1984 (8) TMI 25 - HC - Income Tax

Summary

Issues:
Interpretation of agreement for exemption from Indian income-tax for an individual receiving salary from the United States of America Agency for International Development.
Whether Indian nationals are covered under the exemption clause of the agreement between the Government of India and the Government of the United States of America.

Analysis:
The judgment pertains to an individual who claimed exemption from Indian income-tax for the salary received from the United States of America Agency for International Development, citing an agreement between the Governments of India and the United States. The Income-tax Officer initially disallowed the claim, considering the individual as an Indian national subject to taxation. This decision was upheld by the Appellate Assistant Commissioner based on a letter stating that the agreement applied only to U.S.A. citizens. However, the Tribunal ruled in favor of the individual, interpreting the agreement to cover all employees of the U.S.A. government, irrespective of nationality.

The key question before the court was whether the Tribunal's decision to allow the exemption claim was justified. The agreement between the two governments contained a clause providing exemption from Indian income-tax for all employees of the U.S.A. government assigned to duties in India. The Tribunal correctly noted that the agreement did not restrict the exemption to U.S.A. citizens only but encompassed all employees of the U.S.A. government, including Indian nationals.

The court emphasized that the agreement's language was clear and unambiguous in extending the exemption to all employees of the U.S.A. government involved in technical cooperation programs in India. The court rejected the argument that the reference to "accompanying members of their family" implied a limitation to U.S.A. citizens, highlighting that such a restriction would be illogical and inconsistent with the agreement's broader intent.

Furthermore, the court referred to Section 10(8) of the Income-tax Act, 1961, which allowed for exemptions based on agreements between the Indian government and foreign states regarding technical cooperation programs. In this case, as the agreement between the Governments of India and the United States fell under this provision, the individual's salary received from the U.S.A. government was deemed exempt from Indian income-tax.

In conclusion, the court upheld the Tribunal's decision, affirming the individual's right to claim exemption from income-tax under the agreement. The judgment favored the assessee, ruling against the Department, and directed each party to bear their own costs.