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

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ITA/247/2000HC UttarakhandUKHC01025224200315 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' is 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 is based on its prior decision in the case of Commissioner of Income Tax, Dehradun & another Vs SEDCO Forex International Drilling Co. Ltd. (dated October 9, 2003). In that decision, it was held that the payment for the 'off period' constituted income earned in India for services rendered in India. Furthermore, the Court noted that the assessment records indicated that the employer company paid the entire salary, including that for the off period, from the income of the Indian operations. This conduct was considered to reflect the intention of the contracting parties, making the entire salary taxable in India under Section 9(1)(ii). The Court answered the question in the negative, in favour of the department and against the assessee. The appeal was disposed of.

What were the facts?

The assessee, M/s Hughes Services (Far East) Pvt. Ltd., acting as an agent for Mr. Timanda Igmedio J., is in appeal before the High Court of Uttaranchal at Nainital. The appeal concerns the assessment year 1992-93. The dispute revolves around the taxability of an amount paid for an 'off period' as income earned in India. The order under challenge is not explicitly stated, but the appeal is against a decision of the Income Tax Appellate Tribunal (ITAT). The procedural history indicates that this matter is being decided based on a prior decision of the High Court in a similar case.

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 Section 9(1)(ii) of the Income Tax Act, 1961, despite no services being rendered in India during that period, especially considering the subsequent amendment to the explanation to Section 9(1)(ii) effective from April 1, 2000, which regards such payments as income accrued in India only from that date? Assessee's Contention: The assessee argues that 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. They also highlight that the amendment to the explanation of Section 9(1)(ii), which specifically includes payments for off periods as income accrued in India, is effective only from April 1, 2000, implying it should not apply retrospectively to the assessment year in question. Revenue's Contention: The revenue contends that the payment for the 'off period' is income earned in India for services rendered in India, as per Section 9(1)(ii). They rely on the intention of the contracting parties, as evidenced by the fact that the entire salary, including for the off period, was paid from the income of Indian operations.

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. 314 of 2001 Old No. 247 of 2000

M/s Hughes Services (Far East) Pvt. Ltd. As agent of Mr. Timanda Igmedio J. ……. Appellants

Versus

Commissioner of Income Tax, Meerut …….. Respondent

Mr. V.K. Bisht, learned counsel for the appellant. Mr. P.C. Maulekhi, learned counsel for 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 contraction parties. Hence the entire salary for both the periods was faxable in India u/s 9(1)(ii).”

For the reasons aforesaid, we answer the first 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. 15.05.2004 G

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