2005 (7) TMI 68 - HC - Income Tax

Taxability of 'off-period' salary for non-resident technician in India under Income-tax Act

The High Court held that the 'off-period' salary paid to a non-resident technician working in India was taxable in India under section 9(1)(ii) of the ... Appellant, a non-resident foreign company executed offshore drilling contracts in India and employed technicians to work in offshore oil rigs in India. Mr. Daniel Gates was such a technician employed by the appellant-company during the relevant previous year to work in the offshore oil rigs in India - 'Whether, on the facts and circumstances of the case, the Tribunal erred in law in holding that the 'off-period' salary paid to the petitioner was liable to tax in India?' - In this case the contract provides for on period and off periods. - The payment of salary for the off period was income earned in India, i.e., for services rendered in India under section 9(1)(ii). We would like to point out that in this case the assessment records show that from the income of the Indian operations the salary in its entirety (including salary for the off period) has been paid by the employer company. This conduct shows the intention of the contracting parties. Hence, the entire salary for both the periods was taxable in India under section 9(1)(ii) – Thus, we answer this question in the negative, i.e., in favour of the Department and against the assessee. Issues:Interpretation of tax liability for 'off-period' salary paid to a non-resident technician working in India.Analysis:The High Court dealt with an appeal under section 260A of the Income-tax Act, 1961, regarding the tax liability of 'off-period' salary paid to a non-resident technician working in India. The appellant, a non-resident foreign company, employed technicians for offshore drilling contracts in India. The key question was whether the 'off-period' salary paid to the technician was liable to tax in India. The court analyzed various sections of the Income-tax Act to determine the tax liability in this case.The court referred to Section 4 of the Act, which imposes tax on the total income of every person. Section 5(2) restricts the total income of a non-resident to income received or deemed to be received in India. Section 9(1)(ii) states that income under the head 'Salaries' earned in India is deemed to accrue to the non-resident. This section is a deeming provision bringing certain incomes under the definition of 'total income.' The court emphasized that the place where services are rendered determines the place of accrual for tax purposes.The court examined the terms of the contract between the appellant and the technician, which included both on and off periods. The contract specified alternating time schedules, with the off period following the on period. The court noted that the off period was not merely a rest period but included training essential for the technician's work on offshore oil rigs in India. The court highlighted that the payment received during the off period was directly connected to the services rendered in India, making it income earned in India under section 9(1)(ii).Furthermore, the court discussed the importance of the Explanation introduced by the Finance Act of 1983, which clarified the concept of 'income earned in India.' The court emphasized that even if services were rendered outside India, income could still accrue in India based on the specific circumstances of each case. In this case, the court found that the salary for both on and off periods was taxable in India, considering the employer's conduct and the integral nature of both periods to the contract.In conclusion, the court ruled in favor of the Department, holding that the 'off-period' salary paid to the non-resident technician was taxable in India under section 9(1)(ii). The appeal was dismissed with no order as to costs.