M/S HUGHES SERVICE PVT. LTD. vs. THE COMMISSIONER OF INCOME TAX

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ITA/237/2000HC UttarakhandUKHC01015082200429 May 2004Author: OTHER2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the amount paid for the 'off period' is income earned in India, taxable under Section 9(1)(ii). The reasoning is based on the High Court's prior decision in CIT vs. SEDCO Forex International Drilling Co. Ltd., which held that payment for the 'off period' constituted income earned in India for services rendered in India. The court further noted that the assessment records indicated that the entire salary, including that for the off period, was paid by the employer company from Indian operations. This conduct was interpreted as reflecting the intention of the contracting parties, making the entire salary taxable in India under Section 9(1)(ii). The question was answered in the negative, in favour of the department and against the assessee. The appeal was disposed of with no order as to costs.

What were the facts?

The assessee, M/s Hughes Services (Far East) Pvt. Ltd., acting as agent for Mr. Machenzie K., is in appeal before the High Court of Uttaranchal. The assessment year in question is 1992-93. The appeal challenges an order of the Income Tax Appellate Tribunal (though not explicitly stated, implied by the appeal to High Court). The dispute concerns whether the amount paid for an 'off period' should be treated as income earned in India. The assessee contends that no services were rendered in India during this off period. The revenue's position is that such payments are taxable in India. The High Court notes that the matter is covered by its previous decision in CIT vs. SEDCO Forex International Drilling Co. Ltd.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is legally justified in treating the amount paid for the 'off period' as income earned in India under the explanation to section 9(1)(ii), when no services were rendered in India during that period, and considering that the subsequent amendment to the explanation effective from 01.04.2000 regards such payments as income accrued in India only from that date? Assessee's contention: The amount paid for the 'off period' should not be treated as income earned in India because no services were rendered in India during that period. Reliance is placed on the fact that the amendment to the explanation to section 9(1)(ii) making such payments taxable in India was effective only from 01.04.2000, implying it was not applicable for the assessment year 1992-93. Revenue's contention: The revenue implicitly argues that the payment for the 'off period' is taxable in India, as supported by the High Court's reference to its previous decision.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

Assessment Year 1992-93 IN THE HIGH COURT OF UTTARANCHAL, AT NAINITAL

OLD No:- 237/2000 I.T.A No. 304 of 2001

M/s Hughes Services (Far East) Pvt.Ltd. As agent of Mr. Machenzie K.

……….. Appellant

Versus

Commissioner of Income Tax.

……….. Respondent

Mr. V.K.Bisht, learned counsel for the appellant, Mr. S.K.Posti, learned counsel for Income Tax Department.

Hon.ble P.C. Verma, A.C.J. Hon. Rajesh Tandon, J.

The matter is squarely covered by our decision dated 9th October, 2003 in Income Tax appeal No. 57 of 2002; The Commissioner of Income Tax, Dehradun & another Vs SEDCO Forex International Drilling Co. Ltd.

The questions raised before us is as follows: " Whether on the facts and in the circumstances of the case, Tribunal is legally justified in treating the amount paid for the off period as the income earned in India in view of the explanation to section 9 (1) (ii) while admittedly no service has been rendered during off period in India and inasmuch as, the subsequent amendment made in the explanation w.e.f. 01.04.2000 shows that the amount paid for off period or leave period is regarded as the income accrued in India only w.e.f. 01.04.2000?"

In our decision dated 9th October 2003 in Income Tax Act Appeal No. 57 of 2002; The commissioner of Income Tax, Dehradun & another V/s SEDCO Forex Internationl Drilling Co. Ltd.; it has been held as under:

" Therefore the payment of salary for OFF period was income earned in India i.e. for services rendered in India u/s 9 (1) (ii) .

Lastly, we would like to point out that in this case the assessment records show that from the income of the Indian operations the salary in its entirety (including salary for the off period) has been paid by the employer Company. This conduct shows the intention of the contracting parties. Hence the entire salary for both the periods was taxable in India u/s 9(1) (ii)."

For the reasons aforesaid, we answer the above question in the negative i.e. in favour of the department and against the assessee.

Appeal disposed of. No order as to costs.

(Rajesh Tandon, J.)

(P.C.Verma, A.C.J.)

Dt. 29.05.2004 G

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