RAJESH BALIA, J. :
Two separate statements of cases have been submitted and the questions of law referred to this Court for decision by the Tribunal being from the very same order passed in Appeal No. 834/Ahd/80 for the asst. yr. 1976-77, we propose to decide these reference applications together by this common order.
2. The facts as found by the Tribunal are that Mr. Alessandro Constantini, the assessee, is a non-resident assessee. M/s Air Control & Chemical Engineering Company (hereinafter referred to as the Indian company) was assessed as employer of the assessee on the strength of a general power of attorney held by it. The assessee was working with Air Control & Chemical Engineering Company between 27th Nov., 1975 and 16th June, 1976. The Air Control & Chemical Engineering Company had a collaboration agreement with M/s Italviscosa Eastern Trading of Milan. (hereinafter called as the collaborator company) The assessee was an employee of the collaborator company and was sent to India at the instance of his employer in Italy to work as Chief Design Engineer at Indian company. According to the letter containing the terms of employment of the assessee he was appointed by the Technical Collaborator as Chief Design Engineer to work with the Indian company for a period of approximately 3 years (1095 days). Salary at the rate of 75 dollars per day was to be remitted to collaborator company by the Indian company. He was entitled to pocket allowance at the rate of Rs. 110 per day free of taxes payable in India. Apart from the aforesaid two sums he was also entitled to free-furnished flat and transport to and from the works.
3. The sums payable and money value of free flat and transport provided by the Indian company was assessed as income from the salary earned by the assessee during the previous asst. yr. 1976-77. The assessee contended that the remuneration at the rate of 75 dollars per day payable by Indian company had neither accrued nor received in India. The assessee is a non-resident Indian and therefore, said income was not liable to be taxed under the IT Act. The assessee had claimed value of the perquisite in the form of residential accommodation, motor car, drivers salary and pocket allowance as exempted under s. 10(14) of the Act. This claim was rejected by the ITO as well as AAC. However, relying upon the decision of this Court in the case of CIT vs . S. G. Pgnatale reported in : [1980]124ITR391(Guj) , the Tribunal found that from the letter addressed to the assessee, employer-employee relationship between assessee and Indian company could not be spelt out at all. If at all, Alessandro could be an employee of the collaborator temporarily or otherwise despatched to India to work with the Indian company. This would be a case of services lent but certainly not one of appointment by the Indian company. In view of the aforesaid terms of payment of remuneration which have come on record, the Tribunal came to the conclusion that the non-resident technician receives no payment from Indian company, at any rate whatever he may receive for his work in India will be received only abroad. In view of that finding, the Tribunal applied the ratio of CIT vs. Pgnatale (supra) to hold the remittance at the rate of 75 dollars per day for the period the assessee was in India as not taxable. Relying upon the same decision sum of Rs. 945 paid for running a motor car was held to be not assessable in the hands of non resident technician.
4. Regarding the pocket allowance which was undoubtedly received by the assessee in India, the Tribunal arrived at a finding that the assessee has not been able to substantiate the claim that this amount was paid in order to meet with the increased cost of living in India and on this count distinguished the case relied upon by the assessee referred to above. While holding that the pocket allowance was taxable in the hands of the assessee, it further held that as the said allowance was not paid to the assessee in his capacity as employee of the Indian company the receipt cannot be regarded as taxable under the head of salary and, therefore, standard deduction from that income, is not permissible.
5. Both the assessee as well as the CIT applied under s. 256(1) of the IT Act for referring suggested questions of law arising out of the order of the Tribunal for the decision of this Court.
6. At the instance of the CIT in Reference Application No. 755/Ahd/81 the Tribunal referred the following 4 questions of law arising out of ITA No. 834/80 which form part of IT Ref. No. 285 of 1982 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in coming to the conclusion that having regard to the provisions of s. 16 of the IT Act, 1961 and/or under s. 9 of the IT Act, 1961 sum of Rs. 70,875 and sums of Rs. 7,908 and Rs. 945 were not taxable at the hands of assessee ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in not deciding whether the assessee was or was not an employee of the firm M/s Air Control & Chemical Engg. Co.
