COMMISSIONER OF INCOME TAX vs. SEDCO FOREX INTERNATIONAL AS AGENT A.E.WIVE

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ITA/58/2002HC UttarakhandUKHC01007266200305 September 20052 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court, following its own Division Bench judgment in Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. reported in (2003) 264 ITR 320, partly allowed the appeal. The Court held that the payment of salary for the 'off period' was income earned in India, taxable under Section 9(1)(ii) of the Income Tax Act, 1961, thus answering the first question of law in favour of the appellants (revenue). Regarding the second question, the Court affirmed the Division Bench's finding that free boarding facility provided by the employer on the rig was not a perquisite under Section 17(2)(iii) and its value could not be added to the assessee's income, answering this question against the appellants. Similarly, for the third question, the Court upheld the Division Bench's view that the imposition of interest under Section 234B was not justified without hearing and without reasons, answering this question in favour of the assessee and against the appellants. The appeal was dismissed to the extent of the second and third questions.

What were the facts?

The appeal was filed by the Commissioner of Income-Tax, Dehradun and the Assistant Commissioner of Income-Tax, Special Range, Dehradun against an order dated 31.05.2001 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench - D. The assessee is Mr. A.E. Wise, represented by Sedco Forex International Drilling Inc. The dispute pertains to Assessment Year 1992-93. The ITAT had previously held in multiple orders that 'off-period salary' is taxable in India, and had referred a question of law on this issue to the Hon'ble Allahabad High Court. The present appeal challenges the ITAT's decision on three substantial questions of law concerning the taxability of 'off-period' salary, the taxability of free boarding facilities, and the levy of interest under Section 234B.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the ITAT was legally correct in holding that salary paid to the assessee for the 'off period' outside India was not chargeable to Indian Income Tax under Section 9(1)(ii) of the Income Tax Act, 1961, despite the ITAT's own prior rulings and a reference to the High Court on this issue. 2. Whether the ITAT was legally correct in holding that free boarding facility provided by the employer at the rig side cannot be construed as a perquisite. 3. Whether the ITAT was legally justified in allowing the assessee's appeal by holding that interest under Section 234B was not leviable in respect of incomes subject to deduction of tax at source. Assessee's Contentions: The judgment does not record specific contentions made by the assessee. The revenue's contentions are implicitly presented through the questions of law raised, challenging the ITAT's findings. Revenue's Contentions: The revenue contended that the ITAT erred in its findings on all three issues, particularly questioning the ITAT's departure from its previous consistent stance on the taxability of 'off-period' salary and its reasoning on perquisites and Section 234B interest.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii),Section 17(2)(iii),Section 234B

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. 58 of 2002 The Commissioner of Income-Tax Dehradun and another …Appellants Versus Sedco Forex International Drilling Inc. as Agent of Mr. A.E. Wise C/o A.F. Ferguson & Company C. As Maker Tower E Cuffe Parade, Bombay- 400 005 ….Respondent Mr. S.K. Posti, Advocate for the appellants. Coram: Hon. Cyriac Joseph, C.J. Hon. J.C.S. Rawat, J.

JUDGMENT

CYRIAC JOSEPH, C.J. (Oral)

This appeal is filed against the order dated 31.05.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench - D, New Delhi in I.T.A. No. 7346/Del/95. The assessee is Mr. A.E. Wise, represented by Sedco Forex International Drilling Inc. The dispute relates to the Assessment Year 1992-93. The appellants are (i) the Commissioner of Income Tax, Dehradun and (ii) the Assistant Commissioner of Income Tax, Special Range, Dehradun.

2.

The substantial questions of law raised in the appeal are the following: (i) “Whether on the facts and in the circumstances of the case the ITAT was legally correct to hold that the salary paid to the assessee for the “off period” outside India was not chargeable to Indian Income Tax Act in terms of section 9(1)(ii) of the Income Tax Act, 1961, whereas the learned ITAT has itself held vide orders dated 25.03.1992 in I. T. A. No. 5649 /D/ 92, dated 28.07.1999 in I. T. A. No. 1079/D/91, dated 24.1.2000 in I. T. A. No. 411/D/93 and dated 15.5.2000 in I. T. A. No. 1648/D/94 that “off-period salary” is taxable in India and vide order dated

18.11.

1996 in R.A. No. 433 to 511/D/96 has referred question of law on this issue for esteemed opinion of Hon’ble Allahabad High Court.?” (ii) “Whether on the facts and in the circumstances of the case the ITAT was legally correct in holding that free boarding facility provided by the employer at the rig side cannot be construed to be perquisite? (iii) “Whether on the facts and circumstances of the case the ITAT was legally justified in allowing the appeal of the assessee holding that interest u/s 234 B was not leviable in respect of incomes which are subject to deduction of tax at source?

3.

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 has 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) and that “off period salary” was taxable under section 9(1)(ii) of the Income Tax Act, 1961. It has been further held that the free boarding facility provided by the employer on the rig was not a perquisite under Section 17 (2)(iii) and that its value cannot be added to the income of the assessee. It has also been held that the imposition of interest u/s 234 B was not justified without hearing and without reasons.

4.

Following the above mentioned judgment of a Division Bench of this Court, this appeal is partly allowed answering the first question of law in favour of the appellants. The second and third questions of law are answered against the appellants and in favour of the assessee and this appeal will stand dismissed to that extent.

(J.C.S. Rawat, J.)

(Cyriac Joseph, C.J.) 08.09.2005

08.09.

2005 A

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