Employment relationship governs tax exemption and perquisite treatment; foreign technicians failed on exemption, but third-party tax payment was not salary.

Exemption under section 10(6)(vii) was unavailable because the foreign technicians were found to be employees of SII, not of FACT, and the statutory employment condition with the specified Indian entity was therefore not met. Tax paid by FACT on behalf of the assessees was also not taxable as salary or perquisite under sections 15 and 17 because salary-based taxation presupposes an employer-employee relationship, which did not exist between FACT and the assessees. The exemption claim failed, but the third-party tax payment could not be assessed as salary income in the assessees' hands.

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Issues: (i) Whether the assessees satisfied the conditions for exemption under section 10(6)(vii) of the Income-tax Act, 1961. (ii) Whether the tax paid by FACT on behalf of the assessees was taxable as salary or perquisite under sections 15 and 17 of the Income-tax Act, 1961.

Issue (i): Whether the assessees satisfied the conditions for exemption under section 10(6)(vii) of the Income-tax Act, 1961.

Analysis: The exemption was available only where the foreign technician was in the employment of the specified Indian entity and the contractual conditions in section 10(6)(vii) were met. The Tribunal's finding that the assessees were employees of SII and not of FACT had become final. On that basis, the statutory requirement of employment with FACT was not established.

Conclusion: The assessees were not entitled to exemption under section 10(6)(vii); the answer was against the assessees and in favour of the Revenue.

Issue (ii): Whether the tax paid by FACT on behalf of the assessees was taxable as salary or perquisite under sections 15 and 17 of the Income-tax Act, 1961.

Analysis: Salary and perquisite taxation under sections 15 and 17 presupposed an employer-employee relationship between payer and payee. Since the assessees were not employees of FACT, the tax payment made by FACT under the collaboration arrangement could not be treated as a perquisite forming part of salary income in their hands. The amount might, at best, fall under a different head of income, but not under salary.

Conclusion: The tax payment was not assessable as salary income or perquisite in the hands of the assessees; the answer was in favour of the assessees.

Final Conclusion: The reference was answered partly for the Revenue and partly for the assessees: the exemption claim failed, but the tax paid by FACT was not chargeable as salary or perquisite in the assessees' hands.

Ratio Decidendi: Tax concession and salary-based perquisite taxation both depend on the statutory employment relationship required by the relevant provisions; absent that relationship, the concession is unavailable and third-party tax payment is not a salary perquisite.

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