Holding

Salary paid for field‑break periods outside India is not taxable as income earned in India under Section 9(1)(ii) because the 1983 Explanation does not cover such salary and the 1999 Explanation is prospective and does not apply to the assessment years in question.

Summary

Sedco Forex International Drill Inc., a Panama‑incorporated company, supplied oil rigs and UK‑resident employees to ONGC under a wet‑lease arrangement. The employment contracts required alternating periods of work in India (≈35 days) and “field breaks” in the UK, during which employees received their full salary for training, readiness and rest. The Assessing Authority included the field‑break salary in the employees’ total income under Section 9(1)(ii) of the Income‑Tax Act, 1961; the Tribunal deleted it, the High Court reinstated it, and the matter reached the Supreme Court. The Court held that the salary paid for field breaks was not “income earned in India” because the 1983 Explanation to Section 9(1)(ii) limits “earned in India” to salary for services rendered in India, and the 1999 Explanation, which added “rest periods”, was prospective and could not be applied to assessment years 1992‑93 and 1993‑94. Consequently, the field‑break salary is not taxable. The Supreme Court set aside the High Court’s decision and allowed the appeals.

Issues considered

Whether salary paid to employees for field‑break periods outside India is ‘income earned in India’ within the meaning of Section 9(1)(ii) of the Income‑Tax Act, 1961.
Whether the 1999 Explanation to Section 9(1)(ii) operates retrospectively and can be applied to assessment years prior to its commencement on 1 April 2000.
Whether the CBDT circular interpreting the 1999 Explanation is binding on the assessing authority.

Legislation cited

Income Tax Act, 1961s. 119, s. 4, s. 5(1), s. 5(2), s. 9(1)(ii)

Subjects

Income TaxSection 9(1)(ii)Salary TaxabilityField BreakForeign EmployeeExplanation (1983, 1999)Retrospective EffectStatutory InterpretationCBDT CircularWorks Contract

Judgment

A SEDCO FOREX INTERNATIONAL DRILL. INC. AND ORS.
v.
COMMISSIONER OF INCOME TAX, DEHRADUN AND ANR.

NOVEMBER 17, 2005

B [RUMA PAL AND TARUN CHATTERJEE, JJ.]

Income Tax Act, 1961; Ss. 4, 5(1) and (2) and 9(J)(ii); Explanation to
Section 9(/){ii) introduced by the 1983 and 1999 Amendment Acts:

C Works Contract between assessee-foreign company and an Indian
company-Agreement between the assessee and its employees in a foreign
country providing for 35128 days field break outside India-Income tax
liability on salary to employees paid for field breaks-Held: Jn terms of
Section 9(/){ii) of the Act the salary for the off period/field breaks can not
D be termed as income earned/paid out of the income in lieu of the contract-
Salary paid to employees during field breaks was not for service rendered
in India-Salary payable for a well earned rest is distinct from the liability/
payment of salary for field breaks-Salary for field break does not fall within
the extended meaning given to the phrase "earned in India" in terms of the
main provision-Further fiction by extending the meaning of the term so as
E to include salary for the field breaks into it can not be created-Hence,
salary paid for the field breaks outside India cannot be included in the
income earned by the employee for levying income tax-Interpretation of
Statutes.

1999 Amendment in the Income Tax Act-Explanation to Section
F 9(/){ii)-App/icability of-Held: Since 1999 Explanation as amended by
1999 Amendment made effective from 1.4.2000 it could not be given effect
retrospectively to the earlier assessment years-Interpretation of Statutes.

Words and Phrases:
G 'Income earned'-Meaning of in the context of Income Tax Act.

The question which arose for consideration in these appeals was as to
whether the salary payable to the employees of the appellant, a foreign
company for field breaks outside India would be subjected to income tax under

H 302
SEDCO FOREX INTERNATIONAL DRILL INC. ''· COMMR. OF INCOME TAX, DEHRADUN 3oi

Section 9(1 )(ii) of the Income Tax Act read with the Explanation appended A
thereto.
It was contended by the appellant-foreign company that in 1999 the
scope of Section 9(1)(ii) of the Act was amended to include salary for 'Off
periods' outside India for the first time with effect from 1st April, 2000;
that the scope of Section 9(1)(ii) of the Act after its amendment 1999 in B
had been given effect to prospectively by issuing a circular by the Central
Board of Direct Taxes (CBDT) and this was binding on the Department;
that in any event the provisions of the section must be construed iq
accordance with international understanding and norms; and that during
the field breaks, its employees were kept on standby in the UK for serving C
anywhere in the world and not necessarily to serve in India.

