TMI Blog1989 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that the salary of the assessees was not paid by FACT/FEDO but by the foreign company, Messrs. Davy Powergas GmbH., West Germany ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the salary and the living allowance received by the assessees were not assessable to tax under the Income-tax Act, 1961 ?" The respondents in these cases-assessees-are foreign technicians. In Income-tax Reference No. 173 of 1985, Messrs. Davy Powergas Inc., U. S. A., and FACT Ltd. had entered into an agreement with regard to Cochin Fertiliser Project Phase II expansion of the FACT. The services of the foreign technician (assessee) were made available to FACT. In Incometax References Nos. 52 to 55 of 1985, FEDO entered into an agreement with Messrs. Davy Powergas GmbH, West Germany (foreign company) for erection of equipment for Cochin Project Phase 11 of the FACT and, as per the contract, the foreign company sent the assessees in those four cases to India to supervise the erection of equipment. The services of the assessees (foreign technicians) were made available to FACT. In Income-tax Reference No. 173 of 1985, we are concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not by FACT Ltd. The foreign technicians were deputed by the foreign company to supervise the work under the terms of the agreement between the foreign company and FACT Ltd. In the light of the decision of the Gujarat High Court in S. G. Pgnatale's case [1980] 124 ITR 391, the Tribunal held that the salaries of the assessees were not earned in India. Following the same decision, the Tribunal also held that the living allowance, though paid to the technicians directly by FACT Ltd., were given to the assessees only as reimbursement, rather than as a personal advantage, and so the living allowance paid was not a perquisite. It was also not "salary" because it was neither a fee, nor commission, nor a perquisite, in view of salary or wages and the amount received by way of living allowance by various foreign technicians was not assessable. The observations of the Gujarat High Court in S. G. Pgnatale's case [1980] 124 ITR 391 were relied on to fortify the said view. It is thereafter at the instance of the Revenue that the two questions of law (extracted hereinabove) in the two sets of cases-one in Income-tax Reference No. 173 of 1985 and the other in Income-tax References Nos. 52 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be advanced by the Revenue at this stage. The assessees' counsel submitted that the questions referred to this court cannot be considered by invoking or by placing reliance on the Explanation to section 9(1)(ii) of the Act in any manner or to any extent or to any purpose. Reliance was placed on the decision in CIT v. C. Shantilal and Co.[1982] 136 ITR 522 (Guj). Counsel for the assessees also submitted that the Explanation introduced by the Finance Act, 1983, with effect from April 1, 1970, is really a substantive provision and no reliance can be placed for a period with which we are concerned, since they were long before April 1, 1979. The Explanation is only by way of clarification and so it cannot operate retrospectively or for a period anterior to the date specified by the statute itself, i.e., for the period anterior to April 1, 1979. We are of the opinion that the above arguments of counsel for the assessees are entitled to acceptance. We do so. Counsel for the Revenue placed reliance on the Notes on Clauses relating to the Explanation to section 9(1)(ii) of the Act, contained in the Finance Bill, 1983, has the following effect: "Sub-clause (b) seeks to amend clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main provision in rare cases. The words used alone can reflect the true intent and they should be construed on their own terms. In this regard, the context, background and history of the legislation may be looked into-See Aphali Pharmaceuticals Ltd. v. State of Maharashtra, AIR 1989 SC 2227 ; 4 SCC 378, p. 393, paragraph 33 -wherein the Supreme Court has analysed the entire law on the point. Kanga and Palkhivala in their book The Law and Practice of Income Tax, 7th edition (1976) at page 207, stated the scope of section 9(1)(ii) of the Act read with sub-section (2) as follows : "Clause (ii) of sub-section (1) provides an artificial place of accrual for income taxable under the head 'Salaries'. It enacts that income chargeable under the head 'Salaries' (section 15) is deemed to accrue or arise in India if it is earned in India, i.e., if the services under the agreement of employment are or were rendered in India, the place of receipt or actual accrual of the salary being immaterial for this purpose." A similar view was expressed by other authors also. These views were noticed when the matter was considered by the Bench of the Gujarat High Court in S. G. Pgnatale's case [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (ii) must be interpreted as 'arising or accruing in India' and not from 'service rendered in India', 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." Regarding the "living allowance" paid to the foreign technicians, the court stated in the said decision as follows at page 403 of the report: "In our opinion, in view of the facts of the case before us, it is clear that the amount of living allowance paid to the assessee per day in the light of the provisions of the supply contract between the French company and the Gujarat company and emphasised as one of the terms and conditions of deputation to the assignment of work in India in the letter of June 30, 1971, is clearly a reimbursement to the assessee for the money that he would be required to spend for his stay in India. It seems that there was no perquisite involved in this case and hence the French company, the original employer with whom the assessee was working, even when he was not sent out to India on this particular assignment, had assure ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
