ALESSANDRO CONSTANTINI VS COMMISSIONER OF INCOME-TAX
1999 P T D 1644
[226 I T R 883]
[Gujarat High Court (India)]
Before Rajesh Balia and M.S. Shah, JJ
ALESSANDRO CONSTANTINI
Versus
COMMISSIONER OF INCOME-TAX
Income-tax References Nos.249 and 285 of 1982, decided on /09/1995.
(a) Income-tax--
----Non-resident---Collaboration agreement between Indian company and foreign company---Employee of foreign company working in India as part of collaboration agreement---Remuneration payable to employee of foreign company remitted to foreign company---Amount remitted to- foreign company not taxable in hands of employee of foreign company---Indian Income Tax Act, 1961, S.16.
(b) Income-tax---
----Salary---Deduction---Exemption---Collaboration agreement between Indian company and foreign company---Employee of foreign company working in India as part of collaboration agreement---Pocket allowance paid to employee by Indian company ---Assessee was not an employee of Indian Company but he received pocket allowance as an employee of foreign Company---Amount was assessable as salary in his hands---Pocket allowance not entitled to exemption under S.10(14)---Standard deduction could be claimed from pocket allowance---Indian Income Tax Act, 1961, Ss.10(14) & 16.
The assessee was a non-resident working with an Indian Company between November 27, 1975 and June 16, 1976. The Indian Company had a collaboration agreement with an Italian collaborator company. The assessee was an employee of the collaborator company and had been sent to India at the instance of his employer in Italy to work as Chief Design Engineer at the Indian company. According to the letter containing the terms of employment of the assessee, he was appointed by the technical collaborator company as Chief Design Engineer to work with the Indian Company for a period of approximately three years (1095 days). Salary at the rate of 75 dollars per day was to be remitted to the collaborator company by the Indian company. He was entitled to pocket allowance at the rate of Rs.110 per day, free of taxes payable in India. Apart from the aforesaid two sums, he was also entitled to free furnished quarters, and transport to and from the works. The sums payable and money value of the free flat and transport provided by the Indian company was assessed as income from salary earned by the assessee during the assessment year 1976-77. The assessee contended that the remuneration at the rate of 75 dollars per day payable by the Indian company had neither accrued nor was it received in India and hence, was not taxable in India. The assessee had claimed the value of the perquisite in the form of residential accommodation, motor car, driver's salary and pocket allowance as exempt under section 10(14) of the Income Tax Act, 1961. This claim was rejected by the Income-tax Officer as well as by the Appellate Assistant Commissioner. The Tribunal found that, from the letter addressed to the assessee, the employer-employee relationship between the assessee and the Indian company could not be spelt out at all. The Tribunal held that the remittance at the rate of 75 dollars per day for the period the assessee was in ,India was not taxable. The sum of Rs.945 paid for running a motor car was held to be not assessable in the hands of the non-resident technician. Regarding the pocket allowance which was undoubtedly received by the assessee in India, the Tribunal arrived at the finding that the assessee had not been able to substantiate the claim that this amount was paid in order to meet the increased cost of living in India. While holding that the pocket allowance was taxable in the hands of the assessee it further held that as the said allowance was not paid to the assessee in his capacity as employee of the Indian company the receipt could not be regarded as taxable under the head of "Salary" and, therefore, standard deduction from that income was not permissible. On a reference:--
Held (i) that the Tribunal was right in coming to the conclusion that having regard to the provisions of section 16 of the Income Tax Act, 1961, the amounts of Rs.70,875, Rs.7,908 and Rs.945 were not taxable in the hands of the assessee.
CIT v. S.G. Pgnatale (1980) 124 ITR 391 (Guj.) fol
(ii) That the assessee was not an employee of the Indian company and the Indian company had not paid the allowance to the assessee as part of his pay, that is to say so far as the Indian company was concerned, it was an expense incurred for having collaboration. However, while assessing, the basic question is not what is the nature of the payment in the hands of the payer but what is the nature of the receipt in the hands of the assessee and under what head of income it is to be taxed in his hands. It was neither the case of the assessee nor was there a finding that the assessee was not an employee of the collaborator company. Even according to the case, and as found by the Tribunal he was to receive his remuneration from the collaborator. He did not receive any amount de hors the employer-employee relationship between himself and the collaborator company. Therefore, so far as the assessee was concerned all amounts paid to him or benefits that accrued to him for his working with the Indian company were income from salary in his hands. The pocket allowance, which he received from the Indian company in India while discharging his duties as an employee of the foreign collaborator was income chargeable to tax from salaries. The Tribunal had found that the assessee had not been able to substantiate the claim that the pocket allowance had been paid in order to meet the excess cost of living which the foreign technician had to incur in India, over and above what he would have incurred in Italy. It had also been found that the amount was paid to the assessee even when he was at his headquarters at a fixed rate. Therefore, the pocket allowance was not exempt from tax under section 10(14). However, the assessee would be entitled to standard deduction from the amount.
