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

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ITA/86/2004HC UttarakhandUKHC01004868200401 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: 1. Regarding the first question, the Court held that the appellant had 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 finding was based on a previous decision of a Division Bench of the same High Court in the case of "Sedco Forex International Inc. Vs. The Commissioner of income Tax and another", decided on July 22, 2005. The ratio decidendi is that the assessee must demonstrate that the remuneration is not deductible in the other state for certain tax provisions to apply in favour of the assessee. The appeal was decided in favour of the Revenue on this issue. 2. Regarding the second question, the Court held that 'off period salary' was not taxable under Section 9(1)(ii) read with the Explanation as it stood at the relevant time. This decision was based on the Hon'ble Apex Court's judgment in Civil Appeal Nos. 351-355 of 2005, "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another". The ratio decidendi is that salary paid during off-periods is not taxable under the specified section. The appeal was decided in favour of the assessee on this issue.

What were the facts?

The appeal was filed by Sedco Forex International Drilling Inc., acting as the agent of its employee Mr. Michel Boutevin, against the consolidated order dated January 30, 2004, passed by the Income Tax Appellate Tribunal (ITAT), Bench 'F', New Delhi, for the assessment year 1995-96. 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 were to be determined in the appeal, and the rest were not pressed.

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 concerns the deductibility of remuneration 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 pertains to the taxability of salary paid during periods when the employee was not actively working. Arguments presented: Assessee: The judgment does not explicitly record the assessee's arguments for either question. However, the outcome suggests the assessee's position was considered favourable on the second issue. Revenue: The judgment does not explicitly record the revenue's arguments for either question. However, the outcome suggests the revenue's position was considered favourable on the first issue.

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.86 of 2004

Sedco Forex International Drilling Inc. as agent of its employee Mr. Michel Boutevin 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 Road, Dehradun-248001

………….… Respondents

Mr. Arvind Vashisth, 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 30.01.2004 for the assessment year 1995-96, 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 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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