Cit Vs. R.T. Lawrence - Court Judgment

Excerpt:
counsels: a.n. mahajan & bharat ji agrawal, for the revenue. head note: income tax income deemed to accrue or arise in india--under section 9(1)(ii)salary to expatriate employeepursuant to an agreement between iffco an indian company and the kil foreign company, the assessee technician was deputed by the kil as an expatriate personnel. the ao was of the opinion that payment made to assessee, who was a non-resident, as salary at usa was taxable in india as the same was earned in india. held: the explanation inserted by finance act, 1983 with effect from 1-4-1979 to section 9(1)(ii), could not be applied to an assessment earlier to the assessment year 1979-80. therefore, the tribunal was right in holding that the income computable under the head salary was not liable to tax under section 4 read with section 5(2), for the assessment year 1978-79. income tax act, 1961 s.9(1)(ii) income tax act, 1961 s.4 income tax act, 1961 s.5 income from other sources--chargeabilityliving allowanceheld: the tribunal was right in holding that living allowance was not income liable to tax under section 56 as income from other sources. income tax act, 1961 s.56 exemption under section 10(14)--special allowanceliving allowanceheld: tribunal was right in holding that the living allowance was a special allowance liable to be exempt under section 10(14). income tax act, 1961 s.10(14) in the allahabad high court r.k. agrawal & prakash krishna, jj. - indian penal code, 1860 [c.a. no. 45/1860]. section 302; [m.c. jain, r.c. deepak & k.k. misra, jj] murder plea as to accused being minor school register and transfer certificate not proved before court according to law held, it has to be ignored and question of age is to be determined on other evidence and circumstances surfacing on record. age determined on the basis of x-ray plates and report prepared by c.m.o., is the correct age of accused. accused was declared to be child on the date of commission of offence of murder. however, considering fact that now accused was around 41 years, he cannot be sent to approved school. accused was directed to pay fine of rs.25,000/- under section 302 i.p.c., amount of fine was directed to be paid as compensation to wife of deceased. mohammad - under the said article certain other benefits like furnished accommodation, conveyance, water and electricity, gas etc.orderprakash krishna, j.the income tax appellate tribunal, allahabad has referred the following questions of law under section 256(1) of the income tax act, 1961, hereinafter referred as the act for the opinion of this court:'1. whether on the facts and in the circumstances of the case, the tribunal was right in holding that income computable under the head 'salary' was not liable to tax under section 4 read with section 5(2) of the income tax act, 19612. whether on the facts and in the circumstances of the case, the tribunal was right in holding that income computable under the head 'salary' had not been earned in india within the meaning to section 9(1)(ii) of the act3. whether on the facts and in the circumstances of the case, the tribunal was right in holding that the explanation inserted by finance act, 1983 with effect from 1-4-1979 to section 9(1)(ii) could not be applied to assessment earlier to the assessment year 1979-804. whether on the facts and in the circumstances of the case, the tribunal was right in holding that the living allowance was a special allowance liable to be exempt under section 10(14) of the income tax act, 19615. whether on the facts and in the circumstances of the case, the tribunal was right in holding that living allowance was not income liable to tax under section 56 as income from other sources?'2. the assessment year 1978-79 is involved in the present case, the facts of the case are as follows:the assessee is a non-resident foreign technician in the year under consideration. the indian farmers fertilizers corporation limited (hereinafter referred to as iffco) entered into an agreement dated 23-3-1976 with kellog india ltd., usa, (hereinafter referred to as kil). the agreement was made for providing advisory services in india for construction, erection and procurement of equipments for ammonia plant at phulpur, allahabad. in pursuance of the aforesaid agreement, the assessee was deputed by kil at india as expatriate personnel. the said agreement was terminated by another agreement called as termination agreement dated 31-7-1977. by the earlier agreement the kil agreed for service of kil expatriate personnel in india at the site of iffco. however, article 4.03 of the agreement dated 23-3-1976 provided that the iffco would pay living allowance directly to the assessee. under the said article certain other benefits like furnished accommodation, conveyance, water and electricity, gas etc. were also to be provided by iffco. further according to article 4.01 of the agreement home leave expenses etc. were to be reimbursed by iffc0 to kil,3. there is no dispute about the fact that the assessee was an employee of kil and the services were rendered in india, but the salary was paid in u.s.a, by kil.4. the income tax officer examined the question whether the payment made to the assessee at america by kil for the service rendered in india can be treated as payment of salary to the assessee within the provisions of section 9(1)(ii) of the act. he was of the view that the payment made to the assessee who was a non-resident for the year under consideration at usa is liable to be taxed as salary in india as it would be deemed to accrue or arise in india as it is earned in india.5. in the appeal against the assessment order the cit (appeals) held that the case of the assessee is covered by a judgment of gujarat high court in the case of cit v. s.g. pgnatale : [1980]124itr391(guj) , therefore, it could not be said that the payments received by the assessee in u.s.a. and paid by the iffco to kil by way of reimbursement is taxable as salary accrued or arise in india. this ordr has been confirmed by the tribunal.6. heard sri a.n. mahajan, learned standing counsel for the department. none appeared on behalf of the assessee.7. this court following the judgment of gujarat high court in the case of cit v. andre perrian (it reference no. 206 of 1984) dated 3-11-2004 has respectfully followed the aforesaid judgment of the gujarat high court. it has been held that the salary paid to the foreign technicians for the assessment years 1977-78 and 1978-79 was neither earned or accrued in india and, therefore, is not taxable in india. it has been further held that there was no relationship of employer or employee, while engaging the services of foreign technicians engaged by bhel, in that case. the facts of the case in hand are identical to the facts of the case of cit v. andre perrian (it reference no. 206 of 1984 dated 3-11-2004). it has been further held that explanation inserted by finance act, 1983 with effect from 1-41979 to section 9(1)(ii) of the act could not be applied to the assessment earlier to the assessment year 1979-80. therefore, we answer the question nos. 1,2 and 3 in affirmative i.e. against the department and in favour of the assessee.8. so far as question nos. 4 and 5 are concerned, we find that the tribunal has recorded a finding that the assessee came in india with a specific assignment and was even granted relocation allowance. the gujarat high court has held in s.g. pgnatale's case (supra) that the living allowance was not a reimbursement and was, therefore, not an income.9. respectfully following the aforesaid judgment of the gujarat high court, we answer question nos. 4 and 5 in affirmative i.e. against the department and in favour of the assessee.

