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

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ITA/220/2000HC UttarakhandUKHC01025207200312 April 2004Author: OTHER2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the payment of salary for the 'off period' was income earned in India, i.e., for services rendered in India, under Section 9(1)(ii). The Court relied on its earlier decision in the case of Commissioner of Income Tax, Meerut & another V/s SEDCO Forex International Drilling Co. Ltd. The reasoning was that the assessment records showed that from the income of the Indian operations, the salary in its entirety, including the salary for the off period, had been paid by the employer company. This conduct demonstrated the intention of the contracting parties, leading to the conclusion that the entire salary for both periods was taxable in India under Section 9(1)(ii). The question was answered 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., filed an appeal before the High Court of Uttaranchal at Nainital against an order of the Income Tax Appellate Tribunal. The assessment year(s) are not explicitly stated. The dispute concerns the taxability of an amount paid for an 'off period'. The assessee contended that no services were rendered in India during this off period, and a subsequent amendment to the explanation of Section 9(1)(ii) of the Income Tax Act, effective from April 1, 2000, clarified that such payments are taxable in India only from that date. The revenue contended that the payment for the off period was income earned in India for services rendered in India under Section 9(1)(ii). The High Court referred to its earlier decision in the case of Commissioner of Income Tax, Meerut & another V/s SEDCO Forex International Drilling Co. Ltd.

What were the issues?

1. Whether, on the facts and in the 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), when admittedly no service was rendered during the off period in India? 2. Whether the subsequent amendment made in the explanation to Section 9(1)(ii) w.e.f. 01.04.2000, which regards the amount paid for off period or leave period as income accrued in India only from 01.04.2000, is relevant to the assessment year in question? Assessee's contentions: The amount paid for the off period is not taxable in India as no services were rendered in India during that period. The subsequent amendment to Section 9(1)(ii) w.e.f. 01.04.2000 supports this view, indicating that such payments are taxable only from that date. Revenue's contentions: The payment of salary for the off period was income earned in India for services rendered in India under Section 9(1)(ii). The conduct of the parties, where the entire salary (including for the off period) was paid from the income of Indian operations, shows the intention that the entire salary was taxable in India.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 287 of 2001 Old No. 220 of 2000

M/s Hughes Services (Far East) Pvt. Ltd. ………. 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’ble P.C. Verma, A. C.J. Hon’ble M.M. Ghildiyal, J.

The matter is squarely covered by our decision dated 9 th October, 2003 in Income Tax Act Appeal No. 5 7 of 2002; The Commissioner of Income Tax, Meerut & another V/s 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 9the October 2003 in Income Tax Act Appeal No. 57 of 2002; The Commissioner of Income Tax, Dehradun & another V/s SEDCO Forex International Drilling Col 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 d epartment and against the assessee. Appeal disposed of. No order as to costs.

(M.M. Ghildiyal, J.) (S.H. Kapadia, C.J.)

Dt. 12.04.2004. G

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