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TMI Blog2005 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... upply oil rigs and the employees to man the rigs to enable ONGC to carry on offshore drilling within the territorial waters of this country. The appellant also entered into agreements (which were executed in the United Kingdom) with each of its employees who are residents of the United Kingdom. The schedule of work as specified in the agreements envisaged 35 days or 28 days work in a foreign, location (in this case India) followed by 35 days or 28 days field break in the United Kingdom (UK). Field break was defined in the agreements to include, but was not limited to, undergoing training by attending classes at such places as may be specified, on the spot demonstration to update the knowledge in the latest techniques and attending to the offshore drilling work on any project of the appellant in any part of the world. The agreements further provided that such assignments would be obligatory and compulsory and that the employee would have no option to deny or reject the same. The alternative schedule of time at location and at field breaks was to be repeated continuously during the period of the agreements. The employees were to be paid the same monthly salaries for the alternati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years in question. It was submitted that the scope of section 9(1)(ii) after its amendment in 1999 had been clarified by a circular issued by the Central Board of Direct Taxes (CBDT) as being prospective and this was binding on the Department. It was contended that in any event the provisions of the section must be construed in accordance with international understanding and norms. According to the appellant during the field breaks, its employees were kept on stand by in the U.K. for serving anywhere in the world which was not necessarily in India. Appearing on behalf of the respondents, the Additional Solicitor General submitted that the employees of the appellant-company were paid salary during the field breaks only as a consequence of and in relation to the services rendered by them during the period that they actually worked in India. It necessarily followed that the salary received for the off period was taxable as arising out of services rendered in India. There was a reasonable nexus between salary earned for the off periods and the services rendered in India. It was further submitted that the amendment to the Explanation to section 9(1)(ii) was brought abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly received, if the service was rendered in India, the salary for such service was exigible to tax as income under the Act. The High Court proceeded on the incorrect hypothesis that the field breaks were limited to the training of the employees to render them more fit for service in India. That was not what the agreements between the appellant and its employees said and there was no ground for the High Court to have assumed that it was. The High Court also did not address itself to the other aspects of the field break namely the readiness of the employees for service anywhere at all. The employees in this case had not in fact served in India during the field break period but they earned the income in U.K. as U.K. residents the consideration for the salary being the undergoing of training or updating of knowledge and being in a state of readiness to serve anywhere at all. The contract does not mention that the salary was for a well earned rest. That was a presumption which the High Court raised but which was based on no evidence. Besides, the clause in the contract relating to salary for service in India was distinct from the clause relating to payment of salary for field brea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 2000, the substituted Explanation would read: Explanation.- For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India. The Finance Act, 1999, which followed the Bill incorporated the substituted Explanation to section (9)(1)(ii) without any change. The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton [1992] 193 ITR 49, while following the Gujarat High Court's decision in CIT v. S.G. Pgnatale [1980] 124 ITR 391 to hold that the Explanation was not declaratory but widened the scope of section 9(1)(ii). It was further held that even if it were assumed to be clarificatory or that it removed whatever ambiguity there was in section 9(1)(ii) of the Act, it did not operate in respect of periods which were prior to April 1, 1979. It was held that since the Explanation came into force from April 1, 1979, it could not be relied on for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from the time that the main provision came into force. But if it changes the law it is not presumed to be retrospective irrespective of the fact that the phrases used are it is declared or for the removal of doubts . There was and is no ambiguity in the main provision of section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word earned had been judicially defined in S.G. Pgnatale [1980] 124 ITR 391 by the High Court of Gujarat, in our view, correctly, to mean income arising or accruing in India . The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, income payable for service rendered in India . When the Explanation seeks to give an artificial meaning to earned in India and bring about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively. Even if it were to be held that the 1999 Explanation to section 9(1)(ii) were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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