1. Since the facts of the cases involved in these appeals, which have been preferred by the revenue, are identical and since common grounds have been raised in all the appeals and further we have been addressed in one set by both the parties, and in view of the fact that a common paper-book has been placed on our file for and on behalf of all the assessees, these appeals as of necessity and for the sake of convenience are being disposed of by this common order.
2. The background facts of the cases are that the assessments in all the cases and for all the years under appeal have been made on the Oil and Natural Gas Commission (ONGC), as agent of non-resident expatriate technicians of some foreign companies deputed by those foreign companies to work with the ONGC for the purposes of carrying on various jobs relating to the drilling of off-shores/coasts and wells. The persons, for whom the ONGC has been assessed as agent, have rendered services under an agreement and the ONGC filed returns of income in all the cases as representative- assessee. At the assessment stage, it was pleaded that the remuneration paid or payable outside India to the non-residents or else to the residents who are not originally residents in India, be regarded as income accrued or arisen not in India. The ITO did not accept the contentions despite the reliance of the assessee on the reported decision of the Gujarat High Court in the case of CIT v.S.G. Pgnatale [19801 124 ITR 391. The ITO framed the assessment, inter alia, on the reasoning that all the persons, who have worked for the ONGC, were stationed at Bombay, in India and it is a well established fact that the salaries earned and the services rendered by those persons were in India.
In appeals, common contentions raised by the ONGC at the first appellate stage, read as under : The admitted facts of this case are, that the appellant, (foreign technician) has been assessed in the status of resident but not ordinarily resident. The learned representative of the appellant, submitted that the facts of the instant case are almost similar as that of CIT v. S.G. Pgnatale  124 ITR 391 (Guj.), on which reliance is being placed. The learned representative has also given me a comparison of facts between the cases of technicians under consideration of Schlumberger Far East Inc. and that of S.G. Pgnatale. On a comparison of facts between the cases of technicians of Schlumberger Far East Inc., with that of S.G. Pgnatale, I find no difference therein. Moreover, the definition of the expatriate technician, as defined in the agreement entered into between the President of India and Schlumberger Far East Inc., is the same as in the case of agreement by the ONGC entered into with off-shore International S.A., a company formed under the laws of Panama. The learned representative also invited my attention to the decision of Commissioner (Appeals) in Appeal No. 72 (D. Dun) of 1981-82, dated 14-6-1982, in the case of the representative-assessee, ONGC for foreign technicians of such foreign companies whereby the learned Commissioner (Appeals), in similar and identical facts as obtaining in this case, has held that the salary actually reimbursed to the appellant in India is assessable while the salary received by him outside India, should not be included in such salary income. He further directed that the perquisites received in kind by the appellant in India, are also to be assessed along with his salary income received in India.
The learned first appellate authority, after having considered the facts of the case as also the contentions raised on behalf of the assessee, directed the ITO as under : 1. to exclude the salary income, received by the persons from the foreign companies in foreign currency outside taxable territories except that salary which the persons have received in India and have themselves shown as taxable under the Income-tax Act ; 2. to modify the value of perquisites to be restricted to the actual salary received in India unless those persons have themselves shown it as liable to income-tax ; 3. to tax other allowances received by those persons in cash either from the ONGC or from their foreign companies in India and this to be assessed as income from other sources.
For the purposes of clarification, it is stated that those 'persons' mentioned above means the persons on whose behalf the ONGC has been assessed as representative-assessee, i.e., as agent.
3. This time, the revenue is in appeal and we have heard at length the learned authorised representatives of the parties. For the revenue, strong reliance has been placed on the Explanation inserted with retrospective effect from 1-4-1979 by the Finance Act, 1983. This Explanation has been added to Section 9(1)(ii) of the Income-tax Act, 1961 ('the Act') and reads as under : Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ; 4. With the insertion of this Explanation retrospectively from 1-4-1979, by the Finance Act, 1983, the relevant provision of law, viz., Section 9(l)(ii) stands as under : (1) The following incomes shall be deemed to accrue or arise in India- (ii) income which falls under the head 'Salaries', if it is earned in India.
