S. F. I. DRILLING INC. AS AGENT OF MR. NORM SELVES vs. COMMISSIONER OF INCOME TAX

PDF · subscribers
ITA/99/2004HC UttarakhandUKHC01008958200405 October 20053 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that there was essentially one question of law: whether the Tribunal erred in holding that 'off period salary' paid to the assessee was taxable under Section 9(1)(ii) of the Income Tax Act, 1961. The Court noted a previous decision by a Division Bench of the same High Court in Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. and connected cases (2003) 264 ITR 320. In that judgment, the Division Bench had held that payment of salary for 'off period' constituted income earned in India, i.e., for services rendered in India under Section 9(1)(ii), and was therefore taxable. Following this precedent, the High Court dismissed the appeal. The operative direction was the dismissal of the appeal. No issues were expressly left undecided.

What were the facts?

The appellant, Sedco Forex International Drilling Inc. (as agent of its employee Mr. Norman Selves), a Panamanian company, filed an appeal against an order dated January 30, 2004, passed by the Income Tax Appellate Tribunal, Delhi Bench 'F'. The dispute pertains to the Assessment Year 1996-1997. The core issue revolves around the taxability of 'off period salary' paid to the assessee. The High Court of Uttaranchal at Nainital was hearing this appeal, which was filed against the Tribunal's decision. The Revenue was represented by the Commissioner of Income Tax, Dehradun, and the Assistant Commissioner of Income Tax, Dehradun.

What were the issues?

The Tribunal had to decide whether 'off period salary' paid to the assessee was taxable under Section 9(1)(ii) of the Income Tax Act, 1961. The appellant raised several questions of law, including: (i) the true construction of Section 9(1)(ii) read with its Explanation; (ii) whether 'off period salary' is only taxable if preceded/succeeded by service in India and part of the employment contract; (iii) whether salary for services not rendered in India is chargeable to tax for a non-resident under Section 9(1)(ii); (iv) whether the Explanation to Section 9(1)(ii), inserted prospectively from April 1, 2000, makes prior decisions taxing 'off period salary' per incurium; (v) whether amendments effective from April 1 of an assessment year apply to that year, and amendments effective from April 1, 2001, do not apply to assessment years 1992-93 and 1993-94; (vi) whether CBDT Circular No. 779, binding on the Revenue, was ignored; (vii) whether the High Court's decision was contrary to Supreme Court decisions like Karimtharuvi Tea Estates Ltd. v. State of Kerala; and (viii) whether 'off period salary' represents rest period salary when employees are required to be available for training or emergency duty as per the contract. The appellant contended that 'off period salary' was not taxable under the prevailing provisions. The judgment does not record specific arguments from the Revenue.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL Income Tax Appeal No. 99 of 2004 Sedco Forex International Drilling Inc. as agent of its employee Mr. Norman Selves, 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 Vashishth, Advocate of the appellant. Mr. S.K. Posti, Advocate for the respondents. Coram: Hon. Cyriac Joseph, C.J. Hon. J.C.S. Rawat, J.

JUDGMENT

CYRIAC JOSEPH, C.J.(Oral)

1.

This appeal is filed against the order dated 30.01.2004 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘F’, New Delhi in I.T.A. No. 141/Del/1999. The appellant is the assessee. The dispute relates to the Assessment Year 1996-1997. 2. The substantial questions of law raised in the appeal are as follows:

“(i) What is the true construction of Section 9(1)(ii) of the Act read with Explanation thereto? (ii) Whether on the facts and circumstances of the case, the Tribunal ought to have held that under Section 9(1)(ii) of the Act off period salary can only be made chargeable to tax provided certain conditions are fulfilled such as it is preceded / succeeded by service

rendered in India and forms part of service contract of employment? (iii) Whether on the facts and circumstances of the case, the Tribunal ought to have held that in case of a non- resident the salary earned for services not rendered in India cannot be chargeable to tax under Section 9(1)(ii) of the Act? (iv) Whether on the facts and circumstances of the case, the Tribunal ought to have held that the decision of this Hon’ble Court is per incurium as it fails to take into account that the Explanation to Section 9(1)(ii) is inserted w.e.f. 01.04.2000 which is prospective thus the decision to tax off period salary in the assessment years 1992-93 and 1993-94 is contrary to the legislative provisions and intent? (v) Whether on the facts and circumstances of the case the Tribunal ought to have held that it is well settled that only amendment made in the Act which have come into force in the first day of April on any financial year must apply to that assessment year and an amendment which comes into force first day of April of assessment year 2001 cannot apply to assessment years 1992-93 and 1993-94? (vi) Whether on the facts and circumstances of the case, the Tribunal ought to have held that the circular No. 779 of the Central Board of Direct Taxes treated 14th September, 1999 which is binding on the Revenue cannot be ignored while interpreting Section 9(1)(ii) read with Explanation thereupon of the Act for the assessment year? (vii) Whether on facts and circumstances of the case, the Tribunal ought to have held that the decision of this Hon’ble Court need not be followed as it is contrary to Kerala [60 ITR 262 (SC)]? (viii) Whether “off period salary” represents rest period salary when employees are required to make themselves available for the training, emergency duty etc. as set out in the employment contract?”

3.

Though the appellant has raised different questions of law as quoted above, in substance there is only one question of law, i. e., whether the Tribunal erred in holding that “off period salary’ paid to the assessee was taxable under section 9 (1)(ii) of the Income Tax Act, 1961. In Commissioner of Income Tax- and another Vs. Sedco Forex International Drilling Co. Ltd. and connected cases reported in (2003) 264 ITR 320, a Division Bench of this Court held that the payment of salary for “off period” was income earned in India, i.e., for services rendered in India

under Section 9(1)(ii) of the Income Tax Act, 1961 and that “off period salary” was taxable under section 9(1)(ii) of the Income Tax Act, 1961. 4. Following the above mentioned judgment of a Division Bench of this Court, the appeal is dismissed.

(J.C.S. Rawat, J.) (Cyriac Joseph, C.J.) 05.10.2005

05.10.

2005 A

More judgments on Section 9(1)(ii)

All 123 judgments and leading authorities on Section 9(1)(ii) →

Recent GST High Court judgments

Search GST case law →