Judgment:
1. The only point involved in the cross appeals is whether the salary/living allowances received by the assessee is exigible to tax.
2. The assessee is an individual and is in permanent employment of Snamprogetti, S.P.A., Milano, Italy (S.P.). The assessment year is 1980-81 and the relevant previous year is the financial year ended on 31-3-1980.
3. In 1976 (19-10-1976) S.P. had entered into agreements with the Gujarat State Fertilizers Co. Ltd., Baroda (GSFC) for the construction of urea plant in Bharuch. Under the said agreements S.P. was to provide its technical know-how and basic and detailed engineering data to GSFC to enable the latter to construct and operate plant for the production of urea in the latter's new fertilizer project to be undertaken by a new company, namely, Gujarat Narmada Fertilizer Co. Ltd. (GNFC), from Italy or elsewhere outside India, the requisite machinery and other equipments for the said urea plant for GNFC. In addition to the know-how agreement and supply contract, S.P. had also entered into 'services agreement' with GSFC in 1976 under which S.P. undertook the obligation to provide to GSFC for a specified consideration payable to S.P. in US dollars, S.P.'s expatriate technician having specialised knowledge in the construction, erection and operation of urea plant and the process of manufacture of urea and related functions or operations, for rendering advisory and technical services in the matter, to GSFC.The said services agreement specifically provided (Article 4) that the personnel to be provided by S.P. to GSFC shall only be those eligible for income-tax exemption under the (Indian) Income-tax Act, 1961 ('the Act'). Thereafter, on the formation of GNFC. a tripartite agreement was executed between S.P., GSFC and GNFC on 21-2-1978 under which the terms and conditions of various agreements entered into between S.P. and GSFC were accepted by GNFC.4. During the relevant previous year, the assessee was paid living allowances in India amounting to Rs. 48,720 and a salary of Rs, 1,30,693 abroad by his employer, namely, S.P. It may be mentioned that in the assessment ord)r, the ITO has wrongly stated the figures of Rs. 48,865 and Rs. 1,32,000, respectively.
5. In the course of assessment proceedings, the assessee took up a stand that as the salary was paid to him abroad, it was not earned in India within the meaning of Section 9(1)(ii) of the Act, and, hence, the same was not exigible to tax. He also took up a stand that since living allowances were given to him as reimbursement rather than a personal advantage, the same should not be treated as perquisite within the meaning of Section 17 of the Act, and brought to tax. The assessee also claimed exemption, in respect of the living allowances, under Section 10(14) of the Act. In other words, the assessee took up a stand that the income either in the form of salary paid abroad or living allowances reimbursed in India, was not exigible to tax. The assessee further took up a stand that even assuming for the sake of argument that the salary/living allowances was exigible to tax, the same would be exempt under Section 10(6)(viia).
6. In the assessment framed under Section 143(3)/144B of the Act, the ITO did not accept the assessee's stand that the salary of Rs. 1,30,693 was not exigible to tax, as according to him, after the decision of the Hon'ble Gujarat High Court in the case of CIT v. S.G. Pgnatale [1980] 124 ITR 391, an Explanation was inserted in Section 9(1)(n) retrospectively from 1-4-1979, by the Finance Act, 1983, to the effect that 'income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India'.
The ITO also held that the living allowances received by the assessee were perquisite within the meaning of Section 17 and were not exempt from taxation under Section 10(74) as claimed by the assessee. The ITO further held that the tax payable on income in India would become a perquisite as GNFC was liable to pay such taxes. In this view of the matter, he grossed up the total income to Rs. 5,15,303 on the net income from salary and perquisite of Rs. 1,98,085 received by the assesse;. The ITO did not accept the assessee's claim for exemption under Section 10(6)(viia) on the ground that the assessee was an employee of S.P. which is not carrying on business in India.
7. Being aggrieved by the order of the ITO, the assessee went up in appeal before the Commissioner (Appeals) and once again pressed all the contentions which were put forward before the ITO. The assessee had also filed written submissions before the Commissioner (Appeals), elaborating his case.
8. The Commissioner (Appeals), however, upheld the action of the ITO holding that after the amendment made in Section 9(1 )(II), the assessee would not get any benefit of the aforesaid decision of the Hon'ble Gujarat High Court in respect of the salary. As regards living allowances received by the assessee, the Commissioner (Appeals) was of the view that the said decision of the Hon'ble Gujarat High Court would support his stand. As regards the assessee's claim for exemption under Section 10(6)(vii-a), the Commissioner (Appeals) simply observed that 'on careful consideration of the submissions, I feel that the interpretation is not at all correct and is required to be rejected'.
9. Having been not satisfied with the order of the Commissioner (Appeals), the assessee has come up in appeal with a grievance that even after the insertion of the Explanation to Section 9(1)(ii), the ratio laid down in the aforesaid reported case would still support his contention. The assessee's other grievance is that the Commissioner (Appeals) has not appreciated his case regarding the exemption claimed under Section 10(6)(viia). Yet another grievance of the assessee is that the benefits by way of free residential accommodation and free provision of gas and electricity, etc., would not be taxable in his hands as perquisites within the meaning of Section 17. The revenue, in its cross appeal, has made a grievance that the Commissioner (Appeals) was not justified in holding that the living allowances received by the assessee would be exempt from tax under Section 10(14).
