TaxTMI 
TaxTMI 
1985 (10) TMI 112
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....spectors and expeditors, construction and start up advisers, and other persons required for the performance of the work and advise IFFCO in the procurement of that portion of the equipment purchased from Indian sources. There are other clauses in the agreement which show that KIL was to provide several types of advisory services in India to IFFCO. Article 2.11 of the agreement states that KIL shall depute a minimum of five operating engineers, plus a process engineer from time to time as KIL may deem advisable after consultation with the IFFCO. In the light of these articles, the following KIL expatriates personnel came to India and rendered services for the period shown against them : 1. Shri H.P. Ray From 26-10-1976 to 15-6-1977 2. Mr. W.F. Bogaards  ....
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....ate of Rs. 106 per calendar day which will be meant to cover the cost of food, servants, laundry and pocket money, etc. In the present appeals we are not concerned with the first type of payment being in the nature of fixed fee payable by IFFCO to KIL in dollars. We are, however, concerned with subsequent two types of expenses. We will deal with them, subsequently, in our this order. 4. The first question for the consideration of the ITO in these appeals was regarding the taxability of salary payable to the above employees. This question is relevant only for the assessment year 1978-79. Subsequently, the agreement dated 23-3-1976 was terminated vide a new agreement dated 27-12-1977. The termination took place with effect from 31-7-1977. It was conceded before us that the salaries due or received by the employees subsequent to 31-7-1977 were taxable under the Income-tax Act, 1961 ('the Act'). The question, therefore, relates only to the salaries received by the aforesaid employees assigned by KIL to IFFCO up to 31-7-1977 falling in the assessment year 1978-79. It was not disputed by the ITO that all the above persons or expatriates were in the employment of KIL, that they were in....
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.... Court held that the words 'earned in India' in section 9(1)(ii) must mean 'arising or accruing in India' and not from 'service rendered in India'. The Court observed that so long as the liability to pay the amount under the head 'Salaries' arises in India, clause (ii) can be invoked. If the liability to pay arises out of India and the amount is payable outside India, clause (ii) cannot be invoked. The Court in this connection observed that for the accrual of earning of salary, it was not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise, but he must have created a debt in his favour. According to the Court, therefore, where the salary was payable outside India, the question of its accruing or arising or deeming to accrue or arise in India could not be contemplated. 6. The ITO did not accept the above contention of the assessee based on the decision of the Gujarat High Court referred to above. According to him, the decision was distinguishable from the cases of the assessees. He observed that in the present case, the assessees were in the permanent employment of KIL and had created a debt in their favour by rende....
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....two main submissions. His first submission was that the decision of the Gujarat High Court had not been accepted by the department and, therefore, it should not be treated to have laid down the correct principles of law. He contended that the words 'earned in India' falling in section 9(1)(ii) mean earned in relation to the services rendered in India. According to him, if the services were rendered in India by an employee, then the salary paid or payable to him will be deemed to have been earned in India. His contention was that the salaries payable to the above persons by KIL should be taken to have been earned in India and, therefore, it was an income deemed to accrue or arise in India and was, consequently, taxable under section 5(2)(b), the assessees being non-residents. His second submission was that with the insertion of the Explanation to section 9(1)(ii) by the Finance Act, 1983, any doubt, if there was one, has also been cleared. While admitting that the Explanation has been inserted with effect from 1-4-1979, he contended that it was only by way of removal of doubts and not with a view to lay down any new exception or legal principle. According to him, if this position wa....
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....e legal meaning of the words 'earned in India' for earlier years as laid down by the Gujarat High Court in the aforesaid case. He pointed out that if the Legislature wanted that the Explanation should be treated as further retrospective, it could have very well made a provision like that as was done in the case of Explanation to section 10(14) of the Act, which was specifically made retrospective from the very beginning the Act had come on the statute. He was also critical of the plea of the learned departmental representative Shri Upadhyay that the matter should be restored or set aside for reconsideration by the ITO. According to him, all the facts were available on record and only a legal inference was to be drawn. 10. We have carefully considered the rival submissions placed before us. We are inclined to agree with the submissions of the learned counsel for the assessee on the various issues enumerated above. No decision contrary to the decision of the Gujarat High Court was brought to our notice. We are, therefore, bound by that decision in view of the principle laid down by the Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589. As held by t....
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....ich is receivable or has been received by the present assessees from KIL outside India is not liable to tax under the relevant provisions of the Act. This contention in all the appeals, therefore, fails. 12. The next common contention in all these appeals relates to taxation of living allowance. We have already stated above that living allowance was payable by IFFCO direct to the expatriates and that such a payment was made at the rate of Rs. 106 per calendar day. The ITO held that it was taxable in the hands of the assessees under section 56 of the Act as income from other sources. In support of his case, he observed that the living allowances having been received in India for the services rendered by the assessees were taxable under section 5(2)(a). 13. The above finding of the ITO was also challenged before the Commissioner (Appeals). There were two submissions before the Commissioner (Appeals). The first was that since the payment was as reimbursement for the expenses actually incurred by the employees, it did not assume the character of income and, therefore, it could not be brought to tax in view of the principle laid down by the Gujarat High Court in S.G. Pgnatale's ca....
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....are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded, for the purposes of this clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties;" The counsel contended that the assessee was still entitled to exemption under the above section read with the above Explanation. He contended that the Explanation put a restriction for exemption only on that allowance, which was granted to an assessee to meet his personal expenses at the place where the duties of his office or employment of profit were ordinarily performed by him or at the place where he ordinarily resided. According to him, only such a payment could not be regarded as a special allowance granted to meet expenses, wholly, necessarily and exclusively incurred in the performance of such duties. He argued that if it was proved that an assessee was paid any such allowance at the place where the duties of his office or employment of profit were not ordinarily performed by him or at the place where he did not ordinarily reside, then the payment has to be regarded as a special allowance granted to meet expenses w....
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....ase of Phatak when it was held that it also covered the payment in respect of compensatory (city) allowance even though it was for reimbursement of personal expenses required by a Government servant to be incurred on account of his living at a particular place. It was held that such expenses were wholly, exclusively and necessarily incurred in the performance of his duties. It was only to curtail this interpretation that Explanation was added by the Finance Act, 1975 and that too with retrospective effect from 1-4-1962, i.e., from the 1st day the Act came into force. In other words, the idea was that the curtailment should be deemed to apply throughout the period the Act is in existence. However, the Explanation did not lay down any blanket prohibition. It only stated that only that allowance, which was granted to an assessee to meet his personal expenses at the place where the duties of his office or employment of profit were ordinarily performed by him or at the place where he ordinarily resided, shall not be regarded, for the purposes of clause (14) of section 10, as a special allowance granted to meet the expenses wholly, necessarily and exclusively incurred in the performance ....