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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 ..... llowed 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 alternating periods. The issue is whether the salary of the employees of the appellant payable for field breaks outside India would be subjected to tax under section 9(1)(ii) read with the Explanation thereto in the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the assessment years 1992-93 and 1993-94. The assessing authority assessed the employees of the appellant including the salary for the field breaks as part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 about by the Finance Act, 1999, and was retrospective since it was clarificatory. It was also stated that the issue whether a statute is to be construed as being retrospective, if it did not itself indicate either in terms or by necessary implication that it was to operate retrospectively, has been referred to a Constitution Bench. As far as the Central Board of Direct Taxes circular is concerned, it was said that it was not binding on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 breaks. The first clause clearly fell within the extended meaning given to the words "earned in India" in the main provision. But the second clause relating to the salary paid by the appellants to its U.K. employees for the field break was not "earned in India", since it did not fall within the phrase. The phrase is part of the statutory fiction created by section 9(1). There is no question of introducing a further fiction by extending the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 any purpose for an anterior period. In the appeal preferred from the decision by the Revenue before this court, the Revenue did not question this reading of the Explanation by the Kerala High Court, but restricted itself to a question of fact, viz., whether the Tribunal had correctly found that the salary of the assessee was paid by a foreign company. This court dismissed the appeal holding it was a question of fact (CIT v. S.R. Patton [1998] 233 ITR 166 (SC); [1998] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicable to the facts of the present case, it is doubtful whether in the facts of this case the activity of the employees in the U.K. could be said to be "rest" period or "leave" period within the meaning of the words in clause (b) of the 1999 Explanation. However, it is not necessary to decide the issue as we are satisfied that the 1999 Explanation would "not apply to the assessment years in question. For the reasons aforesaid, the decision of the High Court is set aside and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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