SEDCO FOREX DRILLING INC vs. THE COMMISSIONER OF INCOME TAX and ANR

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ITA/135/2005HC UttarakhandUKHC01003017200502 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA2 pages
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What did the High Court hold?

The High Court decided the appeal based on prior judgments. For the first issue, regarding the deductibility of remuneration, the Court referred to its own Division Bench decision in the case of "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" (decided on July 22, 2005, in Income Tax Appeal No.165 of 2001). That judgment had answered the question in favour of the Revenue Department. For the second issue, concerning the taxability of off-period salary, the Court relied on the Hon’ble Apex Court's decision in Civil Appeal Nos.351-355 of 2005, "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another" (JT 2005(9)SC 639). This Supreme Court judgment answered the question in favour of the assessee. Consequently, the appeal was disposed of in accordance with these decisions.

What were the facts?

The appeal was filed by Sedco Forex International Drilling Inc., an agent of its employee Mr. Norman Selves, against the consolidated order dated January 28, 2005, passed by the Income Tax Appellate Tribunal (Bench 'E', New Delhi) for the assessment year 1998-99. The appellant is a company incorporated in the Republic of Panama. The respondents are the Commissioner of Income Tax, Dehradun, and the Assistant Commissioner of Income-Tax, Special Range, Dehradun. The parties agreed that only two questions of law arose for determination, and the rest were not pressed.

What were the issues?

1. Whether the learned I.T.A.T. has erred in law in holding that the appellant has failed to satisfy the condition that ‘the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State’? This question turns on the interpretation of provisions related to the deductibility of remuneration paid to employees in a foreign state. The appellant contended that the Tribunal erred in its finding. The revenue's contention is not recorded. 2. 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? This question concerns the taxability of salary earned during periods when the employee was not actively working in India, under Section 9(1)(ii) of the Income Tax Act, 1961. The appellant contended that such salary was not taxable. The revenue's contention is not recorded.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 135 of 2005

Sedco Forex International Drilling Inc. as agent of its employee Mr. Norman Selves a company incorporated in Republic of Panama having its registered office at No.8 Acquitino de la Guardia Street, City of Panama, Republic of Panama, present Address C/o A.F. Ferguson & Co. Maker Towers, Cuffe Parade, Mumbai

…………….. Appellant

Versus

1.

The Commissioner of Income Tax, Dehradun

having office at Subhash Road, Dehradun-248001

2.

The Assistant Commissioner of Income-Tax,

Special Range, Dehradun having office

at Subhash Road, Dehradun-248001

…………… Respondents

Ms. Menka Tripathi, Advocate for the appellant. Mr. S.K. Posti, Advocate for the respondents.

Dated: December 02, 2005

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

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

1.

Both the parties are ready to argue the matter today.

2.

This appeal has been preferred against the consolidated order dated 28.01.2005 for the assessment year 1998-99, passed by the Income Tax Appellate Tribunal, (Bench ‘E’ New Delhi).

3.

The learned counsel for the parties agree that the following only two questions of law arise in this appeal for the

determination. They do not press the rest of the questions framed in the appeal: -

1.

Whether the learned I.T.A.T. has erred in law in holding that the appellant has failed to satisfy the condition that ‘the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State’?

2.

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?

4.

So far as the question No. 1 is concerned, this question has already been decided by Division Bench of this Court {in which one of us (P.C.Verma,J.) was a member} in case of “Sedco another”, which was decided on 22.07.2005 in Income Tax Appeal No.165 of 2001. In the said judgment, the question framed in the said appeal was answered in favour of the Revenue Department.

5.

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

6.

In view of the above, we dispose of the appeal accordingly.

(J.C.S. Rawat, J.) (P.C. Verma, J.) Shiv

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