READING and BATES CO..AGENT MR. W.L. SIMPSON vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/164/2004HC UttarakhandUKHC01003870200428 September 20052 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal is to be dismissed. The Court noted that the substantial question of law, in substance, was 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 followed its own previous judgment in the case of Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. and connected cases reported in (2003) 264 ITR 320. In that precedent, a Division Bench of the same High Court had held that payment of salary for the '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 was therefore taxable. Consequently, applying this binding precedent, the present appeal was dismissed. No issues were expressly left undecided.

What were the facts?

The appeal is filed by M/s Reading & Bates Drilling Co., acting as the agent of Mr. W.L. Simpson, against an order dated July 9, 2004, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘B’, New Delhi. The dispute pertains to the Assessment Year 1994-1995. The core of the dispute revolves around the taxability of 'off period' salary paid to a non-resident employee. The appellant contends that this salary should not be taxed in India as the employee was not physically present in India during the 'off period'. The revenue, conversely, argues for its taxability.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal erred in law in misinterpreting Section 9(1)(ii) of the Income Tax Act, 1961, and its Explanation regarding the taxability of 'off period' salary? (Question of law) 2. Whether, on the facts and circumstances, the Tribunal erred in holding that 'off period' salary paid to a non-resident employee is chargeable to tax in India, even when the employee was not present in India during that period? (Question of mixed law and fact, turning on Section 9(1)(ii)) 3. Whether, on the facts and circumstances, the Tribunal erred in not appreciating that salary paid for the 'off period', during which the employee technicians were physically absent from India but required to be available for training and demonstrations as per their employment letters, could be deemed to accrue or arise in India and thus be taxable? (Question of mixed law and fact, turning on Section 9(1)(ii)) 4. Whether, on the facts and circumstances, the Tribunal erred in not appreciating that salary paid to a non-resident employee under an employment contract executed outside India for the 'off period' could be held liable for payment on account of services rendered while the employee was in India? (Question of mixed law and fact, turning on Section 9(1)(ii)) 5. Whether, on the facts and circumstances, the Tribunal erred in law by basing its conclusion on suspicions, surmises, and irrelevant material? (Question of law) 6. Whether, on the facts and circumstances, the Tribunal's finding is perverse, meaning no reasonable person, correctly informed of the law, would reach such a conclusion? (Question of law) Assessee's Contentions: The assessee argued that the 'off period' salary should not be taxable in India as the employee was not physically present in India during that period. They also contended that the Tribunal based its conclusion on suspicions and surmises, leading to a perverse finding. Revenue's Contentions: The judgment does not explicitly record the revenue's contentions, but it implies their stance by referring to the Tribunal's order upholding the taxability.

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. 164 of 2004 M/s Reading & Bates Drilling Co. as agent of Mr. W.L.Simpson … Appellant Versus The Commissioner of Income Tax, Dehradun. … Respondent Miss. Krishi Shukla/Dr. Udyog Shukla, Advocates for the appellant. Mr. S.K.Posti, Advocate for the respondent. 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 09.07.2004 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘B’, New Delhi in I.T.A. No. 2395/Del/98. The appellant is the assessee. The dispute relates to the Assessment Year 1994-1995. 2. The substantial questions of law raised in the appeal are as follows:

(a) Whether on the facts and circumstances of the case, the Tribunal erred in law in not appreciating the true construction of Section 9 (1)(ii) of the Act read with Explanation thereto?

(b) Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the “off period” salary was chargeable to tax in India despite the fact that the non-resident employee was not present in India during the “off period”?

(c) Whether on the facts and in the circumstances of the case, the Tribunal erred in not appreciating that the salary paid for the “off period” when the employee technicians were physically not present in India and were required to make themselves available for training, on the spot demonstration, etc. as set out in the

employment letter could be said to accrue or deemed to accrue in India so as to be taxable in India?

(d) Whether on the facts and circumstances of the case, the Tribunal erred in not appreciating that the salary paid to a non-resident employee under an employment contract executed outside India, for the “off-period”, could be held liable to be paid on account of services rendered while the employee was in India?

(e) Whether on the facts and circumstances of the case, the Tribunal has misdirected himself in law in basing its conclusion on suspicions and surmises and irrelevant material on record?

(f) Whether on the facts and in the circumstances of the case, the finding arrived at by the Tribunal is perverse inasmuch as no reasonable person correctly informed of the position of law would come to such a conclusion?

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.)

28.09.

2005

28.09.

2005 A

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