COMMISSIONER INCOME TAX vs. SEDCO FOREX INTER NATIONAL DRLNG AS AGENT W.NOLAM

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ITA/45/2002HC UttarakhandUKHC01007264200305 September 20052 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court, following a Division Bench judgment in Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. reported in (2003) 264 ITR 320, answered the questions of law. The Court held that payment of salary for the 'off period' was income earned in India for services rendered in India under Section 9(1)(ii) and was taxable. Regarding the second question, it was held 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. Concerning the third question, the Court affirmed that the imposition of interest under Section 234B was not justified without hearing and without reasons. Consequently, the appeal was partly allowed, with the first question answered in favour of the revenue, and the second and third questions answered in favour of the assessee.

What were the facts?

The appeal was filed by the Commissioner of Income-Tax, Dehradun and the Deputy Commissioner of Income-Tax against an order dated 22.03.2001 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench 'A'. The assessee is Mr. W. Nolan, represented by Sedco Forex International Drilling Inc. The dispute pertains to Assessment Year 1991-92. The ITAT had previously passed several orders on the issue of 'off-period salary' being taxable in India, some holding it taxable and others referring the question to the Allahabad High Court. The ITAT also held that free boarding facility at the rig side was not a perquisite and that interest under Section 234B was not leviable on income subject to TDS.

What were the issues?

The High Court had to decide three substantial 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, especially when the ITAT itself had previously held 'off-period salary' to be taxable in India in multiple orders and had referred the issue to the Allahabad High Court. 2. Whether the ITAT was legally correct in holding that free boarding facility provided by the employer at the rig side could not 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 which are subject to deduction of tax at source. Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The revenue argued that the ITAT's decision on the taxability of 'off-period salary' was inconsistent with its previous rulings and the referral of the issue to the High Court. They also implicitly challenged the ITAT's findings on perquisites and interest under Section 234B by filing the appeal.

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. 45 of 2002 The Commissioner of Income-Tax Dehradun and another … Appellants Versus Sedco Forex International Drilling Inc. as Agent of Mr. W.Nolan 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 22.03.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi in I.T.A. No. 2191/Del/95. The assesse is Mr. W.Nolan, represented by Sedco Forex International Drilling Inc. The dispute relates to the Assessment Year 1991-92. The appellants are (i) the Commissioner of Income Tax, Dehradun and (ii) the Deputy Commissioner of Income Tax, Special Range-1, 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 no 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 the extent.

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

(Cyriac Joseph, C.J.)

08.09.

2005

08.09.

2005 A

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