1. These appeals filed by different assessees are consolidated as facts and issues are common. For the sake of convenience they are disposed of by a single order. While discussing the facts however the reference would be made to a particular assessee Mr. J. Sillard and the decision as taken in the aforesaid case would be applicable to all the cases, the facts of which are identical with those of Mr. J. Sillard.
2. The assessee is a non-resident individual employed with Sedco Forex International Drilling Inc. (hereinafter called SFID). The latter is a company registered in Liberia. It entered into a contract with Oil & Natural Gas Commission (hereinafter called ONGC) for drilling operations in offshore areas of India within the exclusive economic zone. As per the terms of the agreement with the Sedco Forex International Drilling Inc. the assessee was assigned to work in India in a so-called "Computer basis". The agreement starting from November, 1985, was for two years. As per schedule of work the assessee was required to work 35 days in the foreign location followed by 35 days field break in the country of residence. The salary and other benefits were also specified in the agreement. On the facts the assessee claimed exemption of income from tax leviable under the IT Act and filed a return declaring 'Nil' income. The exemption was claimed on three grounds - (a) Salary so earned is not taxable by virtue of the provisions of s. 10(6)(viii) of the Act; (b) At least the salary earned for the field break period is not taxable in India; and (c) The salary is otherwise exempt under article XIV of the Agreement for Avoidance of Double Taxation (AADT) between India and France. The claim of the assessee was disallowed on all the grounds by the CIT(A). The AO however, did not discuss the third ground in his order. The assessee is aggrieved.
3. Mr. M. A. Dalvi and Mrs. Tara Rao, authorised representative for the assessees, repeated the same arguments as taken before the learned CIT(A) that the assessee is a non-resident who is in receipt of salary in connection with employment of foreign ship. The total stay in India did not exceed 90 days during the year under consideration. For claiming exemption it is not necessary to be a crew which contention stood accepted by the learned CIT(A) after following the decision of the Tribunal Bombay Bench 'B' in the case of Oceanic Contractors Inc.
v. ITO (1990) 36 TTJ (Bom) 640 (ITA No. 4130/Bom/1985). The only point of difference in this regard arose on the meaning of the expression "ship". As the latter is not defined in the Act, reference is to be made to its definition as given in the Dictionary and General Clauses Act. As per the meaning given therein SEDCO 445 is a ship. It has been granted a licence by the Ministry of Surface Transport. If the barges could be treated as ship as per CBDT. Notification dt. 29th January, 1987, for the purposes of investment allowance, the assessee's case is on better footing. In this context reference was also made to the judgment of Bombay High Court wherein in the course of deciding writ petitions filed by various parties, namely, Amar Shipping Management (P) Ltd. and others in which Sedco Forex International Drilling Inc.
was also a party, the expression "ship" has come for interpretation.
4. Relying mainly on the reasoning as given in the order of the CIT(A) it was argued by the learned Departmental Representative that in order for a vessel to be a ship, it is to be used in navigation and should be the one which goes to the sea. The drilling ship is self-propelled and dynamically positioned for the purposes of drilling oil at one place.
The issue has also been clarified by CBDT in the case of ONGC where 'Sagar Samrat' engaged in the drilling of oil has not been considered as a ship but only a machinery to be used by a Mineral Oil concern. In the case of CIT v. Inter Ocean Shipping (P) Ltd. (1994) 51 ITD 582 (Del) similar issue arose for decision and the Tribunal held that such a vessel could at best be treated as a machinery. In support, written submissions were also made. Meeting the objections of the learned Departmental Representative it was argued by the learned authorised representatives that SEDCO 445 is also navigated to the site appointed by Oil & Natural Gas Commission Ltd. In support reliance was placed on the decision of the Tribunal, Bombay Bench 'B' in the case of Oceanic Contractors Inc. v. ITO (supra).
Distinguishing the facts in the case of Inter Ocean Shipping (P) Ltd. (supra) it was argued that in the aforesaid case the issue related to the provisions of art. 9 which deals with income from the operation of ships in international traffic and hence the ratio is not applicable to the case of the assessee.
