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

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ITA/118/2005HC UttarakhandUKHC01003004200501 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA2 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court decided both questions of law. For the first question, regarding the deductibility of remuneration, the Court followed its own previous Division Bench decision in the case of "Sedco Forex International Inc. Vs. The Commissioner of Income Tax and another" dated July 22, 2005. That decision had answered the question in favour of the Revenue Department. For the second question, concerning the taxability of off-period salary, the Court followed the decision of 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". This Supreme Court decision answered the question in favour of the assessee. Consequently, the appeal was disposed of in view of these pronouncements.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., acting as agent for its employee Mr. Nick Divkovic, filed an appeal against the consolidated order dated January 28, 2005, passed by the Income Tax Appellate Tribunal (ITAT), Bench 'E', New Delhi. The appeal pertained to assessment years 1997-98 and 1998-99. The appellant and respondents (Commissioner of Income Tax and Deputy Commissioner of Income-Tax, Dehradun) agreed that only two specific questions of law were to be determined by the High Court, and the rest were not pressed. The High Court was to decide these questions based on previous rulings.

What were the issues?

The High Court was asked to decide two questions of law: 1. Whether the learned ITAT erred in law by 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 relevant provisions concerning international taxation and deductibility of remuneration. 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 judgment does not explicitly record the assessee's arguments for these specific questions, but their stance is implied by their reliance on favorable judicial precedents. Revenue: The judgment does not explicitly record the revenue's arguments for these specific questions, but their stance is implied by their reliance on favorable judicial precedents.

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.118 of 2005

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 Deputy Commissioner of Income-Tax,

Special Range, Dehradun having office

at Subhash Road, Dehradun-248001

………. Respondents

Mr. Menka Tripathi, Advocate for the appellant. 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 28.01.2005 for the assessment years 1997-98 and 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 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 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.) Rajeev Dang

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