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C.I.T. v. Western Company Of North America - INCOME TAX REFERENCE No. 6 of 1997 [2005] RD-AH 1118 (25 April 2005)


This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Joint Registrar(Copying).


Court No.37

I.T.R. No.6 of 1997

Commissioner of Income-tax, Meerut vs. Western Company of North America as agent of Mr. D.G. Russ and others.

Hon'ble R.K. Agrawal, J.

Hon'ble Rajes Kumar, J.      

The Income Tax Appellate Tribunal, Delhi has referred the following two questions of law under Section 256(1) of the Income Tax Act, 1961, hereinafter referred to as 'the Act' for opinion to this Court.

"1.Whether, on  facts and in the circumstances of the case, the ITAT was legally correct to hold that the salary paid to the assessee for the laid off period outside India was not chargeable to Indian Income-tax Act in terms of section 9(1)(ii) of the I.T.Act, 1961?

2. Whether on facts and in the circumstances of the case the ITAT was legally correct to hold the order of the lower authorities as erroneous and un-justified?"

The present Reference relates to the Assessment Year 1984-85.

Briefly stated the facts giving rise to the present Reference are as follows:-

The respondents-assessees are foreign residents and employees of M/s. Western Company of North America.  The above non-resident company entered into contract with ONGC for drilling of oil. The contract of employment of respondent-assessee with their employees provided 28 days of rest outside India after 28 days of working on rig extracting oil for ONGC.   In the return filed by the respondents-assessees for the Assessment year 1984-85 showing income from salary paid for the period of actual working by the respondents-assessees on rig.  It was contended that salary for the 28 days period spent by the respondents-assessees outside India after period of 28 days working on the rig was not taxable. This contention of the respondents-assessee was not accepted by the Income Tax Officer as according to him 28 days "off" was an outcome of 28 days duty on the rig due to arduous nature of work.  In view of the aforesaid observations, it was held by the Income Tax Officer that the off-period was also connected with the services rendered by the Technicians in India and the whole salary was liable to tax in India and was well within the purview of Section 9(1)(ii) of the Act which reads as under:-

"Income which falls under the head "salary" if it is earned in India.

(Explanation:- For the removal of doubt it is hereby declared that the Income of the nature referred to in this clause payable for services rendered in India shall be regarded as Income earned in India.)"

Thus the whole salary for the total period both spent in and out of India was assessed to tax and income computed accordingly.  In appeals, the Commissioner of Income Tax (Appeals) upheld the order of Income tax Officer and dismissed the respondents-assessees' appeals on this point.  The respondents-assessees filed further appeals before the Tribunal.  The Tribunal following the earlier decisions given by its different benches and also placing reliance on its earlier orders in ITA No.225/Del/91 in the case of H.M. Lucas, in ITA No.2277/D/91 in the case of E.W.Melnechuk and further in the case of G.Winpenny Vs. ITO, (1994) 50 ITD 501(Del) and in case of Zapata Offshore Vs. ITO (1993)69 Taxman 41 has held that salary paid to the respondents-assessees during off-period cannot be said to be earned in India and hence it could not be charged to the tax under the Act.

We have heard Sri R.K.Upadhyaya, learned Standing Counsel for the Revenue. Nobody has appeared on behalf of the respondents-assessees.

We find that the similar questions came up for consideration before this Court in I.T.R. No.98 of 1992, C.I.T. v. Mr..E. Hammet, decided on 11th April, 2005, wherein this Court has held that the salary paid for the laid off period outside India shall not be chargeable to tax under the Act .

Respectfully following the aforesaid decision, we answer both the questions referred to us in the  affirmative i.e. in favour of the assessees and against the Revenue.  However, there shall be no order as to costs.




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