2004 (10) TMI 591 - AAR - Income Tax

Summary

Issues Involved:
1. Taxability of fees paid to Caterpillar Inc., USA.
2. Taxability of salary received by foreign technicians in the USA.
3. Telescoping of tax liabilities.
4. Double taxation of the same income.
5. Taxability of living expenses paid to technicians.
6. Taxability of other facilities/benefits provided to technicians.
7. Method of valuation of facilities/benefits provided.
8. Eligibility for standard deduction or other deductions.

Detailed Analysis:

1. Taxability of Fees Paid to Caterpillar Inc., USA
The payment made by the applicant to Caterpillar-USA as a fee for technical services is liable to tax in the hands of the recipient and subject to deduction of tax under the Indian Income-tax Act.

2. Taxability of Salary Received by Foreign Technicians in the USA
The salary paid by Caterpillar-USA to the technicians for the period they worked in India is taxable in India under section 9(1)(ii) of the Act, which deems income under the head "Salaries" earned in India to accrue or arise in India. This applies even if the salary is paid outside India.

3. Telescoping of Tax Liabilities
Telescoping of tax liabilities is not permissible as one liability pertains to the foreign company and the other to the employee. Therefore, each liability is treated separately.

4. Double Taxation of the Same Income
Since telescoping is not applicable, the question of double taxation does not arise. Each entity is taxed independently based on the respective incomes.

5. Taxability of Living Expenses Paid to Technicians
Living expenses paid to the technicians are not taxable in India if the technician is a non-resident in the relevant accounting year. This is in line with the proviso to section 5(1)(c) which excludes income accruing outside India for non-residents unless derived from a business controlled or profession set up in India.

6. Taxability of Other Facilities/Benefits Provided to Technicians
The facilities and benefits provided to the technicians, such as furnished accommodation and motor car expenses, are not taxable in India if the technician is a non-resident. This is supported by various judicial precedents, including CIT v. S. G. Pgnatale, CIT v. Goslino Mario, and CIT v. Morgenstern Werner, which exempt such allowances and benefits from income tax.

7. Method of Valuation of Facilities/Benefits Provided
Since the facilities and benefits provided are not taxable, the question of valuation does not arise.

8. Eligibility for Standard Deduction or Other Deductions
Given the rulings that the salaries and benefits are taxable only when the technicians are residents, the eligibility for standard deduction or other deductions does not arise for non-resident assessment years.

Conclusion:
1. The amounts paid to Caterpillar-USA for technical services are taxable in India.
2. The salaries paid to technicians for services rendered in India are taxable in India.
3. Living expenses and other benefits provided to non-resident technicians are not taxable in India.
4. Questions on standard deductions and valuation of benefits do not arise due to the non-taxability of the benefits provided to non-resident technicians.

Pronounced by the Authority on October 18, 2004.