Permanent establishment borne salary defeats treaty exemption; off-period pay taxable, rig accommodation excluded, and section 234B interest deleted.

Treaty exemption for expatriate technicians was denied because the remuneration was borne by the Indian permanent establishment: the technicians' salary was treated as a direct business outgoing attributable to the PE, so article 16(2)(c) of the India-USA DTAA and corresponding treaty provisions with Australia and Indonesia did not apply. Off-period salary was taxable in India as it remained connected with services rendered in India under section 9(1)(ii) and the relevant Explanation. Boarding and lodging on the rig was not a taxable perquisite under section 17(2)(iii). Interest under section 234B was also not leviable on the facts. The result was partial relief to the assessees.

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Issues: (i) Whether salary paid to expatriate technicians was exempt under article 16(2)(c) of the India-USA DTAA and the corresponding treaty provisions with Australia and Indonesia. (ii) Whether off-period salary was taxable in India. (iii) Whether boarding and lodging on the rig constituted a taxable perquisite. (iv) Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Issue (i): Whether salary paid to expatriate technicians was exempt under article 16(2)(c) of the India-USA DTAA and the corresponding treaty provisions with Australia and Indonesia.

Analysis: The exemption under the dependent personal services articles was available only if the employee satisfied the day-count condition, the non-resident employer condition, and the condition that the remuneration was not borne by a permanent establishment or fixed base in India. The first two conditions were not in dispute, but the decisive question was the third condition. The permanent establishment in India was required to be treated as an independent entity for computing business profits under the treaty framework. Salaries paid to technicians who rendered services for the Indian operations were direct business outgoings and had to be taken into account in determining the profits attributable to the permanent establishment. Assessment of the employer under section 44BB of the Income-tax Act, 1961 on a presumptive basis did not alter the treaty position.

Conclusion: The remuneration was borne by the permanent establishment and the exemption was not available. The issue is decided against the assessee.

Issue (ii): Whether off-period salary was taxable in India.

Analysis: The issue was covered by the jurisdictional High Court, which held that salary relatable to the off-period remained connected with services rendered in India for the purposes of section 9(1)(ii) of the Income-tax Act, 1961 read with the relevant Explanation. The Tribunal followed that binding view.

Conclusion: Off-period salary was taxable in India. The issue is decided against the assessee.

Issue (iii): Whether boarding and lodging on the rig constituted a taxable perquisite.

Analysis: The jurisdictional High Court had already held that boarding and lodging on the rig did not amount to a perquisite within the meaning of section 17(2)(iii) of the Income-tax Act, 1961. Following that precedent, the addition was not sustainable.

Conclusion: The boarding and lodging allowance was not taxable as a perquisite. The issue is decided in favour of the assessee.

Issue (iv): Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Analysis: The matter was governed by the jurisdictional High Court decision, which required deletion of interest under section 234B in the facts of the case. The Tribunal applied that binding ruling.

Conclusion: Interest under section 234B was not leviable. The issue is decided in favour of the assessee.

Final Conclusion: The salary exemption claim failed, but relief was granted on boarding and lodging perquisite and interest under section 234B, resulting in partial relief to the assessees.

Ratio Decidendi: For treaty exemption of employment income, remuneration is taxable in India where it is borne by the employer's permanent establishment in India and forms part of the deductible business outgoings in computing its profits.

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