READINGandBATE DRILLING CO.AGENT MR. FRITZ VERLINDEN vs. COMMISSIONER OF INCOME TAX DEHRADUN

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ITA/137/2004HC UttarakhandUKHC01003865200428 September 20052 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal is dismissed. The substantial question of law before the Court was whether the Tribunal erred in holding that the 'off period salary' paid to the assessee was taxable under Section 9(1)(ii) of the Income Tax Act, 1961. The Court relied on its own previous judgment in Commissioner of Income Tax vs. Sedco Forex International Drilling Co. Ltd. and connected cases (2003) 264 ITR 320. In that precedent, a Division Bench of the same Court had held that payment of salary for the 'off period' constituted income earned in India for services rendered in India under Section 9(1)(ii) and was therefore taxable. Following this binding precedent, the High Court dismissed the present appeal. No specific issue was left undecided.

What were the facts?

The appeal is filed by M/s Reading & Bates Drilling Co., acting as the agent of Mr. Fritz Verlinden, against an order dated July 9, 2004, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘B’. The dispute pertains to the Assessment Year 1998-1999. The core issue revolves around the taxability of 'off period' salary paid to a non-resident employee. The assessee is challenging the Tribunal's decision that this salary is chargeable to tax in India, even though the employee was not physically present in India during the 'off period'. The procedural history indicates the matter reached the High Court after the Tribunal's adverse order.

What were the issues?

1. Whether on the facts and circumstances, the Tribunal erred in law in not appreciating the true construction of Section 9(1)(ii) of the Income Tax Act, 1961, read with its Explanation? (Question of law) 2. Whether on the facts and in the circumstances, the Tribunal erred in holding that the 'off period' salary was chargeable to tax in India despite the non-resident employee not being present in India during that period? (Question of mixed law and fact) 3. Whether on the facts and in the circumstances, the Tribunal erred in not appreciating that salary paid for the 'off period', when the employee technicians were physically not present in India but were required to be available for training and demonstrations as per their employment letter, could be said to accrue or be deemed to accrue in India and thus be taxable? (Question of mixed law and fact) 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 to be paid on account of services rendered while the employee was in India? (Question of mixed law and fact) 5. Whether on the facts and circumstances, the Tribunal misdirected itself in law by basing its conclusion on suspicions, surmises, and irrelevant material? (Question of law) 6. Whether on the facts and in the circumstances, the finding arrived at by the Tribunal is perverse? (Question of law) Assessee's Contentions: The assessee argued that the Tribunal erred in its interpretation of Section 9(1)(ii) and that 'off period' salary, paid when the employee was not physically in India, should not be taxable in India. They contended that the salary was not for services rendered in India during the 'off period' and that the Tribunal's conclusion was based on irrelevant material and was perverse. Revenue's Contentions: The judgment does not explicitly record the revenue's contentions.

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. 137 of 2004 M/s Reading & Bates Drilling Co. as agent of Mr. Fritz Verlinden … 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. 4435/Del/2000. The appellant is the assessee. The dispute relates to the Assessment Year 1998-1999. 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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