READINGandBATES DRILLING CO AGENT MR.J RODNEY DOUCET vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/145/2004HC UttarakhandUKHC01004913200405 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal was not right in its initial assessment, but the appeal should be allowed in favour of the assessee based on a Supreme Court decision. The Court referred to the case of Commissioner of Income Tax and another Vs. Sedco, Forex International Drilling Co. Ltd. (2003) 264 ITR 320, which was decided in favour of the Revenue. However, the Supreme Court, in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another, JT 2005(9) SC 639", set aside the High Court's judgment. The Supreme Court held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, amended by the Finance Act 1999, was prospective and could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in the present case (1998-99) was prior to 1999, the assessee could not be taxed on the off-period salary in view of the Supreme Court's ruling. The appeal was allowed, and the question was answered accordingly.

What were the facts?

The appellant, M/s Reading & Bates Exploration Co., acting as agent for Mr. J. Rodney Doucet, is in appeal against a consolidated order dated 09.07.2004 for assessment year 1998-99, passed by the Income Tax Appellate Tribunal (Bench ‘B’ New Delhi). The assessee employed foreign technicians for offshore oil drilling. These technicians were entitled to 28 days outside India after rendering services in India. The assessee claimed that salary for this 'off-period' 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 Commissioner of Income Tax (Appeal) 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 days spent outside India was not taxable in India, based on the terms of employment and the nature of operations. Revenue's contention: The revenue contended that the salary for the off-period was taxable in India. The AO added perquisites for this period, and the CIT(A) affirmed this. The ITAT's decision to partly allow the appeal suggests it did not fully agree with the revenue's position on this point. The judgment does not explicitly record the revenue's arguments before the High Court, but implies they contested the assessee's claim regarding the non-taxability of off-period salary.

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.145 of 2004

M/s Reading & Bates Exploration Co. As Agent of Mr. J.Rodney Doucet ……….. 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 05, 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 assessee did not pay advance tax in terms of Sec. 208 of the Income Tax Act. On appeal, the Commissioner of Income Tax (Appeal), 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.

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 Forex Rawat

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