Foreign Allowances Not Salary for Tax, Reopening Deemed Invalid, Relief Granted

The Tribunal held that foreign allowances paid to personnel deputed abroad are not part of salary, thus section 40(a)(iii) does not apply. Reopening under section 147 after the assessee disclosed all facts was deemed bad in law. The AO's assessment cancellation under section 263 was found valid as section 40(a)(iii) did not apply. The assessee was entitled to relief under section 91(1) for taxes paid in Kuwait in subsequent periods. The Revenue's appeals were dismissed in all instances.

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Issues involved:
The judgment involves issues related to the validity of deduction under section 40(a)(iii) of the IT Act, 1961, the validity of reopening under section 147 of the Act, the cancellation of assessment under section 263 of the Act, and the relief claimed under section 91(1) of the Act.

Validity of deduction under section 40(a)(iii):
The appeals addressed the validity of the direction of the CIT(A) to allow deduction under section 40(a)(iii) of the IT Act, 1961. The Revenue contended that the amounts should be treated as salary due to the relationship of master and servant between the assessee and the employees. However, the Tribunal, based on previous decisions and case law, held that the foreign allowance paid to the personnel deputed abroad cannot be considered as part of salary, and thus, section 40(a)(iii) does not apply.

Validity of reopening under section 147:
The issue of reopening under section 147 of the Act was raised in two cases for the assessment years 1988-89 and 1993-94. The Tribunal found that since the assessee had disclosed all material facts during the original assessment, the reopening after four years from the end of the respective assessment years was deemed bad in law. The proviso to section 147 was held to be applicable, leading to the dismissal of the Revenue's appeal on this issue.

Cancellation of assessment under section 263:
In the case of the assessment year 1992-93, the only issue was the validity of the CIT's action under section 263 in canceling the assessment framed by the AO. The Tribunal found that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue, as the provisions of section 40(a)(iii) were not applicable to the facts of the case. Consequently, the order of the CIT under section 263 was canceled, and the assessee's appeal was allowed.

Relief claimed under section 91(1):
Regarding the relief claimed under section 91(1) of the Act for the assessment years 1996-97, 1997-98, and 1998-99, the Tribunal held that the assessee was entitled to the deduction of taxes paid in Kuwait in subsequent periods. The Tribunal emphasized that the provision of section 91(1) does not specify that the payment of taxes outside India must be during the relevant previous year itself, and the assessee had proven the actual payment of taxes in Kuwait in subsequent periods. As a result, the order of the CIT(A) was confirmed, and the Revenue's appeal on this issue was dismissed.

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