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

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ITA/16/2005HC UttarakhandUKHC01002968200508 March 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 followed the decision of the Hon'ble Apex Court in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another (Supra)". The Supreme Court had held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, amended by the Finance Act 1999, was prospective. Therefore, it could not be applied retrospectively to assessment years prior to 1999. As the assessment year in the present case (1999-2000) was prior to the amendment, the assessee could not be taxed on the off-period salary. The High Court set aside the order of the Tribunal to the extent it was against the assessee and allowed the appeal. No order as to costs was made.

What were the facts?

The assessee, M/s R & B Falcon Drilling Co., acting as agent for Mr. Daniel Gates, is in appeal against an order dated 21.09.2004 passed by the Income Tax Appellate Tribunal, Delhi Bench 'A'. The assessment year in question is 1999-2000. The assessee employed foreign technicians for drilling operations in India, with a work schedule of 28 days on duty followed by 28 days off. The Assessing Officer sought to tax the salary earned during the 'off-period' when the technicians were outside India. The Commissioner of Income Tax (Appeals) dismissed the assessee's appeal, upholding the Assessing Officer's view. The Income Tax Appellate Tribunal subsequently 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 relies on the Supreme Court's decision in "Sedco Forex International Drill Inc. and Others Vs. Commissioner of Income Tax, Dehradun and Another (Supra)". This decision held that the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961, amended by the Finance Act 1999, was prospective and could not be applied retrospectively to assessment years prior to 1999. Since the assessment year in dispute is prior to 1999, the off-period salary should not be taxed. Revenue's Contention: The judgment does not record any specific arguments made by the revenue. However, it notes that an identical question was previously answered in favour of the revenue by a Division Bench of the High Court in the case of Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. reported in (2003) 264 ITR 320.

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.16 of 2005

M/s R & B Falcon Drilling Co., as agent of Mr. Daniel Gates

……….. Appellant

Versus

The Commissioner of Income Tax, Dehradun

…………. Respondent

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

Dated: March 08, 2006

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

Both the parties are ready to argue the matter today.

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 Nos351-355 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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