B.L. Hansaria, J.
1. The following questions of law have been referred to this court under the provisions of Section 256 of the Income-tax Act, 1961, for its opinion :
'1. Whether, on the facts and in the circumstances of the case, the entire amount of salaries and allowances paid by the Fertilizer Corporation of India Ltd. to Montecatini Edison (now Technimont) of Italy for services rendered by the assessee-foreign technician deputed to the FCI Ltd. by the Italian concern in terms of the agreement between the FCI Ltd. and the Italian concern was assessable in the hands of the foreign technician in terms of Section 15, read with Sections 5 and 9(1)(ii) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the assessee was assessable to tax in India as per the certificate of salary issued by the Italian concern ?
3. Whether, on the facts and, in the circumstances of the case, the Tribunal was justified in law in holding that the entire amount of Italian lire paid by the FCI Ltd. to the Italian concern in Italy towards salary and allowances of the assessee-technician in terms of the agreement between the FCI Ltd. and the Italian concern was salary earned in India within the meaning of Section 9(1)(ii) (as it stood before amendment) of the Income-tax Act, 1961, and as such assessable under the Income-tax Act, 1961 ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Explanation added to Section
9(1)(ii) of the Income-tax Act, 1961, by the Finance Act, 1983, with retrospective effect from April 1, 1979, was only procedural in nature and as such applicable to the assessee's case ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the rupee payment taken in India in the shape of daily allowance was not exempt from tax under Section 10(14) of the Income-tax Act, 1961 ?
6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the rent-free furnished accommodation provided by the FCI Ltd. to the assessee-technician was a perquisite within the meaning of Section 17(2) of the Income-tax Act, 1961 ?'
2. Of the aforesaid questions, the first question has been referred at the suggestion of the Commissioner of Income-tax and the rest on the prayer of the assessees. The broad facts leading to the reference are these. The assessees are technicians who came to India to work with the Fertilizer Corporation of India Ltd. (FCI) at Namrup, Assam. The services of the assessee-technicians were obtained by the FCI under an agreement with an Italian concern Montecatini Edison (subsequently called Technimont) which deputed them to work with the FCI. Under the agreement, the salaries of the assessees were to be paid by the FCI in Italian lire to the said Italian concern but the daily allowances were to be paid directly to the assessees in Indian rupees. Apart from the aforesaid remuneration to be made available to the assessees they were also provided these facilities : (1) Free of charge furnished residential accommodation at the site ; (2) furnished office accommodation free of charge at the site ; (3) free of cost transport facilities for official work ; and (4) free medical aid for the personnel and their families to the extent available at FCI medical centre at site.
3. According to the assessees all of them were employees of Technimont and not of the FCI and as such their income was not taxable in India. For this purpose, they also claimed that the salary certificate issued by their employer, the foreign company, should form the basis for the purpose of assessment and that the salary statements issued by the FCI should not be taken into consideration.
4. The claim of the assessees that the salary and allowances were not taxable in India was not accepted by the Income-tax Officer who completed the assessment under Section 143(3) of the Income-tax Act, 1961, hereinafter referred to as the Act. The matter was carried in appeal before the Commissioner of Income-tax (Appeals). The appellate authority took into consideration the various decisions of the Income-tax Appellate Tribunal and the points raised in the appeal and held that the assessees should be treated as employees of the foreign company, and that their assessable salary income and daily allowances should be taken on the basis of the
certificates issued by the foreign company. The appellate authority accordingly directed the Income-tax Officer to recompute the income of the asses-sees on that basis. The Commissioner of Income-tax (Appeals) further held that the assessees are not entitled to exemption under Section 10(14) in respect of daily allowances and rent-free quarters provided to the assessees. The latter was taken to be a perquisite as defined under Section 17(2)(i).
5. The Revenue preferred an appeal before the Income-tax Appellate Tribunal. Cross-objections were also filed by the assessees. The Tribunal also held that the assessees were employees of the foreign company and not of the FCI and therefore the salary certificate issued by the foreign company was taken into consideration for income-tax purposes. The daily allowance paid to the assessees was held to be not exemptable under Section 10(14) of the Act and the value of the rent-free furnished accommodation was also held to be liable to tax. On the question of salary, the Tribunal took the view that the same had been earned in India and as such was taxable under the provisions of Section 9(1)(ii) read with the Explanation inserted in the Act by the Finance Act, 1983.
6. Let us first deal with the question whether the payment towards salary made to the foreign company Technimont was an income deemed to accrue or arise in India. The answer to the question depends on, in view of the provisions in Section 9(1)(ii) of the Act, whether the salary was earned in India. The implication of the Explanation added to the Section by the Finance Act, 1983, shall be discussed after the main question has been answered.
