SEDCO FOREX INTERNATIONAL DRILLING INC. vs. COMMISSIONER OF INCOME TAX

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ITA/89/2004HC UttarakhandUKHC01004871200401 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 two questions of law as follows. For the first question, concerning the deductibility of remuneration in another state, the Court held that the ITAT erred in law. This decision was based on a prior judgment of a Division Bench of the same High Court (which included one of the presiding judges) in the case of "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another", decided on July 22, 2005. That judgment had answered the question in favor of the Revenue. For the second question, regarding the taxability of 'off period salary' under Section 9(1)(ii) read with the Explanation, the Court held that it was not taxable. This was in view of a decision by the Hon'ble Apex Court in Civil Appeal Nos. 351-355 of 2005, "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another". The Apex Court's decision resolved this question in favor of the assessee. The appeal was disposed of in accordance with these findings.

What were the facts?

The appeal was filed by Sedco Forex International Drilling Inc., acting as an agent for its employee Mr. Nick Divkovic, against a consolidated order dated January 30, 2004, passed by the Income Tax Appellate Tribunal (ITAT), Bench 'F', New Delhi, for the assessment year 1993-94. The appellant is a company incorporated in 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 specific questions of law arising from the ITAT's order were to be determined, and the rest were not pressed. The High Court was to decide these two questions.

What were the issues?

The High Court was to decide two questions of law: 1. Whether the ITAT erred in holding that 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 turns on the interpretation of provisions related to the deductibility of remuneration in a foreign state for tax purposes. 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 the specified section of the Income Tax Act. Contentions: Assessee: The assessee did not explicitly argue their case for these specific issues in the provided text, but their position is implied by the favorable outcome on the second issue. They 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". Revenue: The revenue's contentions are not explicitly detailed in the judgment for either issue. However, their position was that the conditions for non-deductibility were not met (Issue 1) and that 'off period salary' was taxable (Issue 2). They relied on the Division Bench of the High Court's decision in "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" for Issue 1.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

COURT NO.2 IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL Income Tax Appeal No.89 of 2004

Sedco Forex International Drilling Inc. as agent of its employee Mr. Nick Divkovic a company incorporated in the 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 Raod, Dehradun-248001

........... Respondents

Mr. Arvind Vashisth, Advocate for the appellants. Mr. S.K. Posti, Advocate for the respondents.

Dated: December 01, 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 30.01.2004 for the assessment year 1993-94, passed by the Income Tax Appellate Tribunal, (Bench ‘F’ 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 Forex International Inc. Vs. The Commissioner of Income Tax and 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.

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.)

Rajeev Dang

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