5. We have carefully considered the rival submissions as made and have also consulted the papers filed in this connection as well the written submissions given from time to time. Before us the controversy has narrowed down to an issue whether the SEDCO 445 is a ship or not. The term 'ship' has not been defined in the IT Act though it occurs at various places in different provisions of the Act. In such a situation it is permissible to refer to the meanings given in Dictionary, General Clauses Act and also other allied Acts if need be. This is to find out the general sense in which the word is used in common parlance.
However, regard is to be had to the context in which the expression is used. Both the parties have made reference to the Random House Dictionary of the English language where 'ship' has been defined as a 'vessel' especially a large ocean-going one propelled by sails or engines. Under the Words and Phrases Legally Defined (Third Edn.) under the general editorship of John B. Saunders of Lincoln's Inn, Barrister (Page 28 to 31 of the paper book), the expression ship reads as under : "The term 'ship' includes vessel and boat, with the tackle, furniture, and apparel of the ship, vessel or boat. (Naval Prize Act 1864, s. 2).
'Ship' shall include any description of boat, vessel, floating battery, or floating craft; also any description of boat, vessel, or other craft or battery, made to move either on the surface of or under water, or sometimes on the surface of and sometimes under water. (Foreign Enlistment Act 1870, s. 30).
'Ship' includes every description of vessel used in sea navigation, whether propelled by oars or otherwise. (Explosives Act 1875, s.
108)".
The reading of the aforesaid definition shows that the vessel has to be used in sea navigation. The expression 'Navigation' in turn as defined in Stroud's Judicial Dictionary of Words and Phrases (Fifth Edn.) by John S. James (P. 24 of the paper book) reads as under : "'Navigation' is the science or art of conducting a ship from one place to another. This includes the supply of necessary implements and skilful mariners. The instruments are useless without the skilful mariners, and conversely, navigation includes two things, the supply of the instruments or organs of the ship, and the living instruments or seamen. If either of these is wanting by the negligence of the owner, or of those for whom he is responsible, there is improper navigation." Under the General Clauses Act on the other hand, the ship includes every description of a vessel used in navigation not exclusively propelled by oars. Reference was made to specifications of SEDCO 445 (P. 33 of the paper book) as well to the written submissions made.
SEDCO 445 is a drilling ship registered in Liberia. It is self-propelled and dynamically positioned. It is so desinged as to dynamically maintain a station (i.e., positioned) for offshore deep water drilling operations. It has berthing facilities for 100 men crew including saloons, gallery, washrooms, storerooms, refrigeration spaces and lockers. The vessel is also equipped with 4-men hospital. Atop of the superstructure is a heliport deck which is designed to accept Sikorsky S61 wheeled helicopter. As submitted, it is navigated to the site appointed by Oil & Natural Gas Commission Ltd. Thus, it has equipment within itself for navigation and squarely fits in with the description as given in the dictionaries as mentioned above. Since its functional purpose is drilling of the oil well it is necessarily to be kept stationary in a place for which it is specifically so designed.
The purpose for which it has been designed does not take away from it the basic characteristic of being a ship and as such it cannot be termed as a drilling unit. For our view we also derive support from the judgment of the Hon'ble Bombay High Court in the case of Amarship Management (P) Ltd. (Writ Petition No. 520 of 1994 & others) where the assessee was also a party. The question before their Lordships was whether the oil rigs are vessels for the purposes of Customs Act, 1962, as defined in s. 2(21) thereof. While deciding the issue their Lordships made a reference to the definition of foreign going vessel or aircraft or any vessel as defined in s. 2(21) of the Customs Act.
Reference was also made to the Merchant Shipping Act. After considering all these definitions it was held that the vessel is of a wide amplitude and it includes sailing vessel or other description of vessel used in navigation. Accordingly, oil rigs were held to be vessels or new ships. If the oil rigs could be considered as vessels, the assessee's case is definitely on the better footing. We further find that SEDCO 445 has also been granted licence by the Government of India in the Ministry of Surface Transport. As regards the argument that the grant of the licence by the Ministry for a specific purpose only, we fail to understand as to how the same advances the argument of the Department for holding that the vessel is not a ship. Licence has been granted to the vessel as a ship and not otherwise. Coming to the argument that Sagar Samrat has not been considered as a ship, the reasons for treating it so have not been specified before us and as such we are unable to offer any comments. In our opinion SEDCO 445 possesses all the characteristics of a ship.
