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

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ITA/233/2000HC UttarakhandUKHC01015079200421 April 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, taxable 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 Vs SEDCO Forex International Drilling Co. Ltd. (dated 9th October 2003). In that precedent, the Court had concluded that 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 salary, including for the off period, was paid by the employer company from the income of Indian operations. This conduct, according to the Court, demonstrated the intention of the contracting parties, making the entire salary taxable in India. The question was answered in the negative, in favour of the department and against the assessee. No issue was expressly left undecided.

What were the facts?

The assessee is M/s Hughes Services (Far East) Pvt. Ltd. The revenue is the Commissioner of Income Tax, Meerut. The assessment year in question is 1992-93. The appeal challenges an order of the Income Tax Appellate Tribunal (though the specific order and authority are not detailed, the High Court is hearing the appeal). The dispute concerns the taxability of an amount paid for an 'off period'. The procedural history indicates this matter was decided by the High Court of Uttaranchal at Nainital in ITA No. 300 of 2001 (Old No. 233 of 2000). The High Court referred to its earlier decision dated 9th October 2003 in ITA No. 57 of 2002.

What were the issues?

1. Whether, on the facts and 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 admittedly no service was rendered during the off period in India? 2. Whether the subsequent amendment to the explanation to section 9(1)(ii) with effect from 01.04.2000, which regards amounts paid for off or leave periods as income accrued in India, indicates that such treatment was not applicable prior to 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 likely relied on the fact that the amendment to Section 9(1)(ii) effective from 01.04.2000 specifically addresses off-period payments, implying it was not the case prior to that amendment. Revenue's contention: The revenue likely argued that the payment for the off period is income earned in India, as evidenced by the conduct of the parties and the fact that the salary was paid from the income of Indian operations. The revenue would have supported the Tribunal's view.

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. 300 of 2001 OLD NO. 233 OF 2000 M/s Hughes Services (Far East) Pvt. Ltd. ........... Appellant

Versus

Commissioner of Income Tax, Meerut .......... Respondent

Mr. P.C. Maulekhi, learned counsel for the Income Tax Department.

Hon. P.C. Verma, A.C.J. Hon. M.M. Ghildiyal, 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 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 asessee.

Appeal disposed of. No order as to costs.

(M.M. Ghildiyal, J.)

(P.C. Verma, A.C.J.) Dt. 21.04.2004. G

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