10. At the outset, the learned counsel for the assessee submitted that he would like to seriously argue ground No. 2 taken up in the assessee's appeal, which reads as under: For that, without prejudice to the foregoing grounds, the learned Commissioner (Appeals) has erred in law in holding that the appellant was not entitled to the exemption from tax provided for in Section 10(6) (viia) of the Income-tax Act, 1961, in respect of salary income for services rendered by him to the Gujarat State Fertilizers Co. Ltd. as a 'technician' under terms of employment duly approved by the Government of India. He has misconstrued the provisions of the said section in taking the view that the appellant was not entitled to the benefit of the tax exemption under that section because he was an employee of Snamprogetti and not of the Gujarat State Fertilizer Co. Ltd., to which services were rendered by him.
11. Inviting our attention to the letter dated 13-8-1979, issued by the Ministry of Petroleum, Chemicals and Fertilizers, Government of India, the learned counsel for the assessee highlighted the fact that the Government of India had approved for the purpose of exemption from payment of income-tax the appointment of the assessee for a period of 14 months. The relevant portion of the said letter reads as under Ref:Your letters No. F and A/EIT/GOI/79 dated 7-4-1979, 21-6-1979 and 19-4-1979 I am directed to refer to your letter(s) quoted above on the subject noted above and to say that Government of India approved for the purpose of exemption from payment of income-tax the appointment of following person(s) as the technician(s) in your company in connection with.Serial Name Designation Nationality Seconded For ExpectedNo. By Period Date of arri val-----------------------------------------------------------------------------1 2 3 4 5 6 7-----------------------------------------------------------------------------3. Mr. Ugo Technician Italian Snamprogetti 24 App.
Carcano months upon receipt4. Mr. Battelli Welding Italian Snamprogetti 14 App.
Ernesto Inspector months upon receipt5. Mr. Sket Technician Italian Snamprogetti 12 App.
Vinko months upon receipt 2. The grant of actual exemption from income-tax, will, however, be subject to the fulfilment of all other conditions laid down in this regard in Section 10(6)(vii)(a) of the Income-tax Act, 1961, as amended from time to time and also subject to the condition that payment of per diem charges are in accordance with the provisions of their contract (including escalations). It may be noted that the exemption of salary and/or allowance of the technician(s) from income-tax will up to an amount of Rs. 4,000 p.m. only including the value of perquisites, etc., whether paid in India or outside India.
3. It may be noted that this approval of the contract of service(s) of the technicians mentioned above is with reference to the matter of exemption from payment of income-tax on the salary/allowances payable to him/them and cannot be assumed to convey the acceptance of the Government to the remittance of foreign exchange, etc. Such matter will have to be cleared with the different authorities concerned.
12. The learned counsel for the assessee submitted that even though detailed submissions in writing were filed before the Commissioner (Appeals) in this regard, the Commissioner (Appeals) was not justified in brushing aside the same in just one sentence (reproduced above).
According to the learned counsel for the asses'see, Section 10(6)(viia)consists of two parts, namely (i) a technician who is in the employment of (a) Government, (b) a local authority, (c) any corporation set up under any special law, and (d) any institution or body established in India for carrying on scientific research, and (n) a technician who renders services in the employment 'in any business carried on in India'. In this connection, the learned counsel for the assessee further submitted that if the Parliament had intended that the remuneration received by a foreign technician for rendering services in India shall be exempt from tax only where such technician is in the employment of a person carrying on any business in India, it would have used in the second part of the aforesaid provision, as in the first part thereof, the words 'or in the employment of a person carrying on any business in India.' In the absence of such words, the learned counsel for the assessee went on to argue that there is no warrant whatsoever in reading in Section 10(6)(viia) a condition that the foreign technician must be in the employment of a person carrying on any business in India in order that his salary income may qualify for exemption from tax. The learned counsel for the assessee, therefore, urged that the assessee's stand for exemption under Section 10(6)(viia), in respect of the salary, should be accepted. Relying on the aforesaid decision of the Hon'ble Gujarat High Court, the learned counsel for the assessee further submitted that since the salary received by the assessee was nothing but 'a retention allowance' the same cannot be taxed by invoking the provisions of Section 9(1)(ii). As regards the taxability of the living allowances, the learned counsel for the assessee submitted that the Commissioner (Appeals) was fully justified in relying on the aforesaid decision of the Hon'ble Gujarat High Court which fully covers this point.
13. The learned representative for the department, on the other hand, strongly relied on the order of the ITO and submitted that the income-tax authorities were fully justified in holding that the salary received by the assessee was exigible to tax. In this connection, he invited our attention to Section 10(6)(viia) and submitted that the expression 'in any business carried on in India' relates to the employer of the assessee. According to the learned representative for the department, 'employment' is the essence of the matter and, therefore, since S.P. was not carrying on business in India, the assessee would not be entitled to exemption under Section 10(6)(viia).