K.A. Puj for J.P. Singh for the Assessee (in Income-tax Reference No.249 of 1982).
B.J. Shelat instructed by M.R. Bhatt for the Commissioner.
K.A. Puj for the Assessee (in Income-tax Reference No,285 o1 1982)
JUDGMENT
RAJESH BALIA, J.--- Two separate statements of cases have been submitted and the questions of law referred to this Court for decision by the Income=tax Appellate Tribunal are from the very same order passed in Appeal No.834/Ahd./80 for the assessment year 1976-77, and we propose to decide these referred applications together by this common order.
The facts as found by the Tribunal are that Mr. Alessandro Constantini, the assessee, is a non-resident assessee. Air Control and Chemical Engineering Company (hereinafter referred to as the Indian company) was assessed as employer of the assessee on the strength of a general power of attorney held by it. The assessee was working with Air Control and Chemical Engineering Company between November 27, 1975 and June 16, 1976. The Air Control and Chemical Engineering Company had a collaboration agreement with Italiviscosa Eastern Trading and Milan (hereinafter called as "the collaborator company"). The assessee was an employee of the collaborator company and was sent to India at the instance of his employer in Italy to work as chief design engineer at the Indian company. According to the letter containing the terms of employment of the assessee, he was appointed by the technical collaborator as chief design engineer to work with the Indian company for a period of approximately three years (1095 days). Salary at the rate of 75 dollars per day was to be remitted to the collaborator company by the Indian company. He was entitled to pocket allowance at the rate of Rs.110 per day free of taxes payable in India. Apart from the aforesaid two sums he was also entitled to a free' furnished flat and transport to and from the works.
The sums payable and money value of the free flat and transport provided by the Indian company was assessed as income from the salary earned by the assessee during the previous assessment year 1976-77. The assessee contended that the remuneration at the rate of 75 dollars per day Payable by the Indian Company had neither accrued nor was received in India. The assessee is a non-resident Indian and, therefore, the said income was not liable to be taxed under the Income-tax Act. The assessee had claimed the value of the perquisite in the form of residential accommodation, motor car, driver's salary and pocket allowance as exempt under section 10(14) of the Act. This claim was rejected by the Income-tax Officer as well as the Appellate Assistant Commissioner. However, relying upon the decision of this Court in the case of CIT v. S.G. Pgnatale (1980) 124 ITR 391, the Tribunal found that from the letter addressed to the assessee, the employer-employee relationship between the assessee and the Indian company could not be spelt out at all. If at all Alessandro could be an employee of the collaborator temporarily or otherwise despatched to India to work with the Indian company. This would be a case of services lent but certainly not one of appointment by the Indian company. In view of the aforesaid terms of payment of remuneration, which have come on record, the Tribunal came to the conclusion that the non-resident technician received no payment from Indian company at any rate whatever he may receive for his work in India will be received only abroad. In view of that finding, the Tribunal applied the ratio of CIT v. S.G. Pgnatale (1980) 124 ITR 391 (Guj.) to hold that the remittances at the rate of 75 dollars per day for the period the assessee was in India as not taxable. Relying upon the same decision the sum of Rs.945 paid for running a motor car was held to be not assessable in the hands of the non-resident technician.
Regarding the pocket allowance which was undoubtedly received by the assessee in India; the Tribunal arrived at the finding that the assessee has not been able to substantiate the claim that this amount was paid in order to meet the increased cost of living in India and on this count distinguished the case relied upon by the assessee referred to above. While holding that the pocket allowance was taxable in the hands of the assessee it further held that as the said allowance was not paid to the assessee in his capacity as an employee of the Indian company the receipt cannot be regarded as taxable under the head of salary and, therefore, the standard deduction from that income is not permissible.
Both the assessee as well as the Commissioner of Income-tax applied under section 256(1) of the Income-tax Act for referring suggested questions of law arising out of the order of the Tribunal for the decision of this Court.
