1994 (9) TMI 109 - AT - Income Tax

Summary

Issues:
1. Whether the foreign technicians were employees of the Indian company or the foreign company during their stay in India.
2. Whether the remuneration received by the foreign technicians is exempt from taxation in India under section 10(6)(vi) of the Income Tax Act.
3. Applicability of the Agreement for Avoidance of Double Taxation between India and Japan on the taxation of remuneration paid to the foreign technicians.

Analysis:

Issue 1: Employee Status
The main controversy was whether the foreign technicians were employees of the Indian company or the foreign company during their stay in India. The Assessing Officer considered them employees of the Indian company, while the CIT (Appeals) held that they continued to be employees of the foreign company, SHIN-ETSU. The agreements between the companies and the tax payments made by SHIN-ETSU supported the technicians' status as employees of the foreign company.

Issue 2: Tax Exemption
The Assessing Officer held that the remuneration earned by the technicians in India was taxable under the Income Tax Act. However, the CIT (Appeals) referred to section 10(6)(vi) and the Agreement for Avoidance of Double Taxation between India and Japan to exempt the remuneration from taxation in India. The technicians' tax payments in Japan further supported the exemption.

Issue 3: Double Taxation Agreement
The Double Taxation Agreement between India and Japan played a crucial role in determining the tax liability of the technicians. The agreement stated conditions under which remuneration paid to individuals working in a foreign country would be exempt from taxation in that country. The CIT (Appeals) and the technicians' counsel argued that this agreement applied to the technicians' case, leading to the conclusion that their remuneration was exempt from Indian income tax.

In conclusion, the judgment upheld the findings of the CIT (Appeals) and ruled that the remuneration received by the foreign technicians during their stay in India was not taxable under the Indian Income-tax Act. The interpretation of relevant statutes, agreements, and tax payments made by the foreign company supported this decision, emphasizing the technicians' status as employees of the foreign company and the applicability of tax exemption provisions.