1987-VIL-56-ITAT-ALH

Equivalent Citation: ITD 021, 553, TTJ 028, 594,

Income Tax Appellate Tribunal ALLAHABAD

Date: 25.02.1987

INCOME-TAX OFFICER.

Vs

GE. HAWN.

BENCH

Member(s)  : EGBERT SINGH., O. P. JAIN.

JUDGMENT

Per Shri O.P. Jain, Judicial Member--Common questions are involved in these appeals and as such they were heard together and are being disposed of by a common order.

2. The assessee in each case was assessed in the status of non-resident. Each assessee is a foreign national and had come to India in connection with the setting up of a fertilizer complex by Indian Farmers Fertilizers Cooperative Ltd., Phulpur in the District of Allahabad ('IFFCO'), for the sake of brevity. The assessee were employed by IFFCO and a formal contract of service was executed between each assessee and the employer. According to those contracts each assessee was entitled to get the agreed salary in U. S. Dollars per month. Besides salary he was entitled to have certain other benefits mentioned in the agreement of service. The contract of service also provides that the assessee would get living allowance, which in the case of Mr. C. R. Rumpeltin was Rs. 115 per calendar day. S/Shri K. B. Macoundeen, R. L. Waldren and G. E. Hawn were to get living allowance @ Rs. 115, Rs. 150, and Rs. 116 per calendar day, respectively. The amount of living allowance received by the assesses was shown by them in their return of income, and was treated by the ITO as part of their income, and was assessed accordingly. Dissatisfied with that order, the assessee went up in appeal before the CIT (A), who by the impugned orders held that living allowance was only reimbursement of the expenses and was, therefore, not 'income'. In coming to that conclusion, he had followed the case of CIT v. S. G. Pgnatale [1980] 124 ITR 391 (Guj.). Aggrieved by that order the revenue has come up in appeals before us and has set up the following grounds, which are common to all the appeals:

(a) Learned CIT (A) failed to appreciate that the assessee himself has treated the living allowance as his income and had offered it for taxation.

(b) Learned CIT (A) erred in entertaining a new plea without giving an opportunity to the ITO when no such plea was taken before the ITO.

(c) Learned CIT (A) failed to appreciate that the decisions relied upon by his have been nullified by the addition of an Explanation in section 9(1)(ii).

(d) Learned CIT (A) erred in treating living allowance as exempt. That the order of the Commissioner of Income-tax (Appeals) being erroneous in law and no facts may be set aside and the order of the ITO may be restored.

3. Learned departmental representative has argued at the outset that the assessee himself had treated the living allowance as his income and had offered it for taxation and as such the amount was rightly assessed by the ITO, and that assessment is in the nature of an agreed assessment, and for that reason no appeal lay against the same. Against this, Shri I. P. Gupta, advocate for the assessee, has submitted that although the assessee had shown the amount of living allowances as his income in the return filed by him, yet at the time of assessment it was argued before the assessing officer that the living allowance is not taxable. Moreover, he has contended that the particulars furnished in the return cannot be taken as an admission on a point of law. According to him, that would be an admission only as to sate of fact. He has also submitted that whether the amount of living allowance received by the assessee can be considered as taxable income is quite another matter, and consideration of that question leads into the realm of law, and if the assessing officer had wrongly assessed a receipt which is not taxable in law, it is always open to the assessee to take the case in appeal. In that connection reliance has been placed on Pt. Shoe Nath Prasad Sharma v. CIT [1967] 66 ITR 647 (All.).

4. We have given our anxious consideration to the submissions advanced before us and we find ourselves in agreement with the view advanced on behalf of the assessee. The case cited on behalf of the assessee also supports that view. Moreover, it is well settled that there can be no estoppel against law. The particulars in the return only go to indicate that a certain amount of money was received by the assessee and it is open to the assessee to submit that the said amount is not taxable in law. The mere fact that the said amount was shown in the return of income cannot lead to the conclusion that the assessment framed by the ITO amounts to an agreed assessment and no appeal lay against the same. Thus, we find no force in this ground of appeal.

