Hon'ble Judges/Coram:
Ruma Pal and Tarun Chatterjee

JUDGMENT

Ruma Pal, J.

1. The appellant has filed these appeals as the agent of its employees who are the assessees in the present case. The appellant itself is a company which was incorporated in Panama. It entered into a wet lease with the Oil and Natural Gas Commission (ONGC) under which the appellant agreed to supply 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 alternating periods.

2. 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, 1993-94.

3. The Assessing Authority assessed the employees of the appellant including the salary for the field breaks as part of the total income under Section 9(1)(ii) of the Act. The Commissioner of Income Tax dismissed the employees' appeal. The Tribunal however held that the addition of such salary was not justified and the same was deleted. The Department's appeal to the High Court was allowed on the ground that the 'Off period' and 'On periods' formed an integral part of the agreement between the appellant and its employees and that it was not possible to give separate tax treatment to the two periods. It was further held that during the field breaks the employees had to remain fit and had to undergo demonstration and training and all that had a nexus with the services the assessees had to render in India. Construing Section 9(1)(ii), the High Court rejected the submission that the phrase "income earned in India" meant that in all cases where services were rendered outside India, the salary could not be deemed to accrue in India, ipso facto. The High Court held that the training during the period of field breaks was directly connected with the........