TMI Blog1986 (10) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year. During this period, he was receiving the salary as per agreement with the American company in America only. In India, he was given accommodation in a hotel in Bombay from 2-12-1981 to 14-1-1982 and the expenses for the stay in the hotel amounted to Rs. 56,310. This amount was reimbursed by the Indian company Deepak Fertilisers and Petrochemicals Corpn. Ltd. which was referred to earlier as ' Deepak Fertilisers '. We may mention here that this company had entered into technical agreement with the American company and the assessee had been sent to India as part of that collaboration agreement. The hotel expenses of Rs. 56,310 was reimbursed by the Indian company to him as part of this collaboration agreement. 3. From 14-1-1981, the assessee was provided accommodation by the Indian company in its guest house and he was allowed a living allowance of Rs. 210 per day. The total living allowance paid to him amounted to Rs. 15,960. 4. Apart from these payments, he had also received from the Indian company Rs. 5,230 by way of reimbursement of various types of expenditure incurred by him like medical expenses, food, provision, conveyance and other miscellaneous expenses. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further held that the living allowance is not exempt under section 10(14) of the Act. For this purpose, he relied on the Explanation to that section which effectively, according to him, denies the exemption for such allowances. The value of the notional income by way of rent-free accommodation was also found to be validly included. 9. Finally he considered whether the tax payable by the Indian company was income liable to tax in the hands of the assessee. Reliance had been placed on the fact that the tax was paid by the Indian company and that company was not the employer. However, the Commissioner relying on the Bombay High Court's decision in the case of Emil Webber v. CIT [1978] 114 ITR 515 held that such payment of taxes is also an income. In the result, he rejected the assessee's appeal. 10. The assessee is on further appeal before us. Shri Khare for the assessee first submitted that the salary receivable in United States as per service contract entered in United States does not accrue or arise in India under section 5(2) of the Act. It cannot be deemed to accrue or arise in India under section 9(1)(ii) of the Act either. He submitted that the decision of the Gujarat H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be relevant only where there is no deeming provisions. With regard to the submission of Shri Khare that even if the assessee had not worked in India, he will be entitled to the salary, Shri Kamat referred to the employment agreement by which the assessee was specifically recruited for the purpose of serving in India. He further pointed out that the American company itself regarded the payment as foreign salary. 14. We have considered the submissions. The first issue will be decided is whether the salary payable by the American company and credited to the assessee's account in America is taxable in India. Shri Khare had placed a great reliance on the decision of the Gujarat High Court in the case of S. G. Pgnatale. There are no other High Courts' decisions on this point. Normally, we should have adopted the ratio laid down in that decision. However, as the Commissioner (Appeals) has pointed out the section has been amended by the Finance Act, 1983 with retrospective effect from 1-4-1979 and Explanation has been added. This Explanation reads as follows : " Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' earned ' in clause (ii) of section 9(1) should have a narrower meaning, nothing would have been easier than to use the words. ' services in India ' or ' services rendered in India ', thus clearly indicating that out of the two meanings of the word ' earned ' it wanted the narrower meaning to be adopted . . . ." On a perusal of this extract it would be seen that in the opinion of the High Court, the salary paid abroad to a non-resident would be taxable in India if they had used the words ' services in India ' or ' services rendered in India '. How we find it was the absence of such expressions in section 9(1)(ii) that led the High Court to hold that the salary was not taxable in India. Now this lacuna pointed out by the High Court has been made good ; by the insertion of the Explanation in the section. This Explanation extracted earlier uses the expression ' services rendered in India '. Thus, the lacuna having been made good the decision of the Gujarat High Court will no longer be applicable for the assessment year we are concerned with. We, therefore, hold that even applying the ratio laid down by the Gujarat High Court in the light of the subsequent amendment, the salary cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for work in India and he had remained here from 1-12-1981 to 28-2-1983. During this period, the place of his duties or employment will be in India. As per the terms of his deputation, he was to be provided rent-free accommodation. Therefore, the place where he ordinarily resides was in India and the daily allowance granted to meet his personal expenditure at the place where the duties of his office were ordinarily performed. It would not be exempt under section 10(14). Now Explanation to section 10(14) takes away the exemption in respect of the special allowance or benefit which had been specifically granted to meet the expenses wholly, necessarily and exclusively incurred for the performance of duties of office. The Explanation will be effective if such an allowance was granted to meet his personal expenses at the place where the duties of his office are ordinarily performed. In reading section 10(14) together with the Explanation it would be seen that ordinarily the special allowance and benefits which had been granted to meet the expenses incurred while on duty will be exempt provided the duty is at a place other than the place where the assessee ordinarily performs his servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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