5. It was next contended on behalf of the revenue that the Commissioner (Appeals) had erred in entertaining a new plea without giving an opportunity to the ITO, when no such plea was taken before the ITO. We find no force in this ground of appeal as well. Paper No. 15 of the assessee's paper book is the copy of the grounds of appeal, which had been raised before the Commissioner (Appeals). The assessee had specifically challenged the assessment of the living allowance received by him. An appeal is heard only after issuing notice to the respondent. The respondent is also served with the grounds of appeal. It has not been suggested that the grounds of appeal raised before the Commissioner (Appeals) had not been served on he ITO or he was not served with the notice of hearing. In the circumstances, it would be reasonable to hold that the ITO was aware of the grounds raised by the assessee in the appeal before the CIT (Appeals) and he had been provided ample opportunity to make his submissions before the First Appellate Authority. In view of these facts it is not possible to hold that no opportunity had been provided by the Commissioner (Appeals) to the ITO on the point.

6. Coming to the merits of the case, the learned departmental representative has argued that the amount of living allowance received by the assessee had been paid to him in connection with the services rendered by him in India and as such the same is income which has accrued and arisen in India and is, therefore, taxable under section 5(2) of the IT Act. He has also submitted that the living allowance shall be deemed to accrue or arise in India in accordance with the provisions of section 9(1) (ii) of the said Act. He further submitted that this position has been made clear by incorporation of the Explanation to the said section, which has been inserted with effect from 1st April, 1979, and is relevant to the assessment year in question. The learned departmental representative has vehemently argued that the Commissioner of Income-tax (Appeals) has committed an error in holding that the living allowance was only a reimbursement of the expenses. He has also submitted that the case of S. G. Pgnatale had been wrongly applied by the Commissioner of Income-tax (Appeals) to the facts of the case at hand. According to him, that case it clearly distinguishable and cannot be applied to the facts of these cases. Against this, the learned counsel for the assessee has submitted that the case is squarely covered by the said decision of the Gujarat High Court, which has held in similar circumstances, that living allowance is only reimbursement of the expenses and is, therefore, no taxable. He has also pointed out that no view contrary to it has been taken by any High Court as yet. He has also pointed out that the present case is also covered by the Tribunal's order in ITA Nos. 947 to 951 (All.) of 1983, dated 29th October, 1985 wherein a similar issue has cropped up and the Tribunal had decided the same in favour of the assessee. A copy of tht order has been filed by the assessee. Shri Gupta appearing for the assessee has further submitted that Explanation to section 9(1)(ii) of the IT Act, which has been inserted with effect from 1st April 1979, is not at all relevant because the same relates to salary and not to living allowance. According to him, salary of the foreign nationals is exempt under section 10(4) of the IT Act. He has thus supported the order of the CIT(A).

7. We have carefully considered the rival contentions. Section 4 of the IT Act is the charging section and it levies charge on the total income of the previous year of every person. Section 5(2) relates to the income of a non-resident and the said section reads as follows:

"Subject to the provision of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which--

(a) is received or is deemed to be received in India in such year by or on behalf of such person; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year.

Explanation 1: Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

Explanation 2: For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India."

It would be relevant to quote section 9(1)(ii) of the Act on which reliance has been placed by the revenue. The said section, so far as relevant for purposes of the case is reproduced below:

"Section 9(1)--The following incomes shall be deemed to accrue or arise in India

(i)

(ii) income which falls under the head "Salaries" if it is earned in India.

Explanation: For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India."

It is relevant to mention here that the aforesaid Explanation had been inserted by the Finance Act of 1983, with retrospective effect from 1st April, 1979.

8. The facts of the case are to be examined in the light of the aforesaid provision of law. As already stated earlier the living allowance was paid in cash to the assessee by M/s. Indian Farmers Fertilizers Co-operative Ltd. ('IFFCO'), which was the employer of the assessee. It is not in dispute that the IFFCO has also paid salary to the assess. It is not in dispute that the IFFCO had also paid salary to the assessee. In the background of these facts it becomes clear that the living allowance was paid to the assessee in connection with the services rendered by him. The amount, which has been received by the assessee as living allowance had accrued and become payable to him in India during the previous year relevant to the assessment year in question. It is therefore, his income within the meaning of section 5(2) of the IT Act. Since the living allowance had been paid in connection with the services rendered by the assessee in India, the amount of that allowance shall also be deemed to be income accruing within the meaning of section 9(1)(ii) of the IT Act. This position is also made clear from the Explanation, which has become operative from 1st April, 1979.

