1995 (2) TMI 30 - HC - Income Tax

Summary

Issues:
- Taxability of absence fees in the hands of the assessee as revenue receipts
- Grossing up of tax paid by the Indian company on behalf of the assessee in the income of the assessee

Analysis:
The case involved a non-resident company that entered into an agreement with an Indian company for supplying technical know-how, which required deputing employees to India. The Indian company bore journey expenses, provided accommodation, transport, and daily allowance. The dispute arose regarding the tax treatment of absence fees paid by the Indian company to the assessee in the assessment years 1977-78 and 1978-79. The Income-tax Appellate Tribunal questioned the taxability of the absence fees and the grossing up of tax paid by the Indian company.

The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal initially ruled in favor of the assessee, considering the absence fees as not taxable in India. However, the High Court referenced previous cases like CIT v. Yamatake Honeywell Co. Ltd. and Grindlays Bank Ltd. to establish that the absence fee should be considered taxable in India as a revenue receipt. The court emphasized that the absence fee was not directly linked to the actual payment to technicians and, therefore, should be included in the total income for taxation purposes.

Regarding the grossing up of tax paid by the Indian company, the court referred to cases like Frank Beaton v. CIT and CIT v. Superintending Engineer, Upper Sileru to support the inclusion of the tax amount in the total income of the assessee. The court held that the tax deducted by the Indian company should be added and grossed up to determine the total income as per Section 5 of the Income Tax Act. The argument against grossing up based on wrong calculations was dismissed, focusing solely on the necessity of including the tax amount in the income calculation.

Ultimately, the High Court ruled in favor of the Revenue and against the assessee, stating that the absence fees and the tax paid by the Indian company should be considered taxable and grossed up in the income of the assessee. The decision was based on the interpretation of relevant legal provisions and previous judgments, emphasizing the tax liability of the assessee and the obligation of the Indian company to deduct and pay the tax amount on behalf of the assessee.