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

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ITA/157/2005HC UttarakhandUKHC01003035200502 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 previous pronouncements. For the first issue, concerning the failure to satisfy the condition that remuneration is not deductible in computing profits chargeable to tax in another State, the Court referred to its own Division Bench decision in "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" dated July 22, 2005. In that case, the question was answered in favour of the Revenue. For the second issue, regarding the taxability of 'off period salary' under Section 9(1)(ii) read with the Explanation, the Court relied on the Hon'ble Apex Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another" (JT 2005(9) SC 639). This decision answered the question in favour of the assessee. Consequently, the appeal was disposed of in light of these decisions.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., acting as an agent for its employee Mr. Douglas Spence, filed an appeal against a consolidated order dated January 28, 2005, for the assessment year 1998-99, passed by the Income Tax Appellate Tribunal (Bench 'E', New Delhi). The appeal was preferred before the High Court of Uttaranchal at Nainital. The parties agreed that only two specific questions of law were to be determined, and the rest were not pressed. The appellant is a company incorporated in Panama, and its present address was C/o A.F. Ferguson & Co., Mumbai. The respondents were the Commissioner of Income Tax, Dehradun, and the Assistant Commissioner of Income-Tax, Special Range, Dehradun.

What were the issues?

The Tribunal had to decide two questions of law: 1. Whether the appellant 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 relates to the deductibility of remuneration paid to an employee in a foreign jurisdiction. 2. Whether 'off period salary' was 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. Contentions: Assessee: The assessee did not explicitly present arguments for these specific questions in the provided text, but their position is implied by the favorable outcomes in the cited judgments. Revenue: The revenue's position is implied by the favorable outcomes for the revenue in the cited judgment for the first question.

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. 157 of 2005

Sedco Forex International Drilling Inc. as agent of its employee Mr. Douglas Spence 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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