1986 (10) TMI 70 - AT - Income Tax

Accounting Year Guest House Income Deemed To Accrue Or Arise In India Income Tax Indian Company Special Allowance

Issues Involved:
1. Taxability of salary received by a non-resident in the USA for services rendered in India.
2. Taxability of living allowances and reimbursements received in India.
3. Taxability of notional value of rent-free accommodation provided in India.
4. Taxability of tax paid by the Indian company on behalf of the assessee.

Issue-wise Detailed Analysis:

1. Taxability of Salary Received by a Non-resident in the USA for Services Rendered in India:
The primary issue was whether the salary receivable by a non-resident in the USA is taxable in India because the services were rendered in India. The assessee, a resident of the USA, was recruited by an American company for a project in India. The salary was paid in the USA, but the services were rendered in India. The ITO taxed the entire salary received in the USA. The Commissioner (Appeals) upheld this inclusion, relying on the retrospective amendment introduced by the Finance Act, 1983, which stated that income payable for services rendered in India shall be regarded as income earned in India. The Tribunal concurred with this interpretation, noting that the amendment addressed the lacuna identified by the Gujarat High Court in CIT v. S.G. Pgnatak. Thus, the salary credited to the assessee in America was deemed taxable in India.

2. Taxability of Living Allowances and Reimbursements Received in India:
The assessee received living allowances and reimbursements from the Indian company. The ITO included these amounts as taxable income. The Commissioner (Appeals) upheld this inclusion, citing section 17(3) of the Income-tax Act, 1961, which covers all payments received by the assessee from his employer. The Tribunal agreed, stating that the term 'salary' under section 9(1)(ii) includes salaries, perquisites, and any payment in lieu of salaries. The Tribunal also noted that the reimbursement of expenses is a taxable receipt since it fills the hole created by the initial expenditure incurred by the assessee.

3. Taxability of Notional Value of Rent-free Accommodation Provided in India:
The ITO added a notional value for the rent-free accommodation provided to the assessee in the Indian company's guest house. The Commissioner (Appeals) upheld this inclusion. The Tribunal, however, found that the assessee was accommodated in a guest house, which cannot be equated with providing rent-free accommodation. Thus, the addition of Rs. 11,620 as the value of rent-free accommodation was not sustained.

4. Taxability of Tax Paid by the Indian Company on Behalf of the Assessee:
The ITO added the tax payable by the Indian company as part of the assessee's income. The Commissioner (Appeals) upheld this inclusion, relying on the Bombay High Court's decision in Emil Webber v. CIT, which held that tax paid by the Indian company is assessable under the head 'Income from other sources'. The Tribunal agreed, stating that the liability to pay income-tax accrues as soon as the income is earned, and thus, the right for reimbursement of the tax payable by the Indian company accrues to the assessee.

Conclusion:
The Tribunal partially allowed the appeal, upholding the taxability of the salary received in the USA for services rendered in India, living allowances, and the tax paid by the Indian company on behalf of the assessee. However, it did not sustain the addition of the notional value of rent-free accommodation provided in the guest house.

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