COMMISSIONER OF INCOME TAX vs. SEDCO FOREX INTERNATIONAL AS AGENT J.E.LEXNIK

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ITA/62/2002HC UttarakhandUKHC01007267200305 September 20052 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court, following a Division Bench judgment in Commissioner of Income Tax vs. Sedco Forex International Drilling Co. Ltd. reported in (2003) 264 ITR 320, answered the questions of law. On the first issue, the Court held that salary paid for the 'off period' was income earned in India for services rendered in India under Section 9(1)(ii) and was thus taxable. This means the ITAT's decision on this point was reversed in favour of the Revenue. Regarding the second issue, the Court upheld the Division Bench's finding that free boarding facility provided by the employer on the rig was not a perquisite under Section 17(2)(iii) and its value could not be added to the assessee's income. For the third issue, the Court affirmed the Division Bench's view that the imposition of interest under Section 234B was not justified without proper hearing and reasons. The appeal was partly allowed, with the first question answered in favour of the appellants and the second and third questions answered in favour of the assessee.

What were the facts?

This appeal was filed by the Commissioner of Income-Tax, Dehradun and the Assistant Commissioner of Income-Tax, Special Range, Dehradun against an order dated 31.05.2001 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench-D. The assessee is Mr. J.E. Lesuik, represented by Sedco Forex International Drilling Inc. The assessment year in question is 1992-93. The dispute pertains to the taxability of salary paid for an 'off period' outside India, the taxability of free boarding facilities, and the levy of interest under Section 234B.

What were the issues?

The High Court had to decide three substantial questions of law: 1. Whether the ITAT was legally correct in holding that salary paid to the assessee for the 'off period' outside India was not chargeable to Indian Income Tax under Section 9(1)(ii) of the Income Tax Act, 1961, especially when the ITAT itself had previously held 'off-period salary' to be taxable in India in multiple prior orders and had referred a question of law on this issue to the Allahabad High Court. 2. Whether the ITAT was legally correct in holding that free boarding facility provided by the employer at the rig site could not be construed as a perquisite. 3. Whether the ITAT was legally justified in allowing the assessee's appeal by holding that interest under Section 234B was not leviable on incomes subject to deduction of tax at source. The appellants (Revenue) argued that the ITAT's decision on the 'off period' salary was inconsistent with its own previous rulings. The Revenue did not explicitly argue on the other two issues in the provided text, but the judgment implies their stance was against the assessee's favour. The respondent (Assessee) contended that the 'off period' salary was not taxable, free boarding was not a perquisite, and interest under Section 234B was not leviable. The judgment does not explicitly detail the assessee's arguments on each point but reflects the ITAT's findings that were challenged.

Which sections of the Income-tax Act were involved?

Section 9(1)(ii),Section 17(2)(iii),Section 234B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Income Tax Appeal No. 62 of 2002

The Commissioner of Income-Tax Dehradun and another

… Appellants

Versus

Sedco Forex International Drilling Inc. as Agent of Mr. J. E. Lesuik, C/o A.F. Ferguson & Company C. As Maker Tower E Cuffe Parade, Bombay-400 005

… Respondent

Mr. S.K.Posti, Advocate for the appellants.

Coram: Hon’ble Cyriac Joseph, C.J.

Hon’ble J.C.S. Rawat, J.

JUDGMENT

CYRIAC JOSEPH, C.J. (Oral)

This appeal is filed against the order dated 31.05.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench-D, New Delhi in I.T.A. No. 7344/Del/95. The assesse is Mr. J.E. Lesuik, represented by Sedco Forex International Drilling Inc. The dispute relates to the Assessment Year 1992-93. The appellants are (i) the Commissioner of Income Tax, Dehradun and (ii) the Assistant Commissioner of Income Tax, Special Range, Dehradun.

2.

The substantial questions of law raised in the appeal are the following:

(i) “Whether on the facts and in the circumstances of the case the ITAT was legally correct to hold that the salary paid to the assessee for the “off period” outside India was no chargeable to Indian Income Tax Act in terms of section 9(1)(ii) of the Income Tax Act, 1961, whereas the learned ITAT has itself held vide orders dated 25.03.1992 in I. T. A. No. 5649/ D/92, dated 28.07.1999 in I. T. A. No. 1079/D/91, dated 24.1.2000 in I. T. A. No. 411/D/93 and dated 15.5.2000 in I. T. A. No. 1648/D/94 that “off-period salary” is taxable in India and vide order dated

18.11.1996 in R.A.No. 433 to 511/D/96 has referred question of law on this issue for esteemed opinion of Hon’ble Allahabad High Court.?” (ii) “Whether on the facts and in the circumstances of the case the ITAT was legally correct in holding that free boarding facility provided by the employer at the rig side cannot be construed to be perquisite? (iii) “Whether on the facts and circumstances of the case the ITAT was legally justified in allowing the appeal of the assessee holding that interest u/s 234 B was not leviable in respect of incomes which are subject to deduction of tax at source?

3.

In Commissioner of Income Tax- and another Vs. Sedco Forex International Drilling Co. Ltd. and connected cases reported in (2003) 264 ITR 320, a Division Bench of this Court has held that the payment of salary for “off period” was income earned in India, i.e. for services rendered in India under Section 9(1)(ii) and that “off period salary” was taxable under section 9(1)(ii) of the Income Tax Act, 1961. It has been further held that the free boarding facility provided by the employer on the rig was not a perquisite under Section 17 (2)(iii) and that its value cannot be added to the income of the assessee. It has also been held that the imposition of interest u/s 234 B was not justified without hearing and without reasons.

4.

Following the above mentioned judgment of a Division Bench of this Court, this appeal is partly allowed answering the first question of law in favour of the appellants. The second and third questions of law are answered against the appellants and in favour of the assessee and this appeal will stand dismissed to the extent.

(J.C.S. Rawat, J.)

(Cyriac Joseph, C.J.)

08.09.2005

08.09.2005 A

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