READING and BATES EXPLORATION CO AGENT LEITH THOMAS vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/156/2004HC UttarakhandUKHC01004924200406 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal. It noted that the sole question of law was whether the Tribunal was right in holding that off-period salary was taxable under Section 9(1)(ii) read with the Explanation as it stood at the relevant time. The Court referred to its own earlier decision in CIT vs. Sedco Forex International Drilling Co. Ltd. (2003) 264 ITR 320, which was in favour of the Revenue. However, the Court then considered 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) was amended by the Finance Act 1999 and was prospective. Therefore, it could not be applied retrospectively. Since the assessment year in the present case (1996-97) was prior to 1999, the assessee could not be taxed based on the amended Explanation. The question of law was answered accordingly, and the appeal was allowed.

What were the facts?

The appellant, M/s Reading & Bates Exploration Co. (as agent of Mr. Leith Thomas), is in appeal against the consolidated order dated 07.07.2004 for assessment year 1996-97, passed by the Income Tax Appellate Tribunal (ITAT), New Delhi. The assessee employed foreign technicians for offshore oil drilling. Their claim was 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 First Appellate Tribunal affirmed the AO's order. The ITAT decided in favour of the Revenue, relying on this Court's decision in CIT vs. Sedco Forex International Drilling Co. Ltd.

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 contended that the salary for the 28-day off-period spent outside India was not taxable in India. The specific provision under challenge is Section 9(1)(ii) read with its Explanation. Revenue's Contention: The Revenue contended that the off-period salary was taxable in India. The ITAT, in its decision, relied on the High Court's judgment in CIT vs. Sedco Forex International Drilling Co. Ltd. (264 ITR 320) in favour of the Revenue.

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. 156 of 2004

M/s Reading & Bates Exploration Co. as Agent of Mr. Leith Thomas ……..… 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 07.07.2004 for the assessment year 1996-97, passed by the Income Tax Appellate Tribunal, (Bench ‘G’ 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.281/- 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 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.

converted into Civil Appeal Nos.351-355 of 2005. The Hon’ble Apex Court in “Sedco Forex International Drill Inc. 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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