COMMISSIONER OF INCOME TAX vs. READING and BATES EXPLORATIONS CO.

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ITA/524/2001HC UttarakhandUKHC01006289200306 May 2004Author: OTHER2 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court decided the appeal by answering the questions based on its prior decision in the case of CIT vs. SEDCO Forex International Drilling Co. Ltd. dated October 9, 2003. For the first question, concerning the taxability of salary for the off period outside India under Section 9(1)(ii), the Court answered in the negative, in favour of the department and against the assessee. The reasoning adopted was that the payment of salary for the off period was income earned in India for services rendered in India. The Court also considered the conduct of the employer in paying the entire salary, including for the off period, from Indian operations as indicative of the intention of the contracting parties, making the entire salary taxable in India. For the second question, regarding the free boarding facility, the Court answered in the affirmative, in favour of the assessee and against the department. The reasoning was that the work on the rig was hazardous, arduous, and continuous, making free food and beverages a necessity rather than a luxury or perquisite, and thus its value could not be added to the assessee's income. The appeal was disposed of with no order as to costs.

What were the facts?

The Commissioner of Income Tax (CIT), Dehradun, and another were the appellants, and Reading & Bates Exploration Co., acting as agent for Mr. B. Vidrine, was the respondent. The assessment year in question was 1990-91. The appeal challenged an order passed by the Income Tax Appellate Tribunal (ITAT). The core dispute revolved around the taxability of salary paid to the assessee for periods spent outside India ('off period') and the taxability of free boarding facilities provided on a rig in high seas. The ITAT had previously ruled on similar issues in multiple prior appeals, with some decisions holding off-period salary taxable and others not. The High Court noted that a question of law on the taxability of off-period salary had been referred to it earlier.

What were the issues?

1. Whether, on the facts and circumstances, 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 own prior conflicting decisions on this issue and a reference of a question of law to the High Court. - Assessee's contention: Not recorded. - Revenue's contention: The ITAT was legally incorrect. The revenue likely argued that the salary for the off period was earned in India for services rendered in India, as per Section 9(1)(ii), and pointed to the intention of the parties as evidenced by the employer paying the entire salary from Indian operations. 2. Whether, on the facts and circumstances, the ITAT was legally correct in holding that the free boarding facility provided by the employer on board the rig in high seas could not be construed as a perquisite. - Assessee's contention: The free boarding facility was a necessity due to the hazardous, arduous, and continuous nature of work on the rig, not a luxury or perquisite, and therefore its value should not be added to the assessee's income. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

Assessment Year 1990-91

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

I.T.A. No. 524 of 2001

The Commissioner of Income Tax, Dehradun & another ……. Appellants Versus Reading & Bates Exploration Co., As agent of Mr. B. Vidrine ……….. Respondent

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

Mr. S.K. Posti, advocate for appellants.

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 V/s SEDCO Forex Internation Drilling Co. Ltd. The question raised before us is follows:

QUESTIONS:

1.

Whether on the facts and circumstances of the case ITAT was legally correct to hold that the salary paid to the assessee for the off period outside India was not chargeable to Indian Income Tax Act in terms of section 9(1)(ii) of the IT Act, 1961, whereas the Ld. ITAT has itself held, vide orders dated 25.3.92 in ITA No. 5649/D/92, dated 28.7.99 in ITA No. 1079/D/91, dated 24.1.2000 in ITA No. 411/D/93 and dated 15.5.2000 in ITA No. 1648/D/94, that off period salary is taxable in India and vide order dated 18.11.96 in RA No. 433 to 511/D/96 has referred question of law on this issue for esteemed opinion of this Hon’ble Court?

2.

Whether on the facts and circumstances of the case the ITAT was legally correct in holding that free boarding facility provided by the employer on board the rig in high seas cannot be constructed to be perquisite?

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., the reasoning regarding question No. 1 is 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).” The reasoning regarding question No. 2 is as under:

“In this case, assessee had to work on the rig. It was hazardous, arduous and continuous. Under such circumstances free food and beverages is a necessity. It is not a luxury. It is not a perquisite. Its value cannot be added to the income of the assessee.”

For the reasons aforesaid, we answer the first question in the negative i.e. in favour of the department and against the assessee and the other question is answered in the affirmative i.e. in favour of the assessee and against the department. Appeal is disposed of. No order as to costs.

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

Dt. 06.05.2004 G

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