Foreign Technician's Salary Not Taxable in India; Accommodation Perquisite Taxable

The court held that the salaries and allowances paid by a company to a foreign technician deputed by an Italian concern were not assessable in India. The court ruled that the liability to pay the salary arose outside India, making it non-taxable in India. Daily allowances in Indian currency were exempt under section 10(14) as reimbursements, but rent-free furnished accommodation was considered a taxable perquisite under section 17(2)(i). The court also clarified that the Explanation added to section 9(1)(ii) in 1983 could not be applied retrospectively.

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Issues Involved:
The judgment addresses various questions of law under the Income-tax Act, 1961, including the assessability of salaries and allowances paid to a foreign technician, taxability of income in India, applicability of exemptions, and treatment of perquisites provided by the employer.

Question 1:
The issue was whether the salaries and allowances paid by the Fertilizer Corporation of India Ltd. to a foreign technician deputed by an Italian concern were assessable in the hands of the technician under specific sections of the Income-tax Act, 1961.

The court examined the nature of the income earned in India and concluded that since the liability to pay the salary arose outside India, the provisions of section 9(1)(ii) did not apply. The court referenced relevant case law and emphasized that the wider meaning of "earned" required the creation of a debt in favor of the assessee, which was not present in this case.

Question 2:
The Tribunal's decision on the assessability of the technician's income in India based on the salary certificate issued by the Italian concern was challenged.

The court upheld the view that the daily allowances paid in Indian currency were exempt under section 10(14) of the Act as they were considered reimbursements for expenses wholly and necessarily incurred for the duties of the employment. However, the rent-free furnished accommodation provided was deemed a perquisite under section 17(2)(i) and not covered by the exemption.

Question 3:
The Tribunal's ruling on the taxability of the entire amount of Italian lire paid by FCI to the Italian concern towards the technician's salary and allowances was examined.

The court held that the salary earned by the technicians was not taxable in India, as the liability to pay the salary arose outside India. It further discussed the procedural nature of the Explanation added to section 9(1)(ii) by the Finance Act, 1983, and concluded that it could not be applied retrospectively to the cases of the assessees.

Question 4:
The Tribunal's decision on the applicability of the Explanation added to section 9(1)(ii) by the Finance Act, 1983, with retrospective effect was reviewed.

The court determined that the Explanation, though inserted in 1983, could not be retroactively applied to assessments for the year 1976-77, as assessments must be made based on the law in existence at the relevant time. It emphasized that the Explanation did not alter the substantive rights of the assessees.

Question 5:
The Tribunal's ruling on the exemption of rupee payments taken in India as daily allowance from tax under section 10(14) was analyzed.

The court agreed with the assessees' argument that the daily allowances were exempt under section 10(14) as they were reimbursements for expenses incurred for the duties of the employment, and thus not taxable as salary income.

Question 6:
The Tribunal's decision on the treatment of the rent-free furnished accommodation provided by FCI to the technician as a perquisite under section 17(2) was assessed.

The court concurred with the Tribunal's view that the rent-free accommodation constituted a perquisite under section 17(2)(i) and was not covered by the exemption under section 10(14).

The judgment was delivered by B. L. Hansaria J. and W. A. Shishak J.

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