INCOME TAX OFFICER Vs. M SHIMIZU
INCOME TAX APPELLATE TRIBUNAL
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B.L. Chhibber, Accountant Member -
(1.) SINCE common issues are involved in these 9 appeals by the Revenue, the same are consolidated and disposed of by a single order for the sake of convenience.
(2.) All the nine assessees are Foreign Technicians and are employees of the Japanese company viz. SHIN-ETSU Chemical Co. Ltd. (hereafter referred to as 'SHIN-ETSU') which entered into Technical Assistance Agreement with Gujarat Alkalies and Chemicals Limited (hereinafter referred to as GACL) on April 22, 1981. As part of this agreement SHIN-ETSU lent services of these Technicians to GACL to advise and assist in the construction, erection, installation and start-up of the Plant. Para 5 of the agreement in so far as it is relevant to the remunerations paid by GACL to the assessees is in the following words :
5. Terms and conditions for SHIN-ETSU'S representatives dispatched to LICENSEE.-[I) All the following fees and expenses shall be borne by LICENSEE :
(a) Absence fee of Japanese Yen Seventy Thousand (Y 70,000) per day for each day for each SHIN-ETSU'S representative away from his regular place of employment.
(b) Out of pocket expenses of net Rs. 200.00 per day (excluding withholding income-tax or any other taxes or duties payable in India) for each day for each SHIN-ETSU'S representative away from his regular place of employment.
(c) All travel and lodging expenses incurred by each SHIN-ETSU'S representative, including airfare from Japan to India and return, and all travel inside India as circumstances require.
(d) All the expenses such as postal, telex and telegram charges, for communications to be made by SHIN-ETSU'S representatives in connection with the construction, erection and installation of the Licensed Plant between India and Japan.
The first and main controversy in all these cases is whether the assessees, during their stay in India, were employees of GACL or they continued to be employees of SHIN-ETSU. It was the contention of the assessees before the Assessing Officer that they were never employees of GACL and continued to be employees of SHIN-ETSU Company, and hence their remunerations were not subject to any income-tax in India. It is an admitted fact that total stay of the assessees in India was for 72 days. It was the contention of the assessees before the Assessing Officer that their stay in India being below 90 days the provisions of Section 10(6)(iii) were applicable to them and their entire income was exempt from taxation. Section 10(6)(iii) reads as under :-
(6) in the case of an individual who is not a citizen of India :
(vi) the remuneration received by him as an employee of a foreign enterprises for services rendered by him during his stay in India, provided the following conditions are fulfilled :-
(a) the foreign enterprise is not engaged in any trade or business in India ;
(b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and
(c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act.
The Assessing Officer rejected the contention of the assessees as according to him, any amount earned by the assessee for rendering services in India becomes taxable within the meaning of Section 17 of the IT Act read with Section 10(6)(viia) of the Act. Accordingly, the Assessing Officer held that the amount received by the assessees as living allowance or any income earned in the form of perquisites and the remuneration paid to them abroad became taxable in India as the same was deemed to accrue or arise in India. In para 6 of his order, the Assessing Officer has come to the conclusion that conditions contained in Clauses (a) & (b) above are satisfied but the condition in Clause (c) is not fulfilled as the remuneration paid to the assessees is liable to be deducted from the income of the employer i.e., GACL chargeable under the Indian Income-tax Act. In other words, the Assessing Officer has taken the position that during the assessees' stay in India they were employees of GACL for the purpose of income-tax assessments.
On appeal, learned CIT (Appeals) reversed the findings of the Assessing Officer. He noted that the Agreement dated 22nd April, 1981 between GACL & SHIN-ETSU company makes it clear that SHIN-ETSU had agreed to place the services of some of its technicians at the disposal of GACL for technical work to be carried out by them in India in terms of the said agreement. He further noted that the remuneration received by SHIN-ETSU from GACL for the various technicians including the assessees was treated by it as its income earned in India on which it had paid tax as per the provisions of Section 115A of the IT Act. No part of this remuneration was claimed as a deduction by SHIN-ETSU for the purpose of payment of tax on its income earned in India by virtue of the agreement with GACL-The CIT (Appeals) therefore held as under :
In view of that, I am of the view, that the Assessing Officer has wrongly come to the conclusion that the condition laid down in Clause (c) of Section 10(6)(iii) is not fulfilled in this case. In my view the conditions laid down in all the three clauses i.e., (a), (b) & (c) of Section 10(6)(iii) are fulfilled in this case and therefore the remuneration received by the appellant from GACL is exempt under the said section. On the facts of the case I hold that the provisions of Section 10(6](viia) are not applicable to the appellant's case. The appellant's learned counsel has also drawn my attention to Article VII of the agreement between the Government of India and the Government of Japan for the avoidance of Double Taxation which has been published as notification No. 165/ 32/58-IT, dated 13-6-1960. Article VII of the Double Taxation Agreement is in the following words :
Remuneration paid to an individual who is resident in one of the contracting States for personnel services performed within the other contracting State shall not be subject to tax in that other contracting State if (a) he is present within the other contracting State for a period or periods not exceeding in the aggregate 183 days during any taxable year or previous year, as the case may be ; (b) the services are performed for or on behalf of a resident of a former contracting State; and (c) the remuneration is not deducted in computing profits of an enterprise chargeable to tax in that other contracting State.
On the basis of the above Article in the Double Taxation Agreement between the two Governments, the learned counsel argued that the remuneration paid to the technicians would also be exempt from Indian income-tax. I agree with the appellant's counsel on this issue. In terms of Article VII of the Double Taxation Agreement dated 13-6-1960 between India and Japan also the remuneration paid by GACL to the appellant would be exempt from Indian income-tax.
(3.) THE learned Departmental Representative relied upon the orders of the Assessing Officer. Shri H.M.Talati, the learned counsel for the assessees took us through Technical Assistance Agreement entered into between GACL and SHIN-ETSU on 22-4-1981 and the Agreement for Avoidance of Double Taxation between India and Japan (Notification No. GSR 692, dated 13-6-1960) and submitted that all the conditions laid down in Section 10(6)(iii) are applicable in the assessees' case and therefore their cases squarely fall under the provisions of Section 10(6)(iii) and not under Section 10(6)(iiia) as erroneously assumed by the ITO. He further submitted that the assessees continued to be the employees of SHIN-ETSU and during 72 days stay in India were never the employees of GACL. He further submitted that whatever remuneration was received from GACL for the various technicians, was shown as gross income of the Japanese company and it had paid tax on the same as per provisions of Section 115A of the IT Act. He further submitted that the assessees had paid tax in Japan as per Japan Tax Law. In support of this he filed before us letter from 'SHIN-ETSU' which reads as under :
In respect of our employees deputed as technicians to M/s. Gujarat Alkalies and Chemicals Limited (GACL), Baroda, India, for their Chloromethances Project, this is to confirm that aforesaid Japanese employees in our letter dated August 14, 1989 have paid tax in Japan as per Japanese Tax Law, on their salary income for entire year of 1986 including the period of their stay in India for GACL project.
THE learned counsel for the assessees therefore concluded that the assessees were not liable to pay income-tax in India on their remuneration earned during their stay in India.;
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