Respondents submitted that the employees of the appellant-foreign
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 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; D
that there was a reasonable nexus between salary earned for the 'Off
periods' and the services rendered in India; and that the amendment to
the Explanation to Section 9(1) (ii) as brought about by the Finance Act
1999 was retrospective in effect since it was clarificatory.

Allowing the appeals, the Court E
HELD: 1. In the instant case, the High Court proceeded on the
incorrect hypothesis that the field breaks were limited to the training of
the employees to render them more fit for service in India. That was noti
what the agreements between the appellant and its employees said and F
there was no ground for the High Court to have assumed that it was. The
High 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.
[309-F-G[

2.1. It is the receipt or accrual in India, whether deemed or actual, G
which determines the taxability under the Act. Section 9 of the Act defines
income "deemed to accrue or arise in India". By Clause (ii) of sub-section
(1) of Section 9 "income which falls under the head 'Salaries' if it is earned
in India" is included in such income. 1309-A, BJ

2.2. In view of Explanation to Section 9(1 )(ii) of the Act, irrespective H
304 SUPREME COURT REPORTS [2005] SUPP. 5 S.C.R.

A of where the contract was entered into or where the liability to pay arose
or where the payment was actually received, if the service was rendered
in India, the salary for such service was exigible to tax as income under
the Act. [309-E)

Commissioner of Income-Tax v. S.G. Pgnatale, (1980) 124 ITR 391
B (Guj.), referred to.
2.3. The employees in the instant case had not in fact 'served' in India
during the field break but they earned the income in UK as UK residents
-the consideration for the salary being the unaergoing of training or
C 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
D 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 UK
employees for the field break was not 'earned in India'. Since it did not
fall within the phrase. The phrase is part of the statu_tory fiction created
by Section 9(1). There is no question of introducing a further fiction by
extending the Explanation to include whatever has a possible nexus with
E service in India. Therefore the salary paid for the field breaks in the UK
was not for "service rendered in India" within the meaning of 1983
Explanation to Section 9(l)(ii) of the Act. [309-G, H; 310-A, B, CJ

Commissioner of Income Tax v. Moon Mills Ltd: AIR (1966) SC 870,
873 and M.P. Ahmedv. Kuthiravattam Estate Receiver: AIR (1997) SC 208,
F
214, referred to.

2.4. The High Court did not refer to the 1999 Explanation in
upholding the inclusion of salary for the field break periods in the
assessable income of the employees of the appellant. However the
G respondents have urged the point before this Court. The 1999 Explanation
could not apply to assessment years for the simple reason that it had not
come into effect then. [310-C, DI

Commissioner of Income-Tax v. S.G. Pgnatale, (1980) 124 ITR 391
(Guj.) and Commissioner of Income Tax v. Goslino Mario (2000) 241 ITR
H 314 (Gauhati), referred to.
SEDCO FOREX INTERNATIONAL DRILL. INC."· COMMR. OF INCOME TAX. DEHRADUN 3Q5

3.1. In the light of the legislative history of Section 9(l)(ii), it can A
only assume that it was deliberately introduced with effect from 1.4.2000
and therefore intended to apply prospectively. It was also understood as
such by the CBDT which issued Circular No. 779 dated 14th September,
1999 containing explanatory notes on the provisions of the Finance Act,
1999 in so far as it related to direct taxes. (311-G)
B
Commissioner of Income tax v. S.R. Patton, (1992) 193 ITR 49,
Commissioner of Income tax v. S.R. Patton, (1998] 8 SCC 608 and
Commissioner of Income Tax v. Patel Brothers & Co. Ltd, (1995) 215 ITR
165 = (1995) 4 sec 485, 494, relied on.

3.2. The Departmental understanding of the effect of the 1999
c
amendment even if it were assumed not to bind the respondents under
Section 119 of the Act, nevertheless affords a reasonable construction of
it, and there is no reason why it should not be adopted. (312-CJ

Commissioner of Income Tax v. Goslino Mario, (2000) 241 ITR 312, D
314 and Reliance Jute and Industries v. CIT, (1980) l SCC 139, relied on.

