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

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ITA/216/2000HC UttarakhandUKHC01025204200312 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, 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, Dehradun & another Vs SEDCO Forex International Drilling Co. Ltd. In that decision, it was held that the payment of salary for the 'off period' constituted income earned in India for services rendered in India. Furthermore, 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 was interpreted as reflecting the intention of the contracting parties, making the entire salary for both periods 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. The appeal was against an order of the Income Tax Appellate Tribunal (ITAT). The assessment year(s) are not explicitly stated. The dispute concerns the taxability of amounts paid for an 'off period' as income earned in India. The assessee contended that no services were rendered in India during the off period and that a subsequent amendment to the explanation of Section 9(1)(ii) of the Income Tax Act, effective from April 1, 2000, indicated such payments were only taxable from that date. The High Court referred to its prior decision in ITA No. 57 of 2002.

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 no services were rendered during the off period in India, and considering that the subsequent amendment to the explanation, effective from 01.04.2000, regards amounts paid for off or leave periods as income accrued in India only from that date? (Question of law and mixed fact and law, turning on Section 9(1)(ii) of the Income Tax Act). Assessee's contentions: - No services were rendered in India during the off period. - The subsequent amendment to the explanation of Section 9(1)(ii) w.e.f. 01.04.2000 clarifies that amounts paid for off periods are taxable in India only from that date. Revenue's contentions: - The judgment does not record specific contentions for the revenue, but it relies on the High Court's prior decision which held that payment 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 employer paid the entire salary from Indian operations, indicated their intention.

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

I.T.A. NO. 283 OF 2001 (Old No. 216 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. 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 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 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 shows 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 assessee.

Appeal disposed of. No order as to costs.

(M.M. Ghildiyal, J.)

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

Dt. 12.04.2004. G

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