1989 (10) TMI 80 - AT - Income Tax

Summary

Issues: Interpretation of the expression 'any period of his employment outside India' in section 40A(5) of the Income-tax Act, 1961.

Analysis:
1. The Appellate Tribunal was tasked with deciding whether the phrase 'any period of his employment outside India' in section 40A(5) of the Income-tax Act, 1961, applies solely to employees posted abroad or also encompasses employees going on foreign tours for work-related purposes.

2. The case involved an assessee company for the assessment year 1979-80, where two employees were sent on a foreign tour during the relevant period, leading to a disallowance under section 40A(5)/40(c) of the Act.

3. The Inspecting Assistant Commissioner upheld the disallowance, stating that the employees' foreign tour did not constitute employment outside India as per section 40A(5)(b)(i) of the Act.

4. The Commissioner of Income-tax (Appeals) ruled in favor of the assessee, emphasizing that services rendered outside India should be considered employment outside India, thereby excluding the salary for the period spent abroad.

5. The Revenue appealed to the Tribunal, citing contradictory decisions and arguing that the CIT(A)'s decision should be reversed, while the assessee relied on a different Tribunal decision and supported the CIT(A)'s ruling.

6. The Tribunal analyzed the provisions of section 40A(5) and concluded that the phrase 'any period of his employment outside India' pertains to employees posted abroad, not those going on short foreign tours while stationed in India.

7. The Tribunal highlighted that the legislative intent was to restrict excess salary/perquisites for employees in India, and the exclusion under section 40A(5)(b) was not meant for employees temporarily going abroad for a few days.

8. The Tribunal differentiated between employees stationed in India going on foreign tours and those employed abroad, emphasizing that the former does not constitute employment outside India for the purposes of section 40A(5).

9. The Tribunal disagreed with the CIT(A)'s interpretation and reinstated the Income Tax Officer's disallowance under section 40A(5)/40(c) of the Act, setting aside the CIT(A)'s decision.

10. Ultimately, the Tribunal allowed the Revenue's appeal, affirming that the exclusion under section 40A(5)(b)(i) applies to employees posted abroad, not those going on short foreign tours while based in India.