Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income Tax vs Sedco Forex Intt. Drilling Inc. on 26 May, 2006
Equivalent citations: (2006)103TTJ(DELHI)99
ORDER
1. These are Departmental appeals for the asst. yrs. 1999-2000 and 2000-01. The common grounds raised (ground No. 1 has not been raised in ITA No. 2920/Del/2003) are:
(1) That the learned CIT(A) has erred in holding that the off-period salary is not taxable in India. (2) That the learned CIT(A) has erred in deleting the addition on account of boarding perquisite.
2. The first issue is with regard to the off-period salary. The assessees are technician employees of M/s Sedco Forex International Drilling Incorporation. The AO charged salary of the assessees for the entire year, including that of the off-period, earned by the assessees in the UK as residents of the UK, to tax.
3. Before the learned CIT(A), the assessees contended that the salary for the off-period was neither for rest period, nor for off-period, because during the 28 days outside India, the employees were available to the employer-company for various purposes like training, obtaining visas, etc., as enumerated in the work schedule. Various Tribunal decisions were cited.
4. The learned CIT(A) vide the impugned orders, held in the assessee's favour, observing that the off-period salary was not leave salary and as such was not taxable in India. Aggrieved, the Department is in appeal.
5. Before us, the learned Counsel for the assessee pointed out that the Hon'ble Supreme Court in Sedco Forex International Drilling Inc. and Ors. v. CIT and Anr. (assessee's own case), has decided this issue in favour of the assessees. We have seen this decision. The Hon'ble Supreme Court has held, inter aha, that the contract between the employer-company and its employees provided for field break to render them ready for service anywhere in the world. The employees had not, during the field break, served in India, but had received income in the UK as residents of UK. Also, the contract did not say that the salary was for a well earned rest. Rather, the clause in the contract regarding salary payable during the field break was different from the clause regarding salary for services in India. The former salary was not earned in India, whereas the latter was so earned. Their Lordships were dealing with the 1982 Explanation to Section 9(1)(ii) of the IT Act. As per this Explanation, salary income, if earned in India and payable for services rendered in India, was to be regarded as income earned in India. With reference to this Explanation, it was held that since the employees had not, during the field break period, served in India, but had received income in the UK as residents of the UK, since the contract did not mention that the salary was for a well earned rest, since the clause in the contract relating to salary paid for field break was not earned in India as it did not fall within the statutory fiction created by the phrase "earned in India", as contained in Section 9(1)(ii), the salary so paid was not for "service rendered in India", within the meaning of the 1983 Explanation to Section 9(1)(ii). Their Lordships also referred to the 1999 Explanation to Section 9(1)(ii)(i.e., the Explanation holding the field presently). It was held that even if this 1999 Explanation was held applicable, it was doubtful if the activity of the employees in the UK could be said to be "rest" or "leave" period as envisaged by Clause (b) of the 1999 Explanation. As per this clause, the rest period or leave period preceded and succeeded by services rendered in India forms part of the service contract of employment and is to be counted for the purpose of computing salary income earned in India.
6. The learned Departmental Representative has, however, tried to counter this Supreme Court decision by stating that it is not applicable to the facts of the present case. He has submitted that the Explanation to Section 9(1)(ii) has been amended by the Finance Act, 1999 w.e.f. 1st April, 2000. This amended Explanation is applicable from the asst. yr. 2000-01, which is the year presently under consideration. So far as regards ITA Nos. 2919 to 2931/Del/2003, therefore, this Explanation applies to these appeals
7. Having considered the rival contentions with reference to the material on record, we find that Sedco Foiex (supra) is squarely applicable in favour of the assessees for both the assessment years under consideration. Apropos asst. yr. 1999-2000, the decision is directly applicable. Apropos asst. yr. 2000-01 also, it holds applicable. The salary paid was admittedly for the off-period spent by the assessees in the UK, as residents of the UK. According to the Department, this is salary paid for rest period or leave period, as visualised by the 1999 Explanation to Section 9(1)(ii). This we find not to be so. Undisputedly, the off-period in question refers to a field break within the meaning of the services agreement between the assessees and their employer-company. This field break has been defined in the letter of agreement (copy at pp. 18 to 22 of the assessee's paper book, "APB", for short) to include, but not to be limited to undergoing training by attending classes at specified places, on-the-spot demonstration to update the knowledge in the latest techniques and attending to the offshore drilling work on any project of the employer-company in any part of the world at the shortest notice of 24 hours, travelling to and from the drilling rig and obtaining visas, permits, etc. Thus, by the very wording of the agreement, "field break" is not equivalent to a rest period or a leave period as enshrined in the Explanation to Section 9(1)(ii). As held by the Hon'ble Supreme Court in the Sedco Foiex (supra), this is a period of readiness of the employees for services anywhere in the world. As in that case, the present assessees did not serve in India during the field break. Rather, they received the income in the UK as residents of the UK. In a manner similar to that case, the present contracts do not state anything about the salary being for a well earned rest.
8. Otherwise too, even in common parlance, field breaks like the one mentioned in the present contracts, cannot be equated with rest or leave period. Neither rest nor leave takes within its fold activities like undergoing training by attending classes, on-the-spot demonstration to update knowledge and latest techniques, offshore drilling work anywhere in the world at the shortest notice of 24 hours, travel to and from drilling rig and obtaining visas, permits, etc. These activities can but be described as a state of readiness of the employees for work anywhere in the world, at the shortest notice. Such field break has been mentioned in the agreements to be a compulsory assignment for the employees, for which, the employees reserve no option to deny or reject. It is for this reason, undoubtfully, that the Hon'ble Supreme Court expressed its reservation regarding the activity of the employees in the UK being taken as "rest" or "leave" periods within the meaning of Clause (b) of the 1999 Explanation to Section 9(1)(ii).
9. Therefore, in respectful consonance with Sedco Foiex (supra), we hold that the learned CIT(A) has rightly held, for both the assessment years, that the off-period salary is not taxable in India. As such, this ground of appeal is rejected.
10. Apropos ground No. 2, the learned Departmental Representative has contended that the issue as to whether free boarding on the rig is perquisite in the hands of the employees/assessees, stands covered in favour of the assessee by the Uttaranchal High Court decision in the assessee's own case in CIT and Anr. v. Sedco Foiex International Drilling Co. Ltd. . In that case, the question whether free boarding was or was not a perquisite under Section 17(2)(iii), was decided in favour of the assessee. The Department has not brought any decision to the contrary before us. So, respectfully following Sedco Foiex (supra) of the Hon'ble Uttaranchal High Court, this ground is also rejected.
11. In the result, all the appeals filed by the Department are dismissed.