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

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ITA/232/2000HC UttarakhandUKHC01015078200405 May 2004Author: OTHER2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the amount paid for the 'off period' was income earned in India, i.e., for services rendered in India, under Section 9(1)(ii). The Court's reasoning was based on its prior decision in the case of Commissioner of Income Tax, Meerut & another Vs SEDCO Forex International Drilling Co. Ltd. (dated 9th October 2003). In that decision, it was held that the payment of salary for the off period was income earned in India for services rendered in India. Furthermore, the Court noted that the assessment records showed the salary for the entire period (including the off period) was paid by the employer company from the income of Indian operations, which demonstrated the intention of the contracting parties. Therefore, the entire salary for both periods was held to be taxable in India under Section 9(1)(ii). The question was answered in the negative, in favour of the department and against the assessee.

What were the facts?

The assessee, M/s Hughes Services (Far East) Pvt. Ltd., acting as an agent for Mr. Field Shawn, is in appeal before the High Court of Uttaranchal at Nainital. The appeal concerns Assessment Year 1992-93. The dispute revolves around the taxability of an amount paid for an 'off period' as income earned in India. The assessee contends that no services were rendered in India during this off period. The revenue, represented by the Commissioner of Income Tax, Meerut, considers this amount taxable. The High Court is considering a prior decision of the same court in a similar case.

What were the issues?

1. Whether, on the facts and 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 admittedly no service was rendered during the off period in India, especially 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. The assessee relies on the fact that the amendment to Section 9(1)(ii) making such payments taxable in India was effective only from 01.04.2000, implying it was not taxable for the assessment year in question. Revenue's contention: The revenue argues that the payment for the off period is income earned in India for services rendered in India, as per Section 9(1)(ii). The revenue relies 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. 299 of 2001 OLD NO. 232 OF 2000 M/s Hughes Services (Far East) Pvt. Ltd. As agent of Mr. field Shawn ........... 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, Meerut & another Vs SEDCO Forex International Drilling Co. Ltd.

The question raised before us is as follows: "Whether on the facts and 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 of 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 asessee.

Appeal disposed of. No order as to costs.

(Rajesh Tandon, J.)

(P.C. Verma, A.C.J.) Dt. 05.05.2004. HN

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