2006 (5) TMI 136 - AT - Income Tax

Summary

Issues:
1. Taxability of off-period salary in India
2. Tax treatment of boarding perquisite

Issue 1: Taxability of off-period salary in India
The case involved Departmental appeals for the assessment years 1999-2000 and 2000-01. The primary contention was regarding the taxability of off-period salary earned by technician employees of a company in the UK. The Assessing Officer (AO) had taxed the salary for the entire year, including the off-period, as income earned in India. However, the assessees argued that the off-period salary was not for rest or leave but for activities like training and obtaining visas outside India. The CIT(A) ruled in favor of the assessees, stating that the off-period salary was not taxable in India. The Department appealed against this decision.

The assessees relied on a Supreme Court judgment in a related case to support their stance. The Supreme Court had held that salary earned during off-periods outside India by employees residing in the UK was not taxable in India. The Court emphasized that the salary for off-periods was for readiness to work globally and not specifically for rest or leave. The Department, however, argued that a subsequent amendment to the Explanation to section 9(1)(ii) of the Income Tax Act made the salary taxable. The Tribunal analyzed the agreements between the parties and concluded that the off-period salary was for being ready to work worldwide, not for rest or leave, and thus not taxable in India.

The Tribunal further explained that the activities during the off-period, such as training and offshore drilling work, did not align with the concept of rest or leave. The Supreme Court's judgment and the nature of the field breaks indicated that the off-period salary was not intended for rest but for maintaining readiness for work globally. Therefore, the Tribunal upheld the CIT(A)'s decision that the off-period salary was not taxable in India for both assessment years.

Issue 2: Tax treatment of boarding perquisite
Regarding the second issue of whether free boarding on the rig constituted a perquisite in the hands of the employees, the Department argued that it should be considered a perquisite under section 17(2)(iii). However, the assessees cited a High Court decision in their favor, which held that free boarding was not a perquisite. Since the Department did not present any contradictory decisions, the Tribunal followed the High Court ruling and rejected the Department's contention.

In conclusion, the Tribunal dismissed all appeals filed by the Department, affirming that the off-period salary was not taxable in India and that free boarding did not constitute a perquisite.