R and B FALCON DRILLING COMPANY vs. THE COMMISSIONER OF INCOME - TAX DEHRADUN

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ITA/10/2005HC UttarakhandUKHC01002965200506 May 2006Author: HON'BLE MR. JUSTICE P. C. VERMA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal, answering the framed question of law in favour of the assessee. The Court relied on the Supreme Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another (JT 2005(9) SC 639)". In that case, the Supreme Court held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, as amended by the Finance Act 1999, was prospective and could not be applied retrospectively. Since the assessment year in the present case (1999-2000) was prior to the amendment, the off-period salary could not be taxed based on the amended Explanation. The High Court found that the facts of the present case were identical to the Sedco Forex case, and therefore, the assessee could not be taxed. The appeal was allowed, and the question of law was answered accordingly.

What were the facts?

The appellant, M/s R & B Falcon Drilling Co., acting as agent for Mr. Fritz Verlinden, is in appeal against an order dated 21.09.2004 passed by the Income Tax Appellate Tribunal (Delhi Bench) for the assessment year 1999-2000. The appellant employed foreign technicians for drilling operations in India. The service terms included 28 working days followed by 28 off days, during which the technicians were outside India. The Assessing Officer taxed the salary earned during these 'off-periods'. The Commissioner of Income Tax (Appeals) upheld this, relying on a prior order. The ITAT, however, partly allowed the assessee's appeal.

What were the issues?

1. Whether the Tribunal was right in holding that off-period salary was not taxable under Section 9(1)(ii) read with the Explanation as it stood at the relevant time? Assessee's contention: The assessee argued that the off-period salary should not be taxed. While not explicitly detailed, the assessee's position is implicitly supported by the High Court's reliance on the Supreme Court's decision in the Sedco Forex case. Revenue's contention: The revenue's position, as upheld by the Assessing Officer and CIT(A), was that the off-period salary was taxable. The High Court's judgment does not record specific arguments made by the revenue before it, but rather focuses on the binding precedent from the Supreme Court.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii)

AI-generated summary — verify with the full judgment below

COURT NO.2

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 10 of 2005

M/s R & B Falcon Drilling Co., As agent of Mr. Fritz verlinden ………… Appellant

Versus

The Commissioner of Income Tax, Dehradun

….…Respondent Ms. Krishi Shukla, Advocate for the appellant. Mr. Pitamber Maulekhi, Advocate for the respondent.

Date: May 6, 2006

Coram: Hon.P.C. Verma, J. Hon. B.C. Kandpal, J.

Both the parties are ready to argue the matter today.

2.

This appeal has been preferred against the order dated 21.09.2004 for the assessment year 1999-2000, passed by the Income Tax Appellate Tribunal, (Bench ‘A’ New Delhi).

Briefly stated facts are that the appellant during the year consideration employed foreign technicians for execution of contracts in India relating to drilling operation at a rig in India. As per terms of the services, 28 days was working days and 28 days was off days. After working for 28 days on the Board, the appellant had gone outside India and could not stay in India for 28 days. The Assessing Officer taxed the off-period salary. In the first appeal, the Commissioner of Income Tax (Appeals), Dehradun after

relying on its earlier order dismissed the appeal. In the second appeal preferred by the assessee, the Income tax Appellate Tribunal, Delhi partly allowed the appeal.

The question of law framed in the memo of appeal for our determination is as follows:-

Whether the Tribunal was right in holding that off- period salary was not taxable under Section 9(1)(ii) read with the Explanation as it stood at the relevant time?

An identical question was answered by the Division Bench of this Court in the favour of the Revenue in the case of Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. reported in (2003) 264 ITR 320. The Special Leave Petition was filed against the judgment by the Sedco Forex International Drilling Co. Ltd., which was converted into Civil Appeal Nos.351-355 of 2005. The Hon’ble Apex Court in “Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another, JT 2005(9) SC 639” has held that since the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961 was amended by the Finance Act 1999 and was prospective, therefore, it could not be made applicable in the previous years i.e. to say that no retrospective effect can be given to the Explanation, if the assessment proceedings are pending after the said amendment and accordingly the judgment of Division Bench of this Court was set aside as the assessment year in dispute was prior to 1999.

In the present case also, the assessment year is prior to 1999, thus the assessee cannot be taxed in view of the law laid down by the Hon’ble Apex Court “Sedco Forex

International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another (Supra).

Accordingly, the appeal is allowed. The question is answered accordingly. No order as to costs.

(B.C. Kandpal, J.)

(P.C. Verma, J.) Rajeev Dang

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