Appellants v. Halliburton Offshore Services Inc., As Agent Of Mr. Castillano M

Assessment Year 1990-91 IN THE HIGH COURT OF UTTARANCHAL AT NAINITALIncome Tax Appeal No. 126 of 2001(Old no. 157/2000) The Commissioner of Income Tax, Meerut and another ............. Appellants Versus Halliburton Offshore Services Inc., As agent of Mr. Castillano M., C/o Arthur Anderson & Co.,66, Maker Towers, F. Cuffe Parade, Bombay ............ Respondent Mr. S.K. Posti, Advocate for appellants Date: 30.06.2004 Hon’ble P.C. Verma, A.C.J.Hon’ble P.C. Pant, J. 1.This is an appeal under section 260A of the Income Tax Act,1961 filed by the Revenue against the judgment and order dated29.09.1999 passed by the Income Tax Appellate Tribunal, New Delhiin I.T.A. No. 4314/D/1993. 2.Mr. Castillano M., respondent is a non - resident foreigntechnician employed by a foreign company, Halliburton OffshoreServices Inc. 3.The questions raised before us are as follows:- -QUESTIONS: Whether on the facts and circumstances of the case, the Ld. ITAT was legally correct to hold that the salary paid to theassessee for the said off period outside India was not Charg`eable to Indian Income Tax Act in terms of section 9(1)(ii) ofthe I.T. Act, 1961? 4.Heard learned counsel for the parties and perused the record. 5.As this Court has discussed in Income Tax Act Appeal No. 57 of 2002; The Commissioner of Income Tax, Dehradun & another V/s SEDCO Forex International Drilling Co. Ltd., the reasoning regardingthis question No. 1 is given under following paragraphs. 6.Section 4 of the Act is a charging section. It imposes tax onthe total income of the previous year of every person. Under section4(2), tax is deducted at source or paid in advance, where it is sodeductible or payable. Section 5(2), on the other hand, restricts thescope of total income of a non-resident to the income which isreceived or deemed to be received in India or which accrues or whichis deemed to accrue to him during such year. 7.Section 9(1)(ii) interalia lays down that income which fallsunder the head “Salaries”, if it is earned in India, shall be deemed toaccrue to the non-resident during such year. Therefore section 9 is adeeming section. It brings in certain types of incomes, which maynot come u/s 5, into the definition of “Total Income” u/s 2(45).Section 9(1)(ii) read with Explanation provides for an artificial placeof accrual for income taxable under the head “Salaries”. It enacts thatincome chargeable under the head “Salaries” is deemed to accrue inIndia if it is earned in India i.e. if the services under the contract for employment is rendered in India. In such a case, the place of receiptor actual accrual of salary is immaterial. In this case we areconcerned with application of law to the facts to the facts of this case. 8.It is well settled that in order to ascertain the intention of thecontracting parties one has to study the terms and conditions of thecontract and in appropriate cases one has to see the surroundingcircumstances including the conduct of the parties. In this cases thecontract provides for ON Period and Off periods. The contract is fortwo years. It refers to Alternating Time Schedule. It covers both theperiods. The Off period follows the ON periods. Therefore both theperiods form an integral part of the contract. It is not possible to giveseparate tax treatments to On periods and Off period salaries. It isargued that period following ON period was not a rest period. We donot find any merit. After 35/28 days of hard work, the technician hadto go back to the country of his residence. The Off period followed the ONperiod. They both formed part of an Integral scheme. Thateven under the Finance Act of 1999 the new explanation uses the term “ Restperiod/Leave period”. For above reasons we find merit inthe arguments of the revenue. Further even assuming that the periodfollowing ON period was a standby arrangement and not a Restperiod, we find that the assessee had to undergo training during thesaid period. It is important to note that the work on the oil rigs ishazardous. The assessee had to remain fit during the rest period .Hence he had to undergo demonstrations and training but all that hasa nexus with the services which he had to render in India. Hence thepayment which he received was for his services in India. In thisconnection it may be noted that the Explanation to section 9(1)(ii)introduced by Finance Act of 1983 refers to what constitutes incomeearned in India”. This Explanation was introduced by Finance Act of1983 w.e.f. 1.4.1979 to get over the judgment of the Gujarat High Court in 124-ITR-391 in which it was held that in order to attractsection 9(1)(ii) of the Act, liability to pay must arise in India. By thesaid Explanation, the original intention u/s 9(1)(ii) has been revived.It explains the expression “income earned in India” to mean paymentfor the services in India even if the contract is executed outside Indiaor amount is payable outside India. However, from the saidExplanation it is not possible to infer the corollary viz that in all cases whereservices are rendered outside India, the salary cannot bedeemed to accrue in India, ipso facto. In certain cases, even if theservices were rendered outside India, the income can still accrue orarise in India. It would depend on facts of each case. In this caseeven assuming that there was no rest period as alleged by the assesseeand that payment was for stand by we are of the view that trainingabroad during this period was directly connected with the workon the rigs in India. It made the Assessee mentally and physically fit.Therefore, the payment of salary for Off period was income earnedin India i.e. for services rendered in India u/s 9(1) (ii). We would liketo point out that in this case the assessment records show that fromthe income of the Indian operations the salary in its entirety (including salary for the off period) has been paid by the employerCompany. This conduct shows the intention of the contractingparties. Hence the entire salary for both the periods was taxable inIndia u/s 9(1) (ii). 9.For the reason aforesaid, we answer the first question in thenegative i.e. in favour of the department and against the assessee. 10.Appeal disposed of accordingly. No order as to costs. (P.C. Pant, J.) (P.C. Verma, A.C.J.) G