1989 (9) TMI 158 - AT - Income Tax

Summary

Issues Involved:
1. Whether the technicians were employees of the Oil & Natural Gas Commission (ONGC) or M/s Gilley & Associates Incorporated (Gilley & A.I.).
2. Whether the income-tax paid by ONGC on behalf of the technicians should be considered as salary or income from other sources.
3. Whether the exemption under section 10(6)(viia) of the Income-tax Act is applicable to the income-tax paid by ONGC.

Issue-wise Detailed Analysis:

1. Employment Relationship:
The primary issue was whether the technicians were employees of ONGC or Gilley & A.I. The Commissioner of Income-tax (CIT) argued that the technicians were employees of Gilley & A.I., not ONGC, as there was no master-servant relationship between ONGC and the technicians. The technicians were provided by Gilley & A.I. under an agreement with ONGC. The Tribunal held that the technicians continued to be employees of Gilley & A.I., as the master-servant relationship existed between Gilley & A.I. and the technicians, not between ONGC and the technicians. The Tribunal relied on the judgment of the Calcutta High Court in the case of West Bengal State Electricity Board, which emphasized the necessity of a master-servant relationship for an employee to be assessed under the head 'Income from Salary'.

2. Taxability of Income-tax Paid by ONGC:
The CIT held that the income-tax paid by ONGC on behalf of the technicians could not be considered as salary and should be taxed under the head 'Other sources'. The Tribunal, however, considered the implications of the words "employment" and "employer" in section 10(6)(viia) of the Income-tax Act. The Tribunal opined that the word 'employment' should not be interpreted in a technical sense requiring a master-servant relationship but should be understood as the engagement or use of a technician by the Commission. The Tribunal held that the remuneration for services rendered by the technicians, which was chargeable under the head 'Salaries', and the income-tax paid by ONGC on such remuneration, should be exempt under section 10(6)(viia).

3. Applicability of Section 10(6)(viia) Exemption:
The Tribunal examined section 10(6)(viia) of the Income-tax Act, which provides exemption for remuneration received by a technician in the employment of the Government, a local authority, or a corporation set up under any special law. The Tribunal noted that all conditions for exemption under this section were fulfilled. The Tribunal held that the word 'employer' in sub-clause (A) should be understood as the person who uses or employs the services of another