At the instance of the Commissioner of Income-tax in Reference Application No.755/Ahd of 1981, the Tribunal referred the following four questions of law arising out of I.T.A. No.834 of 1980 which form part of the Income-tax Reference No.285 of 1992:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right to coming to the conclusion that having regard to the provisions of section 16 of the Income Tax Act, 1961, and/or under section 9 of the Income-tax Act, 1961, a sum of Rs.70, 875 and sums of Rs.7, 908 and Rs.945 were not taxable at the hands of the assessee?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in not deciding whether the assessee was or was not an employee of the firm, Air Control and Chemical Engg. Co.?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in not deciding the question whether the employment of the assessee was a composite contract or contract for a period of not less than 1,095 days?
(4) Whether, on tile facts and in the circumstances of the case, the :Appellate Tribunal was right in holding that the amount received by the assessee outside India for services performed in India was not taxable under the Income-tax Act, 1961?"
At the instance of the assessee, the Tribunal referred the following questions of law for our decision in Reference Application No.737/Ahd of 1981 which form part of Income-tax Reference No.249 of 1982:--
"(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no real income by way of remuneration arose to the assessee?
(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the pocket allowance of Rs.13,R60 is taxable in the hands of the assessee and the case of C IT v. S.G. Pgnatale (1980) 124 ITR 391 (Guj.) applies?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the pocket allowance was not paid to the assessee in his capacity of an employee of an Indian company?
(4) Whether oil the facts and in the circumstances of the case, the Tribunal was right in law in adjudicating upon the point of standard deduction of Rs.3,500 or Rs.1,000 in a manner whereby the assessee, which was the appellant before it became worse off and the Department which was not an appellant became better off?"
First of all, taking the questions referred at the instance of the Commissioner of Income-tax it is to be noticed that in substance, the Revenue is contesting the finding of the Tribunal that the employer-employee relations between Allessandro and the Indian company cannot be spelt out at all and if at all, Allessandro could be only an employee of the collaborator working with some conditions. Learned counsel for the Revenue wants this Court to draw a different conclusion about the employer-employee relation between the assessee and the Indian company by distinguishing the decision in S.G. Pgnatale' s case (1980) 124 ITR 391 (Guj.). However, at the time of hearing, we have been informed by both learned counsel that in the case of the very same assessee for the subsequent year when he was again in India, under the agreement referred to above, the matter had come up before this Court in the like circumstances with reference to remuneration remitted to the collaborator and the value of perquisites in the form of free furnished accommodation in Income-tax Reference No. 102 of 1988. The two questions referred to this Court for decision by the Tribunal have been decided as under:--
"It is not necessary to set out the facts involved in this reference in detail as the questions which have been referred to us for our opinion are directly covered by the decision of this Court in the case of S.G. Pgnatale' (1980) 124 ITR 391. Following the said decision and for the reasons recorded therein, we answer question No.l in the affirmative and against the Revenue and question No.2 in the negative and. against the Revenue. Reference answered accordingly with no order as to costs. "
In view of the aforesaid decision of this Court in the assessee's own case, it must be held that the Tribunal was right in coming to the conclusion that having regard to the provisions of section 16 of the Income-tax Act, 1961, Rs.7,908 and Rs.945 were not taxable in the hands of assessee. That is to say, question No. l at the instance of the Commissioner of Income-tax is to be answered in the affirmative, in favour of the assessee and against the Revenue.
In view of the answer to question No. l and the decision of this Court, that the ratio of S.G. Pgnatale (1980) 124 ITR 391 (Guj.) is applicable to the facts of the assessee, the answers to questions Nos.2, 3 and 4 have become academic and does not require to be answered. We accordingly decline to do so. However, we may observe that question No-2 does not appear to have been framed in the correct perspective inasmuch as the Tribunal has in fact found that the assessee was not an employee of the Indian company.
Coming to the reference at the instance of the assessee at the outset it may be stated that these questions referred by the Tribunal have also direct relation to applying the ratio of the decision in the case of S.G. Pgnatale (1980) 124 ITR 391 (Guj.). In the said case, living allowance paid to a non resident technician was held as income not taxable in the hands of the assessee because in the facts and circumstances of the case, the Court reached the conclusion that the allowance was being paid to the assessee as reimbursement rather than a personal advantage given to the assessee and was not a perquisite. Relying upon that decision, learned counsel for the assessee contends that the ratio of that decision is fully applicable to the facts of the present case also inasmuch as the assessee is also being paid pocket allowance as reimbursement of expenses of the cost of living here. Learned counsel for the Revenue joins issue. We have carefully considered the contentions raised before us and having regard to the finding of the Tribunal we are unable to accept the contention of learned counsel for the assessee.
