1984 (11) TMI 113 - AT - Income Tax

Issues Involved:
1. Employment status of foreign technicians.
2. Taxability of salary, daily allowance, and perquisites.
3. Applicability of exemption under Section 10(6)(vi)/(viia) of the IT Act.
4. Interpretation and applicability of Explanation to Section 9(1)(ii) of the IT Act.

Issue-Wise Detailed Analysis:

1. Employment Status of Foreign Technicians:
The primary issue was whether the foreign technicians were employees of the Food Corporation of India Ltd. (F.C.I.) or the foreign company (M/s Montesatini Edison, now Technimont). The Income Tax Officer (ITO) held that the foreign technicians were employees of the F.C.I., citing salary certificates issued by F.C.I., government approvals obtained by F.C.I., and the lack of assessment of the foreign company in India. Conversely, the Commissioner of Income Tax (Appeals) [CIT(A)] noted that the technicians were paid in Italian currency by the foreign company, indicating that they were employees of the foreign company. The Tribunal, following its earlier decisions, concluded that the technicians were employees of the foreign company and not F.C.I.

2. Taxability of Salary, Daily Allowance, and Perquisites:
The ITO included the salary, daily allowance, and perquisites in the taxable income of the assessees, arguing that these were part of the technicians' remuneration while employed by F.C.I. The CIT(A), however, exempted these from Indian income-tax, relying on the Gujarat High Court decision in CIT vs. S.G. Pgnatale, which held that such income was not taxable in India. The Tribunal upheld the CIT(A)'s decision that the salary certificates issued by the foreign company should be accepted for income tax purposes. However, it was held that the daily allowance was not exempt under Section 10(14), and the value of rent-free furnished accommodation was liable to tax.

3. Applicability of Exemption under Section 10(6)(vi)/(viia) of the IT Act:
The ITO denied the exemption under Section 10(6)(vi)/(viia), arguing that it applied only if the technicians were employees of F.C.I. and that the foreign company did not carry on business in India. The CIT(A) disagreed, finding that the technicians were employees of the foreign company and thus eligible for exemption. The Tribunal, while agreeing with the CIT(A) on the employment status, noted that the daily allowance and rent-free accommodation were still taxable.

4. Interpretation and Applicability of Explanation to Section 9(1)(ii) of the IT Act:
The Tribunal considered the Explanation to Section 9(1)(ii) inserted by the Finance Act, 1983, which clarified that income for services rendered in India is deemed to be earned in India, effective from 1st April 1979. The revenue argued that this reflected the true legislative intent from the commencement of the IT Act, 1961. The Tribunal held that this Explanation was procedural and applicable to assessments pending as of 1st April 1979, even if the assessment years were earlier. The Tribunal's earlier decision on 31st August 1983, which took this Explanation into account, was upheld.

Separate Judgment by H. S. Ahluwalia:
H. S. Ahluwalia concurred with the conclusion but added that the Explanation to Section 9(1)(ii) should be considered procedural and applicable to assessments pending as of 1st April 1979. He also noted that even without the Explanation, several Tribunal decisions had treated such income as taxable. Additionally, he highlighted that the status of some assessees should be reconsidered as residents based on their stay in India, which could affect their tax liability. He directed the ITO to reassess the status and income computation of the assessees accordingly.

Conclusion:
The appeals by the revenue were partly allowed. The Tribunal held that the foreign technicians were employees of the foreign company, and salary certificates from the foreign company should be considered for tax purposes. However, daily allowances and rent-free accommodations were taxable. The Explanation to Section 9(1)(ii) was deemed procedural and applicable to pending assessments as of 1st April 1979. The ITO was directed to reassess the status and income of the assessees, considering their residency status.

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