2004 (7) TMI 74 - HC - Income Tax

Non-resident off period salary perquisite (free boarding and lodging facilities provided by the employer) - interest under section 234B - 1. Whether Tribunal was legally justified in holding that the salary paid to the assessee for the off period outside India was not chargeable to Indian Income-tax Act in terms of section 9(1)(ii) of the Income-tax Act, 1961? 2. Whether Tribunal was legally correct in holding that free boarding and lodging facilities provided by the employer at the rig in high seas cannot be construed to be perquisite? 3. Whether Tribunal was justified in holding that interest under section 234B cannot be charged since the entire income of the assessee was subject to TDS whereas this interest is chargeable on assessed tax as defined by Explanation 1 below section 234B? - We answer the first question in the negative, i.e., in favour of the Department and against the assessee, and the other two questions are answered in the affirmative, i.e., in favour of the assessee and against the Department.

Issues:
1. Taxability of salary paid for off period outside India under section 9(1)(ii) of the Income-tax Act, 1961.
2. Tax treatment of free boarding and lodging facilities provided by the employer.
3. Charging of interest under section 234B of the Income-tax Act.

Analysis:

Issue 1: Taxability of Salary for Off Period
The court analyzed the provisions of the Income-tax Act, particularly sections 4, 5, and 9(1)(ii), to determine the taxability of the salary paid to a non-resident foreign technician for the off period outside India. It was established that section 9(1)(ii) deems income under the head "Salaries" to accrue in India if the services were rendered in India. The court emphasized that the on period and off period were integral parts of the employment contract, and any payment received during the off period was directly connected to the services rendered in India. The court also referred to the Explanation under section 9(1)(ii) introduced by the Finance Act, 1983, to clarify the concept of "income earned in India." Ultimately, the court held that the entire salary, including for the off period, was taxable in India under section 9(1)(ii).

Issue 2: Tax Treatment of Free Boarding and Lodging
Regarding the question of whether free boarding and lodging provided at the rig in high seas should be considered a perquisite, the court reasoned that under the hazardous and continuous work conditions on the rig, such facilities were essential rather than luxury items. Therefore, the value of these facilities could not be added to the income of the assessee.

Issue 3: Charging of Interest under Section 234B
In addressing the charging of interest under section 234B, the court highlighted that this interest is compensatory in nature and not a penalty. It noted that conflicting decisions existed at the relevant time, leading to a bona fide dispute. The court emphasized that the imposition of interest under section 234B was not justified without proper hearing and reasons, especially when the employer company had not deducted tax at source as required by law. Consequently, the court ruled in favor of the assessee on this issue.

In conclusion, the court decided in favor of the Department regarding the taxability of the salary for the off period under section 9(1)(ii) but ruled in favor of the assessee on the tax treatment of free boarding and lodging facilities and the charging of interest under section 234B. The appeal was disposed of accordingly, with no order as to costs.

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