3.3. An Explanation to a statutory provision may fulfil the purpose
of clearing up an ambiguity in the main provision or an Explanation can
add to and widen the scope of the main section. If it is in its nature
clarificatory then the Explanation must be read into the main provision E
with effect from the time that the main provision came into force. But if
it changes the law it is not presumed to be retrospective irrespective of
the fact that the phrase used are 'it is declared' or 'for the removal of
doubts'. (312-D, EJ _ "

Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das F
Laxman Das v. CIT, (1997) 1SCC352, 354; C/Tv. Podar Cement, [1997) 5
SCC 482, 506 and Sonia Bhatia v. State of UP., AIR (1981) SC 1274, 1282
para 24 (1981) 2 sec 585, 598, relied on.

3.4. There was and is no ambiguity in the main provision of Section G
9(1 )(ii). It includes salaries in the total income ofan assessee if the assessee
has earned it in India. The word "earned" had been judicially defined
correctly in the case of S. G. Pgnatale by the High Court of Gujarat to mean
as 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 H
306 SUPREME COURT REPORTS [2005] SUPP. 5 S.C.R.

A for service rendered in India". (312-F, G)
Commissioner of Income-Tax v. S.G. Pgnatale, (1980) 124 ITR 391
(Guj.), referred to. ·

3.5. When the Explanation seeks to give an artificial meaning 'earned
B 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
C present case, it is doubtful whether in the facts of this case the activity of
the employees in UK 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 since the 1999 Explanation
would not apply to the assessment years in question. (313-A, B, CJ ..
.'

D CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 351-355 of
2005.

From the Judgment and Order dated 9.10.2003 of the Uttaranchal High
Court at Nainital in T.A. Nos. 57, 63 and 64 of 2002.

E WITH

C.A. Nos. 375-426, 428-447, 462, 465-472, 474-476, 478, 480-481,
483-484, 545, 502-511, 513-521, 526-530, 534-544, 546 of 2005.

H.N Salve, Porus F. Kaka, Rustom B. Hathikhanawala, Ajay Vohra,
F Bhargava V. Desai, V. Yaish, Ms. Kavita Jha, Sanjev Kr. Singh, Pradeep Kr.
Malik and Ms. Sheenam Parwanda for the Appellants.

Mohan Prasaran, Additional Solicitor General, Harish Chandra, Nitesh
Rana, Ankur Modi, Azif Ali Khan and B.V. Balararn Das for the Respondents.

G The Judgment of the Cou1t was delivered by

·RUMA PAL, J. 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
H with the Oil and Natural Gas Commission (ONGC) under which the appeliant
agreed to supply oil rigs and the employees to man the rigs to enable ONGC
SEDCO FOREX INTERNATIONAL DRILL. INC t'. COMMR. OF INCOME TAX. DEHRADUN [RUMA PAL, l.] 307

to carry on offshore drilling within the territorial waters of this country. The A
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 B
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 C
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 employeer of the appellant payable
for field breaks outside India would be subjected to tax under Section 9(l)(ii) D
read with the Explanation thereto in the Incom.e Tax Act 1961 (hereinafter
referred to as 'the Act') for the Assessment years 1992-93, 1993-94.

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 (l)(ii) of the Act. The Commissioner of Income Tax dismissed the E
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' fonned an integral part of the agreement between the appellant and
its employees and that it was not possible to give separate tax treatment to p
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( I )(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 G
Court held that th.e training during the period of field breaks was directly
connected with the works on the rigs in India, and as such the salary for the
'Off period' was income "earned" in India within the meaning of the phrase
in Section 9(1) (ii) of the Act. The third ground for reversing the view taken
by the Tribunal was that the assessment records showed that the employer H
308 SUPREME COURT REPORTS [2005] SUPP. 5 S.C.R.

A company had paid the salary of the employees including salary for the 'Off
period' out of the income of the Indian operations.

Assailing the decision of the High Court, the employees, through the
appellant, have submitted that the High Court had not taken into account the
statutory change effected to Section 9(1 )(ii). It was submitted that in 1999 the
B scope of the section was amended to include salary for 'Off periods' outside
India for the first time with effect from I st April, 2000. It was submitted that
the impugned decision in fact purported to give retrospective effect to the
provisions introduced in 1999 to cover the assessment years in question. It
was submitted that the scope of Section 9(l)(ii) after its amendment in 1999
C had been clarified by a circular issued by the Central Board of Direct Taxes
(CBDT) as being prospective and this was binding on the Department. It was
contended that in any event the provisions of the section must be construed
in accordance with international understanding and norms. According to the
appellant during the field breaks, its employees were kept on standby in the
UK for serving anywhere in the world which was not necessarily in India.
D
Appearing on beh~lf 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
E 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
F 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 CBDT Circular is
concerned, it was said that it was not binding on the respondents.