3. Whether, on the facts and in the circumstances of the case, the Tribunal erred in not deciding the question whether the employment of the assessee was on a composite contract or contract for a period of not less than 1095 days ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount received by the assessee outside India for services performed in India was not taxable under IT Act, 1961 ?'
7. At the instance of the assessee the Tribunal referred the following questions of law for our decision in Reference Application No. 737/Ahd/1981 which form part of IT Ref. No. 249 of 1982 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no real income by way of remuneration arose to the assessee
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the pocket allowance of Rs. 13,860 is taxable in the hands of the assessee and the case of Pgnatale (supra) apply ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the pocket allowance was not paid to the assessee in his capacity of an employee of an Indian company
4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in adjudicating upon the point of standard deduction of Rs. 3,500 or Rs. 1,000 in a manner whereby the assessee, which was the appellant before it, became worse off and the Department, which was not an appellant, became better off ?'
8. First of all, taking the questions referred at the instance of the CIT, it is to be noticed that in substance the Revenue is contesting the finding of the Tribunal that the employer-employee relations between Alessandro and Indian company cannot be spelt out at all and if at all, Alessandro could be only an employee of the collaborator working with some conditions. The learned counsel for the Revenue wants this Court to draw a different conclusion about the employer-employee relation between the assessee and the Indian company by distinguishing the decision in the Pgnatales case (supra). However, at the time of hearing we have been informed by both the learned counsel that in the case of the very same assessee for the subsequent year when he was again in India, under the agreement referred to above, the matter had come up before this Court in the like circumstances with reference to remuneration remitted to the collaborator and the value of perquisite in the form of free-furnished accommodation in IT Ref. No. 102 of 1988. The 2 questions referred to this Court for decision by the Tribunal have been decided as under :
'It is not necessary to set out the facts involved in this reference in detail as the questions which have been referred to us for our opinion are directly covered by the decision of this Court in the case of S. C. Pgnatale : [1980]124ITR391(Guj) . Following the said decision and for the reasons recorded therein, we answer Question No. 1 in the affirmative and against the Revenue and Question No. 2 in the negative and against the Revenue. Reference answered accordingly with no order as to costs.'
In view of the aforesaid decision of this Court in the assessees own case, it must be held that the Tribunal was right in coming to the conclusion that having regard to the provisions of s. 16 of the IT Act, 1961 Rs. 7,908 and Rs. 945 were not taxable in the hands of assessee. That is to say, question No. 1, at the instance of the CIT, is to be answered in the affirmative in favour of the assessee and against the Revenue.
In view of the answer to question No. 1 and decision of this Court, that the ratio of : [1980]124ITR391(Guj) is applicable to the facts of the assessee, answer to questions Nos. 2, 3 and 4 have become academic and does not require to be answered. We accordingly decline to do so. However, we may observe that question No. 2 does not appear to have been framed in the correct perspective inasmuch as the Tribunal has in fact found that the assessee was not an employee of the Indian company.
9. Coming to the reference at the instance of the assessee, at the outset it may be stated that these questions referred by the Tribunal have also direct relation to applying the ratio of the decision in the case of S. G. Pgnatale (supra). In the said case living allowance paid to a non-resident technician was held as income not taxable in the hands of the assessee because in the facts and circumstances of the case, the Court reached the conclusion that the allowance was being paid to the assessee as reimbursement rather than a personal advantage given to the assessee and was not a perquisite. Relying upon that decision, the learned counsel for the assessee contends that the ratio of that decision is fully applicable to the facts of the present case also inasmuch as the assessee is also being paid pocket allowance as reimbursement of expenses of cost of living here. The learned counsel for the Revenue joins issue. We have carefully considered the contentions raised before us and having regard to the finding of the Tribunal we are unable to accept the contention of the learned counsel for the assessee.
