not taxable in India. They relied on the principle that income is taxable where it accrues or arises, and the period spent abroad did not constitute accrual or arising of income in India. Revenue's contention: The revenue argued that the salary for the off-period was taxable in India. They likely relied on the provisions of Section 9(1)(ii) and the Explanation thereto, as it stood at the relevant time, to assert that services rendered in India, even if payment was for a period outside India, could be taxable.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii),Section 234-B,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. 159 of 2004

Ms/ Reading & Bates Exploration Co. as Agent of Mr. R.C. Justinic

……………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 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 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 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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