In our view, the opinion of the High Court is contrary to the legislative
G history, context and construction of Section 9(l)(ii). Under S.ection 4(1) of
the Act the total income of the previous year of every person is subject to
income tax. Section 5(2) defines the scope of total income as far as non
residents are concerned, "as all income from whatever source derived which

(a) is received or deemed to be received in India by or on behalf of
H such person or
SEOCO FOREX INTERNATiONAL DRILL. INC. '" COMMR. OF INCOME TAX, DEHRADUN [RUMA PAL. J.] 309
(b) accrues or arises or is deemed to accrue or arise to him in India A
in such year".

In other words it is the receipt or accrual in India, whether deemed or
actual, which detennines the taxability under the Act. Section 9 of the Act
defines income "deemed to accrue or arise in India". By Clause (ii) of sub-
section (1) of Section 9 "income which falls under the head 'Salaries' if it J;3
is earned in India" is included in such income. In 1980 the Gujarat High
Court in Commissioner of lncome_-Tax v. S.G. Pgnatale, (1980) 124 ITR 391
held that the words 'earned in India" occurring in Clause (ii) must be
interpreted as "arising or accruing in India" and not "from service rendered
in India". Therefore as long as the liability to pay the amount under the head
"salaries" arose in India, Clause (ii) could be invoked. But if the liability to C
pay arose out of India and the amount was payable outside India, Clause (ii),
as it stood then, could not be invoked.

To overcome this decision, Section 9 (I) (ii) was amended by the
Finance Act, 1983 with effect from 1.4.1979 to include an Explanation to D
Section 9(l)(ii) which read as follows:-

"Explanation-For the removal of doubts, it)s 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."

Therefore with this Explanation, irrespective of where the contract was
E
entered into or where the liability to pay arose or where the payment was
actually received, if the service was rendered in India, the salary for such
service was exigible to tax as income under the Act.

The High Court proceeded on the incorrect hypothesis that the field p
breaks were limited to the training of the employees to render them more fit
for service in India. That was not what the agreements between the appellant
and its employees said and there was no ground for the High Court to have
assumed that it was. The High 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 G
during the field break period but they earned the income in UK as UK
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 H
310 SUPREME COURT REPORTS (2005] SUPP. 5 S.C.R.
,
A 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 UK employees for the field
B 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 to
include whatever has a possible nexus with service in India'. Therefore the
salary paid for the field breaks in the UK was not for "service rendered in
India" within the meaning of 1983 Explanation to Section 9(1 )(ii) of the Act.
c The High Court did not refer to the 1999 Explanation in upholding the
inclusion of salary for the field break periods in the assessable income of the
employees of the appellant. However the respondents have urged the point
before us.

D In our view the 1999 Explanation could not apply to assessment years
for the simple reason that it had not come into effect then. Prior to introducing
the 1999 Explanation, the decision in CIT v. S.G. Pgnatale, (supra) was
followed in 1989 by a Division Bench of the Gauhati High Court in
Commissioner of Income Tax v. Goslino Mario, reported in (2000) 241 lTR
314. It found that the 1983 Explanation had been given effect from 1.4.1979
E whereas the year in question in ·that case was 1976-77 and said.:
-,

" ..it is settled law that assessment has to be made with reference to
the law which is in existence at the relevant time. The mere fact that
the assessments in question has(sic) somehow remained pending on
April l, 1979, cannot be cogent reason to make the Explanation
F applicable to the cases of the present assessees. This fo1tuitous
circumstance cannot take away the vested rights of the assessees at
hand".

The reasoning of the Gauhati High Court was expressly affirmed by
G this Court in Commissioner of Income Tax v. Goslino Mario, (2000) 241 ITR
312 at 314. These decisions are thus authorities for the proposition that the
1983 Explanation expressly introduced with effect_ from a particular date
would not effect earlier assessment years.