Judgment:
ORDER

Prakash Krishna, J.

The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under section 256(1) of the Income Tax Act, 1961, hereinafter referred as the Act for the opinion of this Court:

'1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that income computable under the head 'salary' was not liable to tax under section 4 read with section 5(2) of the Income Tax Act, 1961

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that income computable under the head 'salary' had not been earned in India within the meaning to section 9(1)(ii) of the Act

3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the Explanation inserted by Finance Act, 1983 with effect from 1-4-1979 to section 9(1)(ii) could not be applied to assessment earlier to the assessment year 1979-80

4. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the living allowance was a special allowance liable to be exempt under section 10(14) of the Income Tax Act, 1961

5. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that living allowance was not income liable to tax under section 56 as income from other sources?'

2. The assessment year 1978-79 is involved in the present case, the facts of the case are as follows:

The assessee is a non-resident foreign technician in the year under consideration. The Indian Farmers Fertilizers Corporation Limited (hereinafter referred to as IFFCO) entered into an agreement dated 23-3-1976 with Kellog India Ltd., USA, (hereinafter referred to as KIL). The agreement was made for providing advisory services in India for construction, erection and procurement of equipments for Ammonia Plant at Phulpur, Allahabad. In pursuance of the aforesaid agreement, the assessee was deputed by KIL at India as expatriate personnel. The said agreement was terminated by another agreement called as Termination Agreement dated 31-7-1977. By the earlier agreement the KIL agreed for service of KIL expatriate personnel in India at the site of IFFCO. However, article 4.03 of the agreement dated 23-3-1976 provided that the IFFCO would pay living allowance directly to the assessee. Under the said article certain other benefits like furnished accommodation, conveyance, water and electricity, gas etc. were also to be provided by IFFCO. Further according to article 4.01 of the agreement home leave expenses etc. were to be reimbursed by IFFC0 to KIL,

3. There is no dispute about the fact that the assessee was an employee of KIL and the services were rendered in India, but the salary was paid in U.S.A, by KIL.

4. The Income Tax Officer examined the question whether the payment made to the assessee at America by KIL for the service rendered in India can be treated as payment of salary to the assessee within the provisions of section 9(1)(ii) of the Act. He was of the view that the payment made to the assessee who was a non-resident for the year under consideration at USA is liable to be taxed as salary in India as it would be deemed to accrue or arise in India as it is earned in India.

5. In the appeal against the assessment order the CIT (Appeals) held that the case of the assessee is covered by a judgment of Gujarat High Court in the case of CIT v. S.G. Pgnatale : [1980]124ITR391(Guj) , therefore, it could not be said that the payments received by the assessee in U.S.A. and paid by the IFFCO to KIL by way of reimbursement is taxable as salary accrued or arise in India. This ordr has been confirmed by the Tribunal.

6. Heard Sri A.N. Mahajan, learned Standing counsel for the department. None appeared on behalf of the assessee.

7. This court following the judgment of Gujarat High Court in the case of CIT v. Andre Perrian (IT Reference No. 206 of 1984) dated 3-11-2004 has respectfully followed the aforesaid judgment of the Gujarat High Court. It has been held that the salary paid to the foreign technicians for the assessment years 1977-78 and 1978-79 was neither earned or accrued in India and, therefore, is not taxable in India. It has been further held that there was no relationship of employer or employee, while engaging the services of foreign technicians engaged by BHEL, in that case. The facts of the case in hand are identical to the facts of the case of CIT v. Andre Perrian (IT Reference No. 206 of 1984 dated 3-11-2004). It has been further held that Explanation inserted by Finance Act, 1983 with effect from 1-41979 to section 9(1)(ii) of the Act could not be applied to the assessment earlier to the assessment year 1979-80. Therefore, we answer the question Nos. 1,2 and 3 in affirmative i.e. against the department and in favour of the assessee.

8. So far as question Nos. 4 and 5 are concerned, we find that the Tribunal has recorded a finding that the assessee came in India with a specific assignment and was even granted relocation allowance. The Gujarat High Court has held in S.G. Pgnatale's case (supra) that the living allowance was not a reimbursement and was, therefore, not an income.

9. Respectfully following the aforesaid judgment of the Gujarat High Court, we answer question Nos. 4 and 5 in affirmative i.e. against the department and in favour of the assessee.