Explanation : For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ; 5. Shri J.S. Rao, the learned senior representative, has in view of this provision strongly contended that salary earned in India means payment received or receivable by a person in lieu of services rendered, since, according to him, the rendering of services in India, is crucial and this rendering of service creates a debt in favour of the person rendering services vis-a-vis the person for whom he is rendering the services or else the employer and once this is so, the receipt of payment whether in India or outside India, and further whether in Indian currency or in foreign currency, is not relevant. The payment is made for services rendered in India ; hence salary, as also a right to receive it, vis-a-vis the obligation of the employer to pay it, is created in India ; hence, the payment made anywhere is to be deemed representing income, viz., salaries having accrued and arisen in India. He has also contended forcefully that the rendering of services in India occasions the payment and once the rendering of services is in India, the effect of it anywhere in any currency does not make any difference since it has to be deemed as income accruing and arising at a place where services were rendered, i.e., in India. He has also contended that offshore drilling on an Indian ship flying an Indian flag means 'India' and services rendered there have to be taken as having been rendered in India and the resultant effect of income having accrued and arisen in India is a natural corollary thereto.
6. On his part, the learned authorised representative of the assessee, supported the impugned orders of the learned first appellate authority and further contended, that the ratio of the decision of the Hon'ble Gujarat High Court squarely applies.
7. Insertion of the Explanation to Section 9(1)(ii) by the Finance Act, 1983, with retrospective effect from 1-4-1979, being applicable to the assessment year beginning with the said date, i.e., 1-4-1979, in our opinion, the provision of Section 9(1)(ii, as it originally stood, will apply up to and including the assessment year 1978-79. The orders of the learned first appellate authority up to that assessment year as such call for no interference at our level in view of the categorical finding of the learned first appellate authority that the facts of the cases in appeal before us are at par with the facts of the case, as were before their Lordships of the Gujarat High Court in S.G.Pgnatale's case (supra). Their Lordships on identical facts having held as under : The word 'earned' has two meanings. One is the narrow meaning of rendering of services, etc. The word 'earned' is also used in the wide sense treating income as earned only if the assessee has contributed to its accrual or arising by rendering services and in respect of which a debt is created in his favour. Unless there is a debt in favour of the assessee by reason of his rendering services it cannot be said to be 'income earned' in the wide sense.
There is a difference in the language used in Clause (ii) and Clause (iii) of Section 9(1) of the Income-tax Act, 1961. In Clause (ii) the Legislature has referred to income which falls under the head 'Salaries', if it is earned in India. In Clause (iii) income chargeable under the head 'Salaries', payable by the Government to a citizen of India, for service outside India has been referred to.
Therefore, if the Legislature wanted to indicate that the word 'earned', in the context of salaries, was to have the narrower meaning, it would have specifically safd so by referring inclause (ii) to the rendering of services at a particular situs. In view of the clear indication given by the Legislature itself by using a different phraseology inclause (Hi) as compared with Clause (ii), the words 'earned in India', occurring inclause (ii) must be interpreted as 'arising or accruing in India' and not 'from service rendered in India'. So long as the liability to pay the amount under the head 'Salaries' arises in India, Clause (ii) can be invoked. If the liability to pay arises outside India and the amount is payable outside India, Clause (ii) cannot be invoked.
8. We, on our part, also find the facts of these cases at par with that of the case of S.G. Pgnatale (supra) and respectfully following the ratio of the above case uphold the impugned orders for the assessment years 1976-77, 1977-78 and 1978-79. Appeals of the revenue in relation to the assessee, where these assessment years are involved, fail and stand dismissed.
9. As regards the assessment year 1979-80 [IT Appeal No. 2935 (Delhi) of 1983] and the assessment year 1981-82, i.e., IT Appeal Nos. 2939 and 2940 (Delhi) of 1983, we have to say that under Section 1 of the 1961 Act, the said Act extends to the whole of India, i.e., the territorial jurisdiction of the operation of the Act extends to India and under Article 1(3) of the Constitution of India, the territory of India comprises of : On the facts and in the circumstances of the case, it is a common ground that the agreement between the foreign companies and the ONGC, vies-avis rendering of services by the persons for whom the ONGC is a representative-assessee, was under an agreement providing for off-shore drilling operations.
The CBDT (Foreign Tax Division), vide letter dated 26-9-1973 (reproduced hereunder), has notified the ONGC, that activities attributable to the drilling operations and the resultant income therefrom shall be regarded as income accruing or arising out of India within the meaning of Section 5(l)(a) of the Act, since, according to the CBDT, those areas were not part of India : Subject : Income arising to foreign contractors from off-shore drilling about 80 miles off the Indian shores - Whether income will be liable to tax in India.