1. CIT v. Moon Mills Ltd., AIR (1966) SC 870. 873; M.P. Ahmed v. Kuthiravattam Estate
H Receiver, AIR(1997) SC 208, 214.
SEDCO FOREX INTERNATIONAL DRILLINC. "· COM~IR OF INCOME TAX, DEHRADUN [RUMA PAL, J.] 3 11

In this state of the law, on 27th February, 1999 the Finance Bill, 1999 A
substituted the Explanation to Section 9 (l) (ii) (or what has been referred to
by us as the 1999 Explanation). Section 5 of the Bill expressly stated that
with effect from /st April, 2000, the substituted Explanation would read:

"'Explanation-For the removal of doubts, it is hereby declared that
the income of the nature referred to in this clause payable for- B
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded
by services rendered in India and forms part of the service contract
of employment, shall be regarded as income earned in India." C
The Finance Act 1999 which followed· the 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 Commissioner of Income fax v. S.R. Patton, (1992) 193 ITR
49, while following the Gujarat High Court's decision in S.G. Pgnatale, D
(supra), to hold that tni'Exphihati~n was riot cfeaaratory but widened the
scope of Section 9( l )(ii). if' was further held that even if it were assumed to
be clarificatory or that it removed whatever ambiguity there was in Section
9( I )(ii) of the Act, it did not operate in respect of periods which were prior
to 1.4.1979. It was held that since the Explanation came into force from E
1.4.1979, 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 F
foreign company. This Court dismissed the appeal holding it was a question
of fact. Commissioner of Income tax v. S.R. Patton, [1998] 8 SCC 608.

Given this legislative history of Section 9(l)(ii), we can only assume
that it was deliberately introduced with effect from 1.4.2000 and therefore G
intended to apply prospectively2. It was also understood as su~h by the CBDT

- which issued Circular No. 779 dated 14th September, 1999 containing
explanatory notes on the provisions of the Finance Act, 1999 in so far as it
related to direct taxes. It said in paragraphs 5.2 and 5.3.
2. See Commissioner ofIncome Taxv. Patel Bothers and Co. Ltd., (1995) 215 ITR 165 (19951
4 sec 485,494 (para 18). H
312 SUPREME COURT REPORTS [2005) SUPP. 5 S.C.R.

A 5.2 The Act has expanded the existing Explanation which states that
salary paid for services rendered in India shall be regarded as income
earned in India, so as to specifically provide that any salary payable
for rest period or leave period which is both preceded and succeeded
by service in India and forms part of the service contract of
employment will also be regarded as income earned in India.
B
5.3 This amendment will take effect from 1st April, 2000, and will
accordingly, apply in relation to the assessment year 2000-2001 and
subsequent years".

The Departmental understanding of the effect of the 1999 amendment
C even if it were assumed not to bind the respondents under Section 119 of the
1
Act, nevertheless affords a reasonable construction of it, and there is no \

reason why we should not adopt it.

As was affirmed by this Court in Goslino Mario, (supra), a cardinal
D principle of the tax law is ,~hat the law to be applied is that which is in force
in the relevant assessment year:. ~le~s oth~~is_e pr9v,i~ed expressly or by
necessary implication. [See also: Reliance Jute and Industries v. CIT, [1980]
1 SCC 139]. An Explanation to a statutory provisio9 may fulfil the purpose
of clearing up an ambiguity in the main provision or an Explanation can add
to and widen the scope of the main section3• If it is in its nature clarificatory
E then the Explanation must be read into the main provision with effect from
the time that the main provision came into force 4 • But if it changes the law _,. .
it is not presumed to be retrospective irrespective of the fact that the phrase
used are 'it is declared' or 'for the removal of doubts'. '

There was and is no ambiguity in the main provision of Section 9(l)(ii).
F It includes salaries in the total income of an assessee if the assessee has
earned it in India. The word "earned" had been judicially defined in S. G.
Pgnatale (supra) by the High Court of Gujarat, in our view, correctly, to ·
mean as 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
G judicial definition so as to include with effect from 1979, "income payable
for service rendered in India".

3. See Sonia Bhatia v. State of U.P .. AIR (1981) SC 1274, 1282 para 24 (1981] 2 SCC SSS,
598.

4. See Shyam S11nderv. Ram Kumar, (2001] 8 SCC para44; Brij Mohan Das Laxman Das v.
H CIT, [1997) I sec 352, 354 and CJTv. Podar Cement, [1997] 5 sec
482, 506.
SEDCO FOREX INTERNATIONAL DRILL. INC. 1·. COMMR OF INCOME TAX, DEHRADUN [RUMA PAL, J.] 3 13
When the Explanation seeks to give an artificial meaning 'earned in A
' 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( I)(ii) B
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 UK 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 C
years in question.

For the reasons aforesaid, the decision of the High Court is set aside
and the appeals are allowed. There will be no order as to costs.
'
S.K.S. Appeals allowed. D