Sedco Forex International Drill. Inc. Vs CIT (Supreme Court of India)
The Supreme Court allowed the appeals filed by Sedco Forex International Drill Inc., acting as the agent of its employees, against the judgment of the High Court concerning the taxability of salary paid during “field break” periods outside India for Assessment Years 1992-93 and 1993-94. The issue before the Court was whether salary payable to employees for field breaks in the United Kingdom was taxable in India under Section 9(1)(ii) of the Income-tax Act, 1961.
The appellant, a company incorporated in Panama, had entered into a wet lease agreement with ONGC to supply oil rigs and personnel for offshore drilling operations in India. Separate employment agreements executed in the United Kingdom required employees to alternate between working in India and field break periods in the United Kingdom. During field breaks, employees were required to undergo training, update their skills, or remain ready for deployment on the appellant’s projects anywhere in the world. The employees continued to receive their regular monthly salaries throughout these alternating periods.
The Assessing Officer included salary received during the field break period as taxable income under Section 9(1)(ii). The Commissioner upheld the assessment, while the Tribunal deleted the addition. The High Court reversed the Tribunal’s decision, holding that the on-duty and off-duty periods formed an integral part of the employment contract, that the training undertaken during field breaks had a nexus with services rendered in India, and that the salary for the off period constituted income earned in India. The High Court also relied on the fact that the employer paid the salaries from its Indian operations.
