HINDUSTAN POWERPLUS LTD ; IN RE: CATERPILLAR INDIA P LTD ; IN RE: THOMAS E LAWRENCE Vs. STATE

JUDGEMENT

(1.) SYED Shah Mohammed Quadri, J. (Chairman) 1. These three applications, under Section 245Q(1) of the IT Act, 1961 (for short the "Act"), raise common points. The applicants in the first and the second mentioned applications are Indian companies; the applicant in the third application is a foreign technician who was resident in India in some assessment years only. To appreciate ' the questions involved in these applications, a reference to facts in application No. AAR/562/2002 would suffice. The applicant, M/s Hindustan Powerplus Ltd., is an Indian company. It was incorporated as a joint venture on 18th Oct., 1988, and is having its office at Chennai (Tamil Nadu) and factory at Hosur (Karnataka). It entered into an agreement with M/s Caterpillar Inc., USA (for short, the "Caterpillar-USA") for supplying technical services and assistance of qualified individuals to coordinate the activities of the applicant, Pursuant to that agreement, one Mr. Steven D. Dickinson, technician (hereinafter referred to as "technician") was deputed by Caterpillar-USA. The applicant paid US $ 1,15,895 per annum to Caterpillar-USA, as fee for technical services, after deducting tax under Section 195 of the Act. The technician received his salary in US $ 1,17,627 from Caterpillar-USA. However, the applicant provided to the technician the following expenses and facilities free of income-tax : (i) Living expenses Rs. 35,000 p.m. (ii) Furnished house. (iii) Air fare and per diem expenses for the rest and recuperation travel once to Hong Kong and twice to Singapore every year. (iv) Home travel once a year to the U.S. for him and his family. (v) Car for official and personal use. On these facts, the applicant sought rulings of the Authority on the following questions : (a) Whether, on the facts and in the circumstances of the case, the sum of US $ 1,15,895 paid by the applicant to Caterpillar Inc., USA, is liable to tax under the Indian IT Act, and if so, under what provision and under what head of income ? (b) Whether, on the facts and in the circumstances of the case, the sum of USD 1,17,627 being the salary received by Mr. Steven D. Dickinson in USA from Caterpillar Inc. is liable to tax in India, under the IT Act ? If so, under what provision and under what head of income ? (c) If the answers to questions (a) and (b) are in the affirmative, can each of the aforesaid payments be telescoped into the other, to attract a single liability to tax in India ? (d) If the answer to both questions are in the affirmative, would it amount to double taxation of the same transaction and/or income and is it open to the Department to impose such a levy ? (e) Whether, on the facts and in the circumstances of the case, is the sum of Rs. 35,000 per month paid by the applicant to Steven D. Dickinson towards the estimated living expenses liable to tax in India, as his income ? (f) Whether, on the facts and in the circumstances of the case, are the other facilities/benefits provided by the applicant to Mr, Steven D. Dickinson and detailed in the statement of facts liable to tax in India ? (g) If the answer to the question (f) above is in the affirmative, what is the method of valuation of the said facilities/benefits ?

(2.) The applicant in AAR/563/2002, M/s Caterpillar India (P) Ltd. ("CIPL") is also a resident Indian company. It is 100 per cent subsidiary of Caterpillar-USA. One Mr. Rodney D. Naron (for short "Mr. Naron") is deputed to CIPL under the aforementioned agreement. In regard to amounts paid and the facilities provided to Mr. Naron, the following questions are framed in the application for seeking rulings of the Authority : (a) Whether, on the facts and in the" circumstances of the case, the salary earned by Mr. Rodney D. Naron from Caterpillar Inc. in the USA is liable to tax in India under the IT Act, if so, under what provision of law and under what head of income ? (b) Whether the living expenses of Rs. 40,000 per month payable by the applicant to Mr. Rodney D. Naron is liable to tax in India, if so, under what provision of law and under what head of income ? (c) Are the other facilities detailed in column 8 provided by the applicant to Mr Rodney D. Naron in India liable to be treated as perquisites and/or liable to be assessed as income in the hands of Mr. Rodney D. Naron in India ? (d) If the answer to the question (c) above is in the affirmative, how are the aforesaid facilities to be evaluated and the basis for such valuation. (e) If the answer to questions (b) and (c) above are in the affirmative would Mr. Rodney D. Naron be eligible for the standard deduction applicable to salaries and/or any other deductions; and if so the provision of law under Which such deduction is to be claimed and the quantum thereof.

(3.) THE CIT, Chennai-1, offered the following comments on each question which cover all the applications : (i) On question No. (a), it is submitted that the payment made by the applicant to Caterpillar-USA as fee for technical services, is liable to tax in the hands of the recipient as also to deduction of tax. (ii) Regarding payment of living expenses to technician, it is stated that, though it is paid out of the fee for technical services, its taxability is linked to the fact that the technician is rendering services in India and not to the nature of the payment. THE other amenities and facilities provided to the technician, it is pointed out, are received by him only by virtue of contract which his employer had with the collaborating Indian company. THE facilities provided would be treated as payment received from the employer and taxed as "salary". Alternatively, the Indian applicant will be treated as his employer and the tax would be deducted. (iii) Regarding telescoping the tax liability, it is stated that one liability is in respect of the tax payable by the foreign company and the other is in respect of the tax payable by the employee of the foreign company. THErefore, telescoping of the tax liability would not arise. (iv) On the question of deduction of expenditure by way of salary to the technician, it is stated that the deduction is not permissible in computing his income in view of Section 44D of the Act.