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

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ITA/526/2001HC UttarakhandUKHC01006291200306 May 2004Author: OTHER2 pages
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What did the High Court hold?

The High Court answered the first question in the negative, in favour of the department and against the assessee. It reasoned that the payment of salary for the 'off period' was income earned in India for services rendered in India, as per Section 9(1)(ii). The court noted that the employer company paid the entire salary, including for the off period, from the income of Indian operations, which demonstrated the intention of the contracting parties, making the entire salary taxable in India. The second question was answered in the affirmative, in favour of the assessee and against the department. The court reasoned that the assessee had to work on the rig, which was hazardous, arduous, and continuous. Under these circumstances, free food and beverages were considered a necessity, not a luxury or a perquisite, and therefore, their value could not be added to the assessee's income. The appeal was disposed of accordingly.

What were the facts?

The Commissioner of Income Tax (CIT), Dehradun, and another are the appellants, and Reading & Bates Exploration Co., as agent of Mr. J. Griffin, is the respondent. The assessment year in question is 1990-91. The appeal challenges an order of the Income Tax Appellate Tribunal (ITAT). The core dispute revolves around the taxability of salary paid to the assessee for an 'off period' spent outside India and the taxability of free boarding facilities provided on a rig in the high seas. The ITAT had previously taken a view that off-period salary is taxable in India, and had referred a question of law on this issue to the High Court. The High Court notes that its decision in a similar case, CIT vs. SEDCO Forex International Drilling Co. Ltd. (dated 9th October 2003), covers the present matter.

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 when the ITAT itself had previously held such off-period salary to be taxable in India in multiple prior orders and had referred a question of law on this very issue to the High Court? (Question of law) 2. Whether, on the facts and circumstances, the ITAT was legally correct in holding that a free boarding facility provided by the employer on board a rig in the high seas cannot be construed as a perquisite? (Question of mixed law and fact) Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The revenue argues that the ITAT's prior decisions and the reference of a question of law to the High Court indicate a consistent view that off-period salary is taxable in India. The revenue likely relies on the principle that the income is earned for services rendered in India, as per Section 9(1)(ii). The judgment does not record specific arguments for the revenue on the second issue.

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. 526 of 2001

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