TaxTMI 
TaxTMI 
1996 (8) TMI 538
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....he purposes of the Income-tax Act, 1961 (the Act), during the financial year 1994-95. The applicant has presented this application under section 245Q(1) of the Act seeking the ruling of this Authority on the following two questions: (1) Whether, on the facts and in the circumstances of the case, exemption under section 10(5B) of the Income-tax Act, 1961, would be available to the applicant ? (2) Whether, on the facts and in the circumstances of the case, the applicant would be considered as a "technician" for the purpose of section 10(5B) of the Income-tax Act, 1961 ? The applicant, being a non-resident in the financial year 1994-95, is entitled to maintain this application in view of the ruling given by this Authority in the case of Monte Harris v. CIT [1996] 218 ITR 413. It may also be mentioned here that the applicant was not a resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and that the Indian income-tax on the remuneration paid to him for the services rendered in India has been paid by the U. K. company. The answer to the applicant's questions primarily depends upon the issue whether he can be....
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....ce in constructional or manufacturing operations". This involves a consideration of the nature of the operations which the applicant carried out during the period of his assignment in India. The statement of facts having a bearing on the above issues may now be set out. The U. K. company, as part of its efforts to expand its business operations in the Asian region, obtained permission from the Foreign Investment Promotion Board for establishment of a 51 per cent. joint venture company in India. The Indian company (known as Kodak India Limited) has since been established with its head office located at Bombay and a factory at Goa. The factory at Goa is engaged in the production of two commodities: (i) 35mm film cassettes, and (ii) Eastman colour print motion picture films. The Indian company imports emulsion coated rolls of cellulose triacetate base in huge rolls of the width of 54 inches and the length of about 5,000 ft. from Rochester in the U. K. These rolls come in huge boxes which are protected from light and are stored, in order to retain the sensitivity of the film and the proper colour balance, in godowns maintaining a temperature of 12 degrees C and a relative humidity of ....
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....era films and 5 million linear feet per month of motion picture. The applicant has worked as production operation manager with the U. K. company for over 17 years and has acquired and contributed his experience and knowledge in all aspects of film processing, including finishing process operations, to Kodak's business world-wide. The statement of facts accompanying the application gives a detailed description of the steps involved in the production of these two types of films and leaves no doubt that the applicant has expertise and specialised knowledge of the processes to be applied to film rolls before a camera film or motion picture film emerges from the factory as a finished product. In that sense, no doubt, the applicant is a technician. Section 10(5B), however, does not extend its exemption to all kinds of technicians or persons having specialised knowledge and experience. It further requires that such experience and knowledge must be "in constructional or manufacturing operations". Though an attempt was made on behalf of the applicant to suggest that he was also supervising the constructional operations in the factory, this plea cannot be accepted. It was stated before the....
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....s contention is that the true scope and real significance of its processes has been over-simplified in the above paragraph. The huge rolls imported by the company, according to the applicant, constitute the raw material for a manufacturing process carried on by it. The processes applied are not just mechanical processes of slitting, perforating and the like. They have to be done by high precision instruments and have to be carried out in rigid atmospheric and light conditions which are of great moment in ensuring the final quality of the picture. The final product has to conform to international quality standards. At every stage of the process, there have to be rigid quality standards and even a very minute variation or defect could render several rolls of the product totally worthless. The original rolls are not marketable commodities in a true sense: they cannot be sold except as rolls to manufacturers like the employer of the applicant. The films produced by the Kodaks, however, are sold in the world market as a distinct commercial commodity. The 35mm cassettes or the motion picture films produced and sold by the company are completely different commercial commodities, distinct ....
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....pends on several criteria and one of the essential tests is whether in a commercial sense, the original article has ceased to exist and a new article has taken its place. It is, however, not necessary that the original article or material should have lost its identity completely: all that is important is whether, what has emerged as a result of the operations is a different commercial commodity, having its own name, identity, character or end use. This determination is essentially one of fact and has to be arrived at on a consideration of all relevant factors such as the quality and nature of the original article, the extent and magnitude of the operations carried out on, or in relation to, it, and the commercial identity, character and use of the article produced. Judicial precedents, which very often turn upon the language of the definition of the expression in a particular statute, are useful only in that they furnish illustrations of the application of the general principles to different kinds of situations. A few judicial decisions may briefly be referred to to indicate how courts have looked at processes which bear some analogy to those in the case now before the Authority. ....
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....ng together of two types of yarn to produce a different type (Aditya Mills Ltd. v. Union of India [1989] 73 STC 195 (SC)) have been held to be manufacturing processes. These illustrations show that it is not necessary that the original article should completely stand annihilated and changed beyond recognition. Indeed, the concept of total change and loss of identity of original material cannot be helpful in the context of all types of processes, particularly such a one as prevails in the present case. The film roll is by its very nature such a commodity that any change in its structure will totally destroy its basic quality. In cases like this, where the emphasis has to be on the preservation of its photo-magnetic quality and its sensitivity, the concept of change of that quality is irrelevant. What is important is to see whether the various processes carried out with respect to it are aimed at putting on the market commodities which, though seemingly the same, are in fact different from it in character and end use. Commercially speaking, the jumbo rolls imported by the company and the two kinds of film produced by it cannot be described as one and the same article with a differen....
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....pport from clause (vi) of section 10(6) which provides an exemption for the remuneration received by "an employee of a foreign enterprise" for services rendered by him during his stay in India, subject to the fulfilment of certain conditions. It could be said that it is the special provision in section 10(6)(vi) that should be resorted to for determining the exemption available to an employee of a foreign enterprise and that section 10(5B) should be limited only to an employee of an Indian enterprise. The Authority has come to the conclusion that no such limitations can be read into the language of section 10(5B). It only talks of a technician employed in a business in India. The applicant, in the present case, is undoubtedly a technician "employed in a business in India". The clause places no restriction regarding the status of the employer, that he should be an Indian and not a foreigner. The only conditions for exemption are about residential status and payment of the tax on the employee's remuneration by the employer and these are fulfilled in the present case. If a foreign technician with the prescribed residential qualification is employed and paid by an Indian company, then....
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....hould be held to apply to all "technicians". The suggestion that technicians employed by foreign enterprises should be outside the scope of this clause, is not acceptable for the reason already indicated. Hence, any "technician" as defined under section 10(5B), is entitled to the exemption under that clause, irrespective of whether he is the employee of an Indian enterprise or of a foreign enterprise. The other approach is to look upon both the clauses as special provisions intended to deal with employees caught up in different types of situations. In this view, the language of each of the clauses should be construed in its full amplitude and neither should be allowed to restrict the scope of the other. Actually, the overlapping between the two provisions will be insignificant. Employees of foreign enterprises will not all be technicians; "technician" is only a limited class of such employees. Even among them, only technicians who satisfy the requisite residential qualifications and have their tax paid by their employer can seek the benefit under clause (5B). There may be some foreign technicians who are not eligible for relief under clause (5B) but may qualify for relief under cl....