7. So far as the first of the aforesaid questions is concerned, Shri Joshi has placed strong reliance on CIT v. S.G. Pgnatale, : [1980]124ITR391(Guj) which is a decision of a Division Bench of the Gujarat High Court. Reference to this case was made before the learned Tribunal also. The Gujarat High Court, after referring to the decision of the Supreme Court in E.D. Sassoon and Co. Ltd. v. CIT, : [1954]26ITR27(SC) pointed out that the word 'earned' has two meanings. One meaning is the narrower meaning in the sense of rendering of services, etc., and another wider meaning in the sense of equating it with 'accrued' and treating only that income as earned by the assessee by which he created a debt in his favour. It was pointed out that unless there is a debt in favour of the assessee by reason of his rendering services, it cannot be said to be 'income earned' by the assessee. Reference was also made to the definition of the word 'earned' finding place in Corpus Juris Secundum, volume 28, page 69. It was then stated that the wider meaning would indicate (page 400) ; 'something which is due, owing and entitlement to the sum of money consideration for which services had been rendered by an assessee.' In this connection reference was also made to Section 9(1)(ii) of the Act wherein salary payable by the Government to a citizen of India for service outside India
was also deemed to be an income accruing or arising in India. The absence of the words 'service rendered in India' in Section 9(1)(ii) was held to indicate that the Legislature wanted to give a wider meaning to the word 'earned'. As in the Gujarat case no debt was created in favour of the asses-sees and as the wider meaning of the word 'earned' requires creation of such a debt it was held that the sum payable directly to the foreign company could not be a part of salary taxable under the provisions of the Act. This conclusion was arrived at by stating that the meaning of the expression 'earned in India' occurring in Clause (ii) must be interpreted as 'arising or accruing in India' and not from 'services rendered in India'. The court also stated that in CIT v. Ahmedbhai Umarbhai and Co., : [1950]18ITR472(SC) the word 'earning' was equated by the Supreme Court with 'accrual' or 'arising'. This was done after noting that in Kirk's case [1900] AC 588, the Privy Council had taken this view. The court stated that it was well settled that if a phrase or a word is capable of two meanings, one in favour of the assessee and the other against the assessee, particularly when the word is used in the charging Section of a taxing statute, the meaning which is in favour of the assessee should be adopted.
8. It was therefore concluded that in view of the above and different phraseology used in Clauses (ii) and (iii), it was clear that the words 'earned in India' in Section 9(1)(i) was used to mean accruing or arising in India. Thus, so long as the liability to pay the amount arises in India, Clause (ii) could be invoked ; but if the liability to pay arises outside India and the amount was payable outside India, Clause (ii) could not be invoked.
9. We are in respectful agreement with the aforesaid reasons given above. As in the present case the liability to pay salary to the assessees arose outside India in view of the contract between the FCI and Technimont, and as the salary was payable outside India, Section 9(1)(ii) did not apply.
10. When the aforesaid decision was brought to the notice of the Tribunal it referred to the Explanation added to Section 9(1)(ii) of the Act by the Finance Act, 1983. We may read the Explanation.
'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.'
11. This Explanation though inserted in the Act in 1983 was made effective from April 1, 1979. As the assessments in the present cases though relatable to the assessment year 1976-77 were completed after April 1, 1979, the Tribunal was of the view that the above Explanation would apply to the assessments at hand as these were pending on April 1, 1979. It was also observed that the Explanation is procedural in nature. Because of this Explanation the Tribunal opined that the aforesaid decision of the Gujarat High Court would not apply as this Explanation had not found place in the statute book when the aforesaid decision was rendered.
12. As to this Shri Joshi has submitted that the Explanation is not only procedural but it has affected the substantive right of the assessees. Learned counsel referred to a large number of decisions to satisfy us that if vested rights are affected the statute has to be regarded as only prospective and not retrospective. For the purpose of the present case, we do not express our opinion on this aspect of the matter inasmuch as according to us even if the Explanation is given effect from April 1, 1979, which is the date mentioned in this connection, the cases of the assessees being relatable to the assessment year 1976-77, their cases could not have been governed by the Explanation inasmuch as 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 somehow remained pending on April 1, 1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand. We are therefore of the view that the Tribunal erred in law in placing reliance on the Explanation to hold that the salaries earned by the assessees would be taxable in India.
13. This takes us to the question as to whether the daily allowances paid in Indian currency could have been taxed in India. As to this the case of the assessees was that the same was exempt under the provisions of Section 10(14) of the Act. Under this provision any special allowance specifically granted to meet expenses wholly, necessarily and exclusively incurred for the purpose of the duties of an office or employment is exempt from tax to the extent such expenses are actually incurred for that purpose.
14. This aspect of the case has also been dealt with by the Gujarat High Court in S.G. Pgnatale's case, : [1980]124ITR391(Guj) and a reference was made to the principle accepted after the decision of the House of Lords in Owen v. Pook, [1969] 74 ITR 147 where it was held that the word 'perquisite' would not apply to a mere reimbursement of necessary disbursement. In CIT v. Jenkin Thomas, : [1975]101ITR511(Mad) it was accepted that if the amount paid be a kind of reimbursement for an expenditure incurred in the performance of the duties of the assessee, the same would not be liable to be taxed as salary. As these assessees are foreign technicians and were required to stay away from their homes, we are of the view that the daily allowance given to them was relatable to the extra expenditure the assessees were required to undergo on food, etc., which was wholly, necessarily and exclusively for the purpose of duties, and as such the allowance was in the nature of reimbursement which would exclude the same from the net cast by the Act.
15. But in so far as rent-free accommodation is concerned the same would be perquisite within the meaning of Section 17(2)(i) of the Act. Section
10(14) does not cover perquisites within the meaning of Section 17(2) of the Act.
16. Our answer to the questions referred to us are, therefore, as below ;
Questions Nos. 1 to 5--No.
Question No. 6--Yes.
17. The reference is thus disposed of by answering questions Nos. 1 to 5 in favour of the assessees and question No. 6 against the assessees.
W.A. Shishak, J.
I agree.