6. Coming to the provisions of s. 10(6) (viii) of the Act, we find that the expression 'ship' is used in a generic sense, comprehending many types of sea-going vessels. The only qualification is that it must be foreign which in turn is territorial and not functional in nature. The latter meaning cannot be attributed to it. This becomes more evident when the various provisions of the Act in this context are examined.
Sec. 44B of the Act makes a reference to 'shipping business' in the case of non-resident and that too in the context of carriage of passengers, livestock, mail or goods shipped at any port in India. On the other hand, in case of s. 44BB of the Act, the reference is made to the business of exploration of mineral oils where the plant has been defined to include ship as well the drilling unit. Thus, under the aforesaid section the expression 'ship' is used in contradistinction to the drilling unit. Under the IT Rules various types of vessels have been classified as ships including dredgers, tugs, barges, survey launches, fishing vessels and other similar ships. Thus, it is clear that the expression 'ship' has been used in a wider sense in s. 10(6) (viii) of the Act. This apart, the plain reading of the provisions of s. 10(6) (viii) of the Act makes it clear that the words used are clear and capable of natural meaning and as such nothing more could be read into the provision so made. On the other hand, in framing the provisions of the aforesaid section the intention of the legislature appears to be to extend incentive to non-residents who visit India for a period of short duration in connection with work which promotes economic growth. The object becomes clear if the provisions of s. 10(6) are scanned. In various clauses exemptions have been provided in case of individual assessees who are not citizens of India. As held by their Lordships of Madras High Court in the case of CIT v. First Leasing Company of India (1995) 216 ITR 445 (Mad) : "Any legislative provision is to be construed in the light of the purpose with which it has been introduced. A provision in the statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it".
Thus, the provisions have to be construed in the background of the purpose for which they have been brought on the statute. In the case of Inter-ocean Shipping (I) (P) Ltd. (supra) the issue before the Tribunal was whether the hire charges of the vessel fell within art. 9 of the Indo-UK DTA as was then in existence, which dealt with shipping or Art.
7 which in turn dealt with business profits. It was found that Art. 9 deals with income from the operation of ships in international traffic.
The latter expression has been defined in art. 3(1) (i) as "transport by a ship or aircraft operated by an enterprise". It was in this context that it was held that the ship would mean 'a ship for passenger or cargo or a traveller vessel'. This decision does not advance the case of the Department.
Thus, in our considered view, SEDCO 445 is a ship and as the assessee satisfies all the conditions laid down in s. 10(6) (viii) of the Act, his salary is not taxable under the aforesaid provisions.
7. It is then contended that salary received outside India for the field break period is not taxable under s. 9(1) (ii) of the Act. As per the arguments advanced such an income cannot be deemed to accrue or arise in India. This is for the reason that the employment on the rig requires the employee's presence throughout the day and he is to be available for the service on the rig round the clock. In view of the nature of the job the employee is given a break for 35 days after having completed work for 35 days. While on break he may be called back to the home office for training programme or seminar course, etc. It may of course happen that he may not return to India. Without going into the elaborate discussion it was submitted that the issue has since been decided by the Tribunal, Delhi Bench, in ITA No. 4465/Del/1987, dt. 30th March, 1988. A copy of the aforesaid decision was also enclosed. The learned Departmental Representative on the other hand, relied on the orders of the Revenue authorities.
8. We have considered the rival submissions as made before us. We find that in a number of decisions taken by the various Benches of the Tribunal, the issue has been decided in favour of the assessee. In addition to the cited decision, there are other decisions of the Tribunal, Delhi Bench 'B', in the case of Sedco Forex International Inc. as agent of various assessees. These decisions are rendered in ITA Nos. 5289, 5290, 5292, 5295, 5309, 5320, 5324 to 5327/Del/1991.
Considering that the issue is squarely covered by the decisions of the Tribunal as cited, we would hold that the salary for the break period received outside the country is not assessable to tax in India.
