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

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ITA/84/2004HC UttarakhandUKHC01004866200401 December 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 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, the Court held that the ITAT had erred in law. This decision was based on a prior judgment of the same High Court in "Sedco Forex International Inc. Vs. The Commissioner of income Tax and another" (Income Tax Appeal No.165 of 2001), decided on July 22, 2005, which answered this question in favor of the Revenue. For the second question, the Court held that off-period salary was not taxable under section 9(1)(ii) read with the Explanation. This was in view of a decision by 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). The Apex Court's decision answered this question in favor 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., as agent for its employee Mr. Wayne Nolan, filed an appeal against the consolidated order dated January 30, 2004, passed by the Income Tax Appellate Tribunal (ITAT), Bench 'F', New Delhi, for the assessment year 1994-95. The appeal was preferred against the order of the ITAT. 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 High Court noted that the parties agreed on two specific questions of law for determination and did not press the rest.

What were the issues?

The Tribunal had to decide two questions of law: 1. Whether the 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 provisions related to the deductibility of remuneration in international taxation. 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. The appellant's contentions were not explicitly recorded for either question. The revenue's contentions were also not explicitly recorded. However, the judgment implies that the revenue argued in favor of the ITAT's decision on the first question and against the assessee on the second question.

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.84 of 2004

Sedco Forex International Drilling Inc. as agent of its employee Mr. Wayne Nolan 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 1994-95, 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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