9. The contention advanced on behalf of the assessee that the living allowance is exempt by virtue of section 10(14) of the IT Act does not appear sound to us. To our mind, the living allowance is not a special allowance or benefit specifically granted to meet expenses wholly, necessarily and exclusively incurred for that purpose. This becomes clear from the reading of the Explanation, which appears below section 10(14) of the Act. The said subsection and the Explanation are quoted below:

'10(14) Any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose.

Explanation: For the removal of doubts, it is hereby declared that any allowance granted to the assessee to meet his 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."

In view of the Explanation to clause (14) of section 10 the amount of living allowance cannot be regarding as a special allowance or benefit within the meaning of that clause, or reimbursement of the expenses incurred by the assessee in performance of his duties.

10. We also find that the case of S. G. Pgnatale is not at all applicable to the facts of the present case. That was a case relating to the assessment year 1972-73. Learned departmental representative had rightly pointed out, that Explanation, which has been added to section 9(1)(ii) of the Act was not applicable to that assessment year and as such the Hon'ble Gujarat High Court, which had rendered the said decision, had no occasion to consider the said Explanation. That apart, we find that facts of that case are quite different from the facts of the case at hand. In that case, the assessee was an employee of a French Company. In pursuance of an agreement entered into by the French Company with the Gujarat state Fertilizers Company Ltd. (Indian Company for short), the French Company made available to the Indian Company the services of the assessee. The assessee accordingly worked in India and rendered service to the Indian Company. The French Company, which was the employer of the assessee, was to pay to the assessee certain amount as retention remuneration per year and bonus perquisite per month. The retention remuneration and bonus perquisites were payable to the assessee outside India. Besides, the assessee was to receive Rs. 220 per calendar day, when posted at Delhi and Rs. 150 per calendar day when posted at Baroda during his stay in India to cover the extra cost of living. The terms agreed further provided that in case the assessee was provided with furnished accommodation for his stay in India and/or free conveyance, the daily allowance shall be paid to him on a reduced scale as maybe decided from time to time. It was in these circumstances that the Gujarat High Court came to the conclusion that the allowance which was payable to the assessee is clearly reimbursement to him for the money that he would be required to spend for his stay in India. In that connection, the Hon'ble Court had categorically observed: "The very fact that the allowance was likely to be reduced or increased depending upon the change in the circumstances from place to place and depending upon whether free accommodation or free road transport was allowed or not goes to indicate that this allowance was being given to the assessee as a reimbursement rather than as a personal advantage given to the assessee."

In the case before us the facts are quite different. The assessee is an employee of an Indian Company. There is nothing to suggest that the living allowance payable to him was likely to be reduced or increased depending upon the change in circumstances. On the other hand, the assessee was to get it in addition to his salary. These facts lead us to believe that it was a part and parcel of his salary, which has accrued and arisen in India and is, therefore, assessable as such.

11. The Tribunal's order dated 29th October, 1985, already referred above, and relied on behalf of the assessee, is also in our view, of no assistance to the assessee. In those cases also the assessees were foreign nationals and employees of a foreign company. They were to get their salary by their employers in U.S.A. Only the living allowance was payable directly to the assessees by IFFCO. In those circumstances, the Tribunal had held that the salary paid to the said assessee outside India cannot be treated to have been earned in India in terms of section 9(1)(ii) of the IT Act and is exempt under section 10(14) of the Act. The Tribunal had also observed that the Explanation added to section 9(1)(ii) of the said Act is also not applicable to the assessment year to which the appeals relate. On the facts of those cases, the Tribunal had also found that the assessees were employed by the foreign company outside the country and their ordinary residence was outside India and it cannot be said that their ordinary place of work was in India. It had also found as a fact that the assesses had come to India for specific purpose and for specified assignments and for a limited period and their ordinary place of duty was United States. The facts being quite different in the case before us, the aforesaid decision of the Tribunal, to our mind, cannot be followed as a precedent in favour of the assessees.

12. For the reasons stated above, the appeals are allowed and the impugned orders of the Commissioner of Income-tax (Appeals) are reversed and that of the ITO are restored.

 

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