9. Finally it is contended that the salary received by the assessee is otherwise exempt under art. XIV of the Agreement for Avoidance of Double Taxation (AADT) between India and France. According to the learned authorised representative the AADT overrides the IT Act which is also set out in Circular No. 333, dt. 2nd April, 1982, issued by the CBDT and as held by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust (1983) 144 ITR 146 (AP). The assessee satisfies all the conditions laid down in art. XIV of the AADT between India and France and as such the assessee's salary is not taxable in India. There is no dispute in regard to the assessee's presence in India being less than 183 days in the previous years and the remuneration having been made by SFIDI which is not a resident of India. The short dispute relates to the third condition which refers to the deduction of the salary in the computation of the profits of the company. The assessability of Sedco Forex International Inc. under s.
44BB of the Act does not advance the case of the Department. SFIDI has no permanent establishment in India as defined under art. II of AADT.Thus, the salaries paid are not allowed as a deduction in the computation of the profits of the company. For the proposition that the fiction cannot be imposed on a fiction, reliance was placed on decisions of the Supreme Court in the case of Tirunelveli Motor Bus Service Co. Ltd. v. CIT (1970) 78 ITR 55 (SC) and of the Allahabad High Court in the case of Karamat Khan v. CIT (1965) 58 ITR 642 (All). In reply to the arguments the learned Departmental Representative submitted that the benefits under para 2 of art. XIV of the said AADT are available in India to the resident of France only. Reference made to cl. 8 of para 1 of art. II of the Agreement would show that the term "resident of France" means any person who is resident in France for the purposes of French tax and not resident in India for the purposes of Indian tax. No evidence in this regard has been furnished by the assessee. The material placed is only in regard to the citizenship and residence in a general manner. This apart, the term "permanent establishment" as defined in Article II of the AADT between India and France refers to the enterprise which is registered in France. In the instant case the employer is a company which is registered in Liberia.
Thus the employer is not a resident of France. Without prejudice to the submissions as made it was contended that since the income of the employer has been determined under s. 44BB of the Act, cl. (c) of para 2 of art. XIV of the said AADT is not satisfied.
10. We have carefully considered the rival submissions. We have also gone through the Agreement for Avoidance of Double Taxation (AADT) between India and France. At the outset we would like to mention that there is no dispute in regard to the proposition that the AADT's provisions override those of the IT Act as clarified in Board's Circular No. 333. The position as clarified in the Board's Circular is as under : "359. Agreement for avoidance of double taxation with Pakistan.
Whether operative for asst. yr. 1972-73 and subsequent assessment years.
1. The question whether the agreement for the avoidance of double taxation of income between India and Pakistan (notified under Notification No. 28, dt. 10th December, 1947 (printed here as Annexure) continues to be operative after the outbreak of the Indo-Pakistan armed conflict of December 1971 has been examined and it has been decided that it is no longer operative for the asst. yr.
1972-73 and the subsequent assessment years in relation to Pakistan as well as to Bangladesh. For these assessment years, a person "resident" in India and liable to tax under the tax laws of India as well as Pakistan or Bangladesh will be entitled to relief from double taxation in India only in accordance with the provisions of s. 91".
The aforesaid proposition has also been upheld by the Andhra Pradesh High Court in the case of Visakhapatnam Port Trust (supra). The issue in question is whether the provisions of AADT are applicable in the case of the assessee or not. The provisions of art. XIV of the Agreement for Avoidance of Double Taxation between India and France reads as under : "(1) Subject to the provisions of art. XII, salaries, wages, or other similar remuneration for services as an employee performed in one of the Contracting States by an individual who is a resident of the other Contracting State may be taxed only in the Contracting State in which such services are rendered.
(2) Notwithstanding the provisions of paragraph (1) of this article, salaries, wages, or other similar remuneration paid to an individual who is a resident of one of the Contracting States for services performed in the other Contracting State shall not be subjected to tax in the other Contracting State and may be subjected to tax in the former Contracting State, if - (a) he is present in that other Contracting State for a period or periods not exceeding in the aggregate 183 days in the taxable year concerned, and (b) the remuneration is paid by or on behalf of an employer who is not a resident of that other Contracting State, and (c) the remuneration is not deducted in computing the profits of a permanent establishment chargeable to tax in that other Contracting State.
(3) Notwithstanding the provisions of paragraphs (1) and (2) of this article remuneration for personal services performed abroad a ship or aircraft operated by an enterprise of one of the Contracting States in international traffic shall be taxed only in that Contracting State".
