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

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ITA/235/2000HC UttarakhandUKHC01015080200420 May 2004Author: OTHER2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the payment of salary for the '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. The Court's reasoning was based on its prior decision in the case of Commissioner of Income Tax, Dehradun & another V/s SEDCO Forex International Drilling Co. Ltd. In that judgment, the Court had observed that the assessment records showed that the salary in its entirety, including the salary for the off period, was paid by the employer company from the income of Indian operations. This conduct was interpreted as reflecting the intention of the contracting parties, leading to the conclusion that the entire salary for both periods was taxable in India under Section 9(1)(ii). The High Court answered the question in the negative, in favour of the department and against the assessee. The appeal was disposed of accordingly.

What were the facts?

The assessee, M/s Hughes Services (Far East) PTE Ltd., acting as an agent for Mr. Parlane M., is in appeal before the High Court of Uttaranchal. The assessment year in question is 1992-93. The appeal challenges an order (presumably from the Income Tax Appellate Tribunal, though not explicitly stated) that treated an amount paid for an 'off period' as income earned in India. The revenue is the Commissioner of Income Tax, Meerut. The High Court notes that the matter is covered by its previous decision in ITA No. 57 of 2002, Commissioner of Income Tax, Dehradun & another Vs SEDCO Forex International Drilling Co. Ltd., dated October 9, 2003. The judgment states that the salary for both periods (on and off) was paid by the employer company from Indian operations, indicating the intention of the contracting parties.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in treating the amount paid for the 'off period' as income earned in India, in view of the explanation to Section 9(1)(ii) of the Income Tax Act, 1961, when no services were admittedly rendered in India during the off period, and considering that a subsequent amendment to the explanation, effective from April 1, 2000, regards such payments as income accrued in India only from that date? Assessee's contentions: The assessee argued that no services were rendered in India during the 'off period', and therefore, the payment for this period should not be treated as income earned in India. They also pointed to the subsequent amendment to the explanation to Section 9(1)(ii) which, they contended, clarified that such payments are taxable in India only from April 1, 2000. Revenue's contentions: The revenue contended that the payment of salary for the 'off period' constituted income earned in India for services rendered in India under Section 9(1)(ii). They also highlighted that the entire salary, including that for the off period, was paid by the employer company from the income of Indian operations, demonstrating the intention of the contracting parties.

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

I.T.A No. 302 of 2001 Old No. 235/2000

M/s Hughes Services (Far East) PTE Ltd. As agent of Mr. Parlane M. ……… Appellant Versus Commissioner of Income Tax, Meerut ………. Respondent

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

Hon. 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 question 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 International 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. 20.05.2004 HN

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