10. Exemption from pocket allowance was claimed under s. 10(14) of the IT Act. We may note here that as per Expln. 2 it was clarified that any allowance granted to the assessee to meet as personal expenses at the place where the duties of his office of employment of profit are ordinarily performed by him or at the place where he ordinarily resides, shall not be regarded, for the purpose of this clause, as special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties. That clearly indicates that any sum paid as pocket allowance with reference to reimbursement of any expenses incurred at usual place of employment or residence is not to be treated as allowance exempted under that clause. The Tribunal has found that the assessee has not been able to substantiate the claim that the amount is paid in order to meet excess cost of living which the foreign technician has to incur in India over and above what he would have incurred in Italy. It has also been found that the amount was paid to the assessee even when he is at his headquarters at a fixed rate per day. Therefore, in our opinion, the Tribunal was justified in holding that the amount of pocket allowance undoubtedly received by the assessee in India is taxable in his hands. The decision in the case of Pgnatale (supra) in our opinion is clearly distinguishable on facts as far as this case is concerned. The facts which were noticed by the Court were that under the terms of agreement the assessee was paid Rs. 220 per day when posted in Delhi or Rs. 150 per day when posted in Bombay. It was further stipulated under the agreement that in case furnished accommodation for his stay in India was allowed, then daily allowance was to be reduced. It was by taking into consideration all these terms and difference in payment of the amount at different places and its adjustment depending upon providing free-furnished residential accommodation and free advances that led the Court to conclude that it was reimbursement of expenses and not by way of any personal advantage to the assessee. We are, therefore, unable to accept the contention of the learned counsel for the assessee that the assessees case is governed by the decision in Pgnatales case (supra) in so far as the taxability of pocket allowance is concerned. Question No. 2 accordingly is answered in the affirmative, that is to say, in favour of the Revenue and against the assessee.
11. Questions Nos. 1, 3 and 4 in our opinion are inter-related and in fact is a part of question No. 3, viz., if the amount of pocket allowance is taxable in the hands of the assessee whether it is taxable in the hands of the assessee as part of remuneration received by the employee under the head 'salary' and admits standard deduction allowable under the head 'income from salaries.'
12. Undoubtedly, as per the finding of the Tribunal the assessee was not an employee of the Indian company and the Indian company has not paid the allowance to the assessee as part of his pay, as paid to an employee, that is to say, so far as the Indian company is concerned it is an expenses incurred for having service of collaboration. However, while assessing to assessee, the basic question is not what is the nature of payment in the hands of the payer but the basic question is what is the nature of receipt in the hands of the assessee and under what head of income it is to be taxed in his hands. It is neither the case of the assessee nor is the finding that assessee was not an employee of the collaborator company. Even according to his case and as found by the Tribunal he was to receive his remuneration from his collaborator. Whatever was to be paid for services of the assessee was to be remitted to the collaborator company and it was from the collaborator company the assessee was to receive his remuneration as per the terms and conditions with collaborator company and he worked in India purely as an employee of collaborator company for Indian company. He did not receive any amount de hors employer-employee relationship between himself and the collaborator company. Therefore, so far as the assessee was concerned, all amounts paid to him or benefits that accrued to him for his working with the Indian company, in our opinion, is an income from his salary in his hands. He being a non-resident Indian, only income which accrued to or received by him in India, as a result of his work in India under the terms of employment with collaborator company could be taxed under the IT Act under the head of salaries. That being so, the pocket allowance which he received from the Indian company in India while discharging his duties as employee of foreign collaborator was the income chargeable to tax from salaries and accordingly it will have to be computed under that head. It will also, therefore, be eligible for deductions as are permissible while computing income from salary head. We are of the opinion that, while the Tribunal was right in holding that pocket allowance was not paid to the assessee in his capacity of an employee of the Indian company yet it being remuneration forming part of salaries in the hands of the assessee, the Tribunal was not right in holding the standard deduction either of Rs. 3,500 or Rs. 1,000 was not allowable from the aforesaid income as deduction in the hands of the assessee. Accordingly, we answer questions nos. 1, 3 and 4.
Both references stand disposed of. There will be no order as to costs.