The expression used in the aforesaid provisions namely "one of the Contracting States", "the other Contracting State", "tax", "resident of India", "resident of France", and "permanent establishment" as defined in art. II of the AADT are as under : (c) the terms "one of the Contracting States" and "the other Contracting State" mean India or France, as the context requires; (f) the term "tax means Indian tax or French tax as the context requires; (g) the terms "resident of India" and "resident of France mean respectively any person who is resident in India for the purposes of Indian tax and not resident in France for the purposes of French tax, and any person who is resident in France for the purposes of French tax, and not resident in India for the purposes of Indian tax. A company shall be regarded as resident in India if it is incorporated in India or its business is wholly managed and controlled in India. A company shall be regarded as resident in France if it is incorporated in France or its business is wholly managed and controlled in France; (i) the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on.
(aa) the term "fixed place of business" shall include a place of management, a branch, an office, a factory, a workshop, a warehouse a mine, a quarry or other place of extraction of natural resources; (bb) an enterprise of one of the Contracting States shall be deemed to have a fixed place of business in the other Contracting State if it carries on in that other Contracting State a construction, installation or assembly project or the like; (cc) the use of mere storage facilities or the maintenance of a place of business exclusively for the purchase of goods or merchandise in the country of purchase, shall not constitute a permanent establishment; (dd) a person acting in one of the Contracting States for or on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment of that enterprise in the first-mentioned Contracting State, if - (1) he has and habitually exercises in the first-mentioned Contracting State, a general authority to negotiate and enter into contracts for or on behalf of the enterprise, unless the activities of the person are limited exclusively to purchase of goods or merchandise for or on behalf of the enterprise, or (2) he habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to the enterprise from which the person regularly fulfils orders for or on behalf of the enterprise, or (3) he habitually secures orders in the first mentioned Contracting State exclusively or almost exclusively, for the enterprise itself or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it. A person from one of the Contracting States who is present in the other Contracting State for not more than three months in the taxable year for the purpose of securing orders shall not be deemed to be habitually securing orders within the meaning of this sub-paragraph"; Agreement with the foreign country is entered into with the purpose of avoiding double tax of income under the IT Act and under the corresponding law in force in that country. It is in this background that as per cl. (1) (f) of art. II of AADT with France, resident of France has been defined as resident for purposes of French tax. Before us it was not shown that the assessees are subject to French tax. On the other hand, the conditions laid down in art. XIV of the DTAA are cumulative and all have to be satisfied. In case of all the non-residents their presence in India was less than 183 days during the year under consideration, hence first condition is satisfied. Then as the employer on whose behalf or by whom salaries were paid is not resident of India, second condition is also satisfied. Dispute is in regard to the third condition. While as per the Department, since the profits have been taxed under s. 44BB of the Act by applying a net profit rate of 10 per cent on the aggregate of the amounts so specified in sub-s. (2) of the section, the remunerations stood indirectly deducted and as such the condition is not satisfied. According to the learned authorised representative, the same was not attracted, as the employer was not resident of either State and had no permanent establishment in India. In this context we find that the permanent establishment referred to in art. III of the AADT with France is in regard to the industrial and commercial profits of an enterprise of one of the contracting states. Thus, the aforesaid article is not applicable in the case of the assessee. This brings us to art. II of the aforesaid agreement wherein the expression "permanent establishment" has been defined as stated above. For the purposes of finding out if SFIDI had permanent establishment in India, the reference has to be made to the agreement entered into between SFIDI and ONGC. This is to find out whether the foreign enterprise was carrying on the business on offshore drilling operation or was merely supplying personnel for operation on the vessel. In absence of the contract and any reference made to the aforesaid document before us, the issue whether it had permanent establishment covered in any one of the articles as referred to cannot be decided. We would however like to mention that normally the profits of any business would be receipts minus expenses the latter including salaries in its fold. This however, would not mean that for this condition one has to look to the provisions of the IT Act as is the stand of the Revenue. In the circumstances, the stand of the assessee is not accepted for want of establishing that the third condition is not applicable. In the end we would hold that while the assessee's claim for exemption of remunerations from Income-tax under s. 10(6) (viii) of the Act as well that of field break period is allowed, that in regard to the applicability of provisions of AADT is rejected.