1995 (2) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Whether the value of free food and free accommodation provided to foreign technicians can be treated as perquisites.
2. Whether these perquisites can be added to their salaries under section 17(2) or (3) of the Income-tax Act.
3. Whether the provisions of section 2(24) of the Income-tax Act apply to these benefits.
4. The applicability of contractual terms between ONGC and M/s Polservice regarding the provision of these benefits.

Issue-wise Detailed Analysis:

1. Treatment of Free Food and Free Accommodation as Perquisites:
The foreign technicians employed by M/s Polservice were provided free food and accommodation by ONGC, which engaged M/s Polservice as a contractor. The Income Tax Officer (ITO) estimated the value of these perquisites due to the lack of disclosed details, using Rs. 100 per day for both food and accommodation for the assessment year 1990-91. The assessees contended that these provisions were necessities due to the nature of their work and were provided by ONGC, not their employer, M/s Polservice. The ITO, however, held that these benefits should be added to their salary income as perquisites under section 17(2) or (3) of the Income-tax Act since no specific exemption provision was shown.

2. Addition of Perquisites to Salaries:
The CIT (Appeals) directed the ITO to adopt Rs. 70 per day towards the perquisite value of food and 10% of the salary as the value of free accommodation. The Tribunal considered whether these additions were justified. The Tribunal noted that the contract between ONGC and M/s Polservice specified that ONGC was responsible for providing free food and accommodation to the contractor's personnel. The Tribunal found that these benefits were provided for ONGC's advantage to ensure the technicians' presence at the work site continuously, often in remote locations with no nearby habitation.

3. Applicability of Section 2(24) of the Income-tax Act:
The Tribunal examined whether the value of these benefits could be considered income under section 2(24) of the Income-tax Act. It was argued that these benefits did not constitute income since they were provided by a third party (ONGC) and not by the employer (M/s Polservice). The Tribunal also referred to section 2(24)(iva), which includes the value of any benefit or perquisite obtained by a representative assessee or for the benefit of any income receivable by the representative assessee. The Tribunal concluded that M/s Polservice, being the representative assessee, did not receive these benefits, and the technicians were not in direct employment with ONGC.

4. Contractual Terms between ONGC and M/s Polservice:
The Tribunal reviewed the contract, which clearly stated that the expatriate technicians were employees of M/s Polservice and not ONGC. The contract obligated ONGC to provide free food and housing at the drill sites. The Tribunal emphasized that these benefits were provided to ensure the technicians' continuous presence at remote work sites for ONGC's operational efficiency. The Tribunal also considered the argument that these benefits were akin to necessities provided under arduous working conditions, similar to military personnel in operational areas, and should not be treated as perquisites.

Conclusion:
The Tribunal held that the free food and accommodation provided by ONGC could not be considered perquisites for the foreign technicians employed by M/s Polservice. These benefits were provided for ONGC's advantage and did not constitute income under section 2(24) of the Income-tax Act. Consequently, the additions made by the ITO towards the perquisite value of free boarding and lodging were directed to be deleted, and the appeals were allowed.