1989 (12) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the salary of the assessees was paid by FACT or by the foreign company.
2. Whether the salary and living allowance received by the assessees were assessable to tax under the Income-tax Act, 1961.

Summary:

Issue 1: Salary Payment Source
The Tribunal found that the salary of the assessees was paid by the foreign companies, Messrs. Davy Powergas Inc. and Messrs. Davy Powergas GmbH, and not by FACT/FEDO. This was based on the agreements between FACT/FEDO and the foreign companies, which stipulated that the foreign companies would pay the salaries of the technicians. The Tribunal's finding was that the foreign technicians were deputed by the foreign companies to supervise the work under the terms of the agreement, and this constituted a finding of fact.

Issue 2: Taxability of Salary and Living Allowance
The Tribunal held that the salary and living allowance received by the assessees were not assessable to tax under the Income-tax Act, 1961. The Tribunal relied on the Gujarat High Court decision in CIT v. S. G. Pgnatale [1980] 124 ITR 391, which stated that salary earned outside India and paid by a foreign employer is not taxable in India. The Tribunal also held that the living allowance paid by FACT was a reimbursement and not a perquisite, and thus not taxable.

The High Court concurred with the Tribunal's findings and the Gujarat High Court's interpretation of section 9(1)(ii) of the Income-tax Act, 1961. The court noted that the Explanation added to section 9(1)(ii) by the Finance Act, 1983, which clarified that income for services rendered in India is deemed to be earned in India, was effective only from April 1, 1979, and could not be applied retrospectively to the periods in question.

The High Court concluded that the Tribunal was justified in holding that the salary and living allowance received by the assessees were not assessable to tax under the Income-tax Act, 1961. The questions referred were answered in the affirmative, against the Revenue and in favour of the assessees.