Back
High Court Of Calcutta
DIPAK KUMAR SEN, C. K. BANERJEE
N.SCIANDRA - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 325 Of 1974
Decided On : 06/06/1978
INCOME TAX - Salary - Perquisite - Tax paid by employer on behalf of employee - Whether can be treated as perquisite - Whether grossing up of salary is justified - Whether agreement between employer and employee stipulates payment of tax-free salary.
Fact of the Case:
The assessee, an Italian technician, was deputed to India by his Italian employer, Ansaldo, to work on a project of the Fertilizer Corporation of India (FCI). FCI and Ansaldo had entered into an agreement, which stipulated that FCI would pay all taxes and levies on Ansaldo's activities and profits arising out of the project, including taxes on the income of Ansaldo's foreign personnel. The assessee's salary was paid by Ansaldo, and FCI paid the tax liability on his salary to the Indian government. The assessee claimed exemption from income tax in India, but the ITO held that he was not entitled to the exemption as he had been a resident of India in the four financial years preceding his arrival in India for the project. The ITO also added an amount of Rs. 27,17,496, representing the tax paid by FCI, to the assessee's income as a perquisite under Section 17(2)(iv) of the Income Tax Act, 1961.
Finding of the Court:
The Tribunal upheld the ITO's assessment, holding that FCI had agreed to pay a tax-free salary to all foreign personnel deputed to the project and that the assessee was, therefore, entitled to a tax-free salary. The Tribunal also held that the amount paid by FCI as tax on the assessee's salary was a perquisite taxable in the hands of the assessee.
Issues: 1. Whether the amount paid by FCI as tax on the assessee's salary was an amount legally due or paid to the assessee as salary and could be treated as the assessee's salary income liable to be taxed in India? 2. Whether the daily allowance paid to the assessee was exempt from tax under Section 10(14) of the Income-tax Act, 1961? 3. Whether the Tribunal was right in rejecting the assessee's claim that there could be no grossing up of income on tax basis in the present case and that the Income-tax Officer erred in law in treating the sum of Rs. 27,17,496 as perquisite'taxable in the hands of the assessee? 4. Whether the Tribunal was right in rejecting the assessee's claim that in case the tax payable by the Fertiliser Corporation of India on his income in India is treated as perquisite, the value of such perquisite should in law be limited to the amount of tax actually paid during the relevant previous year? 5. Whether, on the facts and in the circumstances, the assessee was not at all liable to be taxed in India?
Ratio Decidendi: 1. The agreement between FCI and Ansaldo did not stipulate that the assessee would be paid a tax-free salary. The agreement only provided that FCI would help the assessee to claim total exemption of all taxes and if such attempt fails then the tax payable would be on the account of the Corporation. 2. The tax paid by FCI on the assessee's salary was not a perquisite within the meaning of Section 17 of the Income Tax Act, 1961, as it was not paid by FCI in respect of any obligation of the assessee resulting in a monetary liability of the assessee. 3. There was no relationship of employer and employee between the assessee and FCI. The agreement provided that all payments had to be made by FCI to the Italian company and that FCI had to pay to Ansaldo a stipulated amount on account of the services of the assessee. The certificate issued by FCI did not specifically state that the assessee is an employee of the Corporation.
Final Decision: The assessee's appeal was allowed. The questions referred to the court were answered in the negative and in favor of the assessee.
( 1 ) THE facts found and/or admitted in these proceedings are shortly as follows : the Fertilizer Corporation of India, a Government of India undertaking incorporated under the Companies Act, 1956 (hereinafter referred to as "the Corporation"), embarked on a project designated Durgapur Fertilizer Project, where it was decided to erect an ammonia plant in Durgapur, West Bengal. With that object the Corporation entered into agreements in writing with two Italian technical concerns, namely, Montecatini Edition S. P. A. , Milano (Italy) and Ansaldo S. P. A. , Genova (Italy) (hereinafter referred to as "ansaldo"), inter alia, for obtaining technical know-how and guidance and for supply of various technical equipments, machinery and instruments as also services of technical personnel. In the agreement by and between the Corporation and Ansaldo dated the 31st August, 1966, it was, inter alia, stipulated as follows :"3. 20. . . . . Ansaldo would make available at the plant site competent technicians and manufacturers' specialist erectors for supervision of site fabrication and erection and commissioning of certain major equipment/ machinery. . . . . . Ansaldo would tentatively make available the following personnel:5. 1. All prices and fees mentioned. . . . . and fees mutually agreed upon would be free of any taxes and/or levies of any kind that might be levied by any Indian authority in respect of Ansaldo's activity and/or profits arising or accruing in or out of India as a result of the performance of Ansaldo's supplies and services under the contract, including any such taxes and/or levies of the kind that might be levied on the income of the foreign personnel assigned to the project in India. Should any of the aforementioned taxes and/or levies be assessed upon Ansaldo or its foreign personnel by any Indian authority under any existing or future Indian laws or regulations, the total cost of all such levies would be paid by the Corporation. Provided, however, that such liability of the Corporation to pay taxes of the aforementioned foreign personnel would only arise if the requisite exemption for payment of income-tax asked for by Ansaldo but would not be granted by the Government of India under provisions of the Income-tax Act. The Corporation would render all possible assistance in the matter of obtaining such exemptions. However, all taxes, dues, customs duties and charges to be paid by Ansaldo in Italy as levied by the Italian Government authorities would be borne by Ansaldo. (Clause 1. Exhibit 2) (a) The Corporation would pay to Ansaldo the following rates for each day of absence from the usual place of work in Italy of the Ansaldo personnel engaged in the work : for a Chief Engineer 35,000 (thirty-five thousand) Italian lire plus 70 (seventy) rupees, for an engineer or equivalent 29,800 (twenty-nine thousand and eight hundred) Italian lire plus 70 (seventy) rupees. for a technical assistant 21,000 (twenty-one thousand) Italian lire plus 60 (sixty) rupees. for a foreman or chief erector 21,000 (twenty-one thousand) Italian lire plus 55 (fifty-five) rupees. The payment of the rupee portion shall commence from the date of arrival in India to and inclusive of the date of departure from India. (b) Provide at site free of charge furnished residential accommodation with air-conditioning; the scale of furnishing will be agreed upon mutually. (Clause 4. Exhibit 2) (c) The parties would determine, for each month, the estimated amounts, in Italian and in Indian currencies, due to Ansaldo under the above provision. The estimated monthly amounts so calculated would be paid to Ansaldo before the first day of each month as advance payments against the cost and expenses to be incurred by Ansaldo. Full settlement of the payments received and bills issued would be made within one month after the end of the work. Payments would be made in Italian lire in Geneva (Italy) for the Italian lire portion and in rupees, as Ansaldo will direct
AI
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
