SEDCO FOREX INTERNATIONAL, AGENT NICK DIVKOVIC vs. COMMISSIONER OF INCOME TAX

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ITA/103/2004HC UttarakhandUKHC01004882200430 November 2005Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal was right in holding that the off-period salary was not taxable under Section 9(1)(ii) read with the Explanation as it stood at the relevant time. The Court relied on the Supreme Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another". The Supreme Court had held that the Explanation to Section 9(1)(ii) was amended by the Finance Act 1999 and was prospective. Therefore, it could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in dispute (1996-97) was prior to 1999, the assessee could not be taxed on the off-period salary. The appeal was allowed, and the question was answered in favour of the assessee.

What were the facts?

The appellant, Sedco Forex International Drilling Inc., acting as agent for its employee Mr. Nick Divkovick, is engaged in drilling operations in India. The appellant's employees reside on rigs for 28/35 days and then have an off-period of 28/35 days. The Assessing Authority held that the salary earned during the off-period was taxable under Section 9(1)(ii) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld this decision. The Income Tax Appellate Tribunal partly allowed the appeal. The present appeal is against the consolidated order of the Tribunal for assessment year 1996-97.

What were the issues?

1. 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? Assessee's Contention: The assessee argued that the off-period salary was not taxable. The judgment does not explicitly record the assessee's arguments beyond this central point. Revenue's Contention: The revenue contended that the off-period salary was taxable under Section 9(1)(ii) of the Income Tax Act, 1961. The judgment does not explicitly record the revenue's arguments beyond this central point.

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.103 of 2004

Sedco Forex International Drilling Inc. as agent of its employee Mr. Nick Divkovick 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 appellants. Mr. S.K. Posti, Advocate for the respondents.

Dated: November 30, 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 1996-97, passed by the Income Tax Appellate Tribunal, (Bench ‘F’ New Delhi).

3.

Brief facts of the case-giving rise to this appeal are that the appellant is on the rigs in India. The appellant normally resides on the rigs for a period of 28/35 days and thereafter he is off the rigs for 28/35 days. The Assessing Authority has held that the off period salary is chargeable to tax under Section 9(1)(ii) and accordingly taxed the salary. On appeal, the Commissioner of Income Tax (Appeals), Dehradun affirmed the order of the Assessing Authority. In the second appeal, the Income Tax Appellate Tribunal partly allowed the appeal.

4.

The learned counsel for the parties agree that only the following question of law arises in the appeal for the determination and they do not press the rest of the questions framed in the appeal: -

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?

5.

converted into Civil Appeal Nos.351-355 of 2005. The Hon’ble Apex Court in “Sedco Forex International Drill Inc. and Another, JT 2005(9) SC 639” has held that since the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961 was amended by the Finance Act 1999 and was prospective, therefore, it could not be made applicable in the previous years i.e. to say that no retrospective effect can be given to the Explanation, if the assessment proceedings are pending after the said amendment and accordingly the judgment of Division Bench of this Court was set aside as the assessment year in dispute was prior to 1999. 6. In the present case also, the assessment year is prior to 1999, thus the assessee cannot be taxed in view of the law

laid down by the Hon’ble Apex Court “Sedco Rajeev Dang

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