He also submitted that since there was no contract between the assessee and GSFC/GNFC, it is difficult to hold that the assessee was an employee of a concern which is carrying on business in India. Inviting our attention to the aforesaid letter dated 13-8-1979 of the Ministry of Petroleum, Chemicals and Fertilizers, Government of India, he highlighted the fact that S.P. had just seconded the proposal of the assessee to work as a technician in India. This fact by itself, according to him, would not make the assessee 'employee' of a concern carrying on business in India. He further submitted that the said letter issued by the Ministry of Petroleum, Chemicals and Fertilizers, Government of India, has nowhere stated that the exemption under Section 10(6)(viia) would be granted to the assessee by the ITO. In this connection he stated certain procedure for the appointment of a person by United Nations or sending an officer of the Government of India on deputation to other countries, with a view to impress upon us that the assessee was not 'employee' either of GSFC/GNFC or S.P. at the time when he rendered the services in India. He, therefore, urged that the stand taken on behalf of the assessee that the salary income received by him would be exempt under Section 10(6)(viia) should be rejected. As regards the applicability of the provisions of Section 9(1)(ii) he strongly relied on the orders of the income-tax authorities. He further submitted that the Commissioner (Appeals) was not justified in accepting the assessee's claim that living allowances received in India were exempt from tax under Section 10(14).
14. The learned counsel for the assessee, in his reply, submitted that analogy of employment under the United Nations Organization or under the agreements between two Sovereign States has no application to a commercial agreement entered into between two entities carrying on business at different places.
15. We have carefully considered the rival submissions of the parties and the material placed before us and we find considerable force in the submissions made on behalf of the assessee in respect of the exemption claimed under Section 10(6)(viia).
15.1 According to us the salary income of the assessee could be brought to tax by virtue of Section 9(1)(ii), the material portion of which reads 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 income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ; Prior to the insertion of the Explanation with effect from 1-4-1979 by the Finance Act, 1983, the salary received abroad by an expatriate employee was held to be not taxable in the case of S.G. Pgnatale (supra). However, in the instant case, as the year involved is 1980-81, we are of the opinion that in view of the aforesaid Explanation, the salary income of the assessee would be liable to tax unless it is exempt under any of the clauses of Section 10.
10. In computing the total income of any person, any income falling within any of the following clauses shall not be included -- (viia) where such individual renders services as a technician in the employment (commencing from a date after the 31st day of March, 1971) of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this Sub-clause by the prescribed authority or in any business carried on in India and the following conditions are fulfilled, namely, that -- (1) the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India, and (2) the contract of his service in India is approved by the Central Government, the application for such approval having been made to that Government before the commencement of such service or within six months of such commencement; the remuneration for such services due to or received by him, which is chargeable under the head 'Salaries', to the extent mentioned below, namely: -- (A) such remuneration due to or received by him during the period of twenty-four months commencing from the date of his arrival in India, in so far as such remuneration does not exceed an amount calculated at the rate of four thousand rupees per month, and where the tax on the excess, if any, of such remuneration for the period aforesaid over the amount so calculated is paid to the Central Government by the employer (which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956) also the tax so paid by the employer ; and Explanation : For the purposes of this Sub-clause, 'technician' means a person having specialised knowledge and experience in (i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised ; 15.3 Now it is not in dispute that the assessee fulfils both the conditions stipulated in the aforesaid sections. Again, it is not in dispute that the assessee was in India for less than 24 monthi. With this background, let ui analyse the initial portion of the said section. The initial portion of the said section, according to us, consists of two parts, viz.,- (iv) any such institution/body established in India for carrying on scientific research as is approved for the purposes of this Sub-clause by the prescribed authority or 2nd Part -- in any business carried on in India Explanation to Section 10(6)(viia) defines a 'technician' to mean a person having specialised knowledge and experience who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised. It is not in dispute that the assessee is having specialised knowledge and experience in constructional or manufacturing operations.
15.4 On the proper reading of the aforesaid provisions, we are of the view that in order to claim exemption under Section 10(6)(viia) a technician, like the assessee in the present case, need not be in the employment in the strict sense of the term. Such technician would still be entitled to exemption if he utilises specialised knowledge and experience in any business carried on in India. According to us, the expression 'who is employed in India' means engaged in India for rendering specialised knowledge and experience to any business carried on in India. Therefore, the fact that S.P. was not carrying on business in India or the assessee was not an employee of GSFC/GNFC would not be of any consequence in claiming exemption under Section 10(6)(viia). It is an undisputed fact that the assessee having specialised knowledge and experience had actually used the same in constructional or manufacturing operation of GNFC which carries on business in India. In this view of the matter, we have no hesitation in accepting the submissions made on behalf of the assessee that the salary including perquisites received by him would be exempt from tax under Section 10(6)(viia).
15.5 As regards the taxability of living allowances received by the assessee, the same is fully covered by the aforesaid decision in the case of S.G. Pgnatale (supra) in favour of the asssessee. In this view of the matter,, we do not see any merit in the appeal filed by the revenue.
16. In the result, the appeal filed by the assessee is allowed and that of the revenue is dismissed.