I am directed to invite a reference to your letter No. MF/29/73, dated 12-7-1973, and to say that income of the foreign 'non-resident' contractor attributable to the drilling operations confined to the off-shore areas about 80 miles off the Indian coast, will not be regarded as income accruing or arising within India within the meaning of Section 5(1)(a) of the Income-tax Act, 1961, as such areas were not part of 'India' for the purposes of the said Act. If the business of drilling operations is undertaken by a foreign company and the control and management of its affairs is situated wholly in India, the company would become resident in India and its entire income would be liable to be taxed in India.
It is clarified here that Section 5 deals with the topic 'Scope of total income' and it also defines income deemed to be received, income accrues, income arises and deemed to accrue or arise in India also. If, according to the above-mentioned letter, for the purposes of Section 5, drilling operations confine to off-shore areas and the resultant income therefrom is not to be taken as accruing or arising in India since these off-shore areas are not part of India, there is no reason, why under Section 9 of the same Act, the same income from the same operations be taken as arising or accruing in India. Again the Government of India in the Ministry of Finance (Department of Revenue) vide Notification No. GSR 304(E), dated 31-3-1983, published in the Gazette of India, Extraordinary, Part II-Section 3(i) has notified as under : GSR 304(E)In exercise of the powers conferred by Clause (a) of Sub-section (6) of Section 6, and Clause (a) of Sub-section (7) of Section 7, of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), the Central Government hereby, extends the Income-tax Act, 1961 (43 of 1961) to the continental shelf of India and the exclusive economic zone of India with effect from the 1st day of April, 1983, subject to the restriction and modification that the said Act shall apply only in respect of income derived by every person from all or any of the following activities, namely : (a) the prospecting for or extraction or production of mineral oils in the continental shelf of India or the exclusive economic zone of India ; (b) the provision of any services or facilities or supply of any ship, aircraft, machinery or plant (whether by way of sale or hire) in connection with any activities referred to inclause (a) ; (c) the rendering of services as an employee of any person engaged in any of the activities referred to in Clause (a) or Clause (b).
Explanation : For the purpose of this notification, 'mineral oil' includes petroleum and natural gas.
10. The above notification is self-speaking since, according to this notification, the Income-tax Act has been extended to the continental shelf of India and the exclusive economic zone of India, with effect from 1-4-1983. In other words, the Act did not apply to the continental shelf of India and the exclusive economic zone of India prior to that date. This notification has been issued under the enabling provisions of the Central Act, 1976 and vide Section 2 of the said enactment, 'limit', in relation to the territorial waters, the continental shelf, etc., has been defined as under : 2. In this Act, 'limit', in relation to the territorial waters, the continental shelf, the exclusive economic zone or any other maritime zone of India, means the limit of such waters, shelf or zone with reference to the mainland of India as well as the individual or composite group or groups of islands constituting part of the territory of India.
According to Section 3 of the said Act, sovereignty of India stands extended as under : (1) The sovereignty of India extends and has always extended to the territorial waters of India (hereinafter referred to as the territorial waters) and to the seabed and subsoil underlying, and the air space over such waters.
(2) The limit of the territorial waters, is the line every point of which is at a distance of 12 nautical miles from the nearest point of the appropriate base line.
(3) Notwithstanding anything contained in Sub-section (2), the Central Government may, whenever it considers necessary so to do having regard to International Law and State Practice, alter by notification in the Official Gazette, the limit of the territorial waters.
(4) No notification shall be issued under Sub-section (3) unless resolutions approving the issue of such notification are passed by both Houses of Parliament.
11. The above provision of law, read with Section 1 makes it clear, that prior to 1-4-1983, the provision of the Act were not applicable to the continental shelf of India and the exclusive economic zone of India. However, since there is no material with us, to finally adjudicate upon the asscssee as to where the services were rendered as also about the off-shore operational activities of the persons, as of necessity, we restore the subject matter for these two years to the file of the learned ITO, of course, after setting aside the orders of the lower authorities, for deciding the issue afresh in accordance with the law and after giving a reasonable opportunity of being heard to the assessee. He will call for the requisite details from the assessees and decide the issue in tune with Notification No. GSR 340(E), dated 31-3-1983, reproduced as above and in tune with the provisions of the Act, viz., Section 9(1)07), Explanation. Desired implications of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, shall also be taken note of. Appeals of the revenue for these three years shall be taken to have been allowed for statistical purposes.