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

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ITA/42/2002HC UttarakhandUKHC01007261200305 September 20052 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court followed a previous judgment of its own Division Bench in Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. and connected cases reported in (2003) 264 ITR 320. This precedent held that salary for the 'off period' was income earned in India under Section 9(1)(ii) and thus taxable. The precedent also ruled that free boarding facility provided on the rig was not a perquisite under Section 17(2)(iii) and its value could not be added to the assessee's income. Furthermore, the imposition of interest under Section 234B was deemed unjustified without proper hearing and reasons. Consequently, the High Court answered the first question of law in favour of the appellants (Revenue), and the second and third questions in favour of the assessee. The appeal was partly allowed.

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. A.E.Wise, represented by Sedco Forex International Drilling Inc. The dispute pertains to Assessment Year 1991-92. The ITAT had previously ruled on similar issues in several prior appeals concerning 'off-period salary' and had referred a question of law on this issue to the Allahabad High Court. The High Court of Uttaranchal at Nainital was considering these substantial questions of law.

What were the issues?

The High Court 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, especially given the ITAT's prior conflicting decisions and a reference to the Allahabad High Court on this very issue. 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 subject to deduction of tax at source. Contentions: Assessee: Not recorded in the judgment. Revenue: Argued that the ITAT's decision on the taxability of 'off-period salary' was incorrect, citing previous ITAT orders and a reference to the Allahabad High Court. The revenue also implicitly challenged the ITAT's findings on free boarding 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. 42 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 22.03.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi in I.T.A. No. 2189/Del/95. The assesse is Mr. A.E.Wise, 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 that extent.

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

(Cyriac Joseph, C.J.)

08.09.

2005

08.09.

2005 A

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