Exemption from pocket allowance was claimed under section 10(14) of the Income-tax Act. We may note here that as per the Explanation it was clarified that any allowance granted to the assessee to meet personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, shall not be regarded, for the purposes of this clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties. That clearly indicates that any sum paid as pocket allowance with reference to reimbursement of any expenses incurred at the usual place of employment or residence is not to be treated as allowance exempted under that clause. The Tribunal has found that the assessee has not been able to substantiate the claim that the amount is paid in order to meet the excess cost of living which the foreign technician has to incur in India over and above what he would have incurred in Italy. It has also been found that the amount was paid to the assessee even when he is at his headquarters at a fixed rate per day. Therefore, in our opinion, the Tribunal was justified in holding that the amount of pocket allowance which was undoubtedly received by the assessee in India is taxable in his hands. The decision in the case of S.G. Pgnatale (1980) 124 ITR 391 (Guj.), in our opinion, is clearly distinguishable on the facts as far as this case is concerned. The facts which were noticed by the Court were that under the terms of the agreement, the assessee was paid Rs.220 per day when posted in Delhi or Rs.150 per day when posted in Bombay. It was further stipulated under the agreement that in case furnished accommodation for his stay 7n India was allowed, then the daily allowance was to be reduced. It was by taking into consideration all these terms and the difference in payment of the amount at different places and its adjustment depending upon providing free furnished residential accommodation and free advances that the Court concluded that it was reimbursement of expenses and not by way of any personal advantage to the assessee. We are, therefore, unable to accept the contention of learned counsel for the assessee that the assessee's case is governed by the decision of S.G. Pgnatale' s case (1980),124 ITR 391 (Guj.) in so far as the taxability of pocket allowance is concerned. Question No.2 accordingly is answered in the affirmative that is to say in favour of the Revenue and against the assessee.
Questions Nos. 1, 3 and 4, in our opinion, are inter related and in fact are a part of question No.3, viz. if the amount of pocket allowance is taxable in the hands of the assessee whether it is taxable in the hands of the assessee as part of remuneration received by the employee under the head
"Salary" and admits of standard deduction allowable under the head "income from salaries".
Undoubtedly as per the finding of the Tribunal the assessee was not an employee of the Indian company and the Indian company has not paid the allowance to the assessee as part of his pay, as paid to an employee that is to say so far as the Indian company is concerned it is an expense incurred for having service of collaboration. However, while assessing the assessee, the basic question is not what is the nature of payment in the hands of the payer but the basic question is what is the nature of the receipt in the hands of the assessee and under what head of "Income" it is to be taxed in his hands. It is neither the case of the assessee nor is it the finding that the assessee was not an employee of the collaborator company. Even according to his case and as found by the Tribunal he was to receive his remuneration from the collaborator. Whatever was to be paid for the services of the assessee was to be remitted to the collaborator company and it was from the collaborator company that the assessee was to receive his remuneration as per the terms and conditions with the collaborator company and he worked in India purely as an employee of the collaborator company for the Indian company. He did not receive any amount de hors the employer-employee relationship between himself and the collaborator company. Therefore, so far as the assessee was concerned all amounts paid to him or benefits that accrued to him for his working with the Indian company, in our opinion is an income from his salary in his hands. He being a non-resident Indian, only income which accrued to, or received by him, in India, as a result of his work in India under the terms of employment with the collaborator company could be taxed under the Income-tax Act under the head of salaries. That being so, the pocket allowance which he received from the Indian company in India while discharging his duties as an employee of the foreign collaborator was income chargeable to tax from salaries and accordingly it will have to be computed under that head. It will also, therefore, be eligible for deductions as are permissible while computing "income from salary". We are of the opinion that while the Tribunal was right in holding that the pocket allowance was not paid to the assessee in his capacity as an employee of the Indian company yet it being remuneration forming part of salaries in the hands of the assessee, the Tribunal was not right in holding that standard deduction either of Rs.3,500 or Rs.1,000 was not allowable from the aforesaid income as deduction in the hands of the assessee. Accordingly, we answer questions Nos. 1, 3 -and 4.
Both references stand disposed of. There will be no order as to costs,
M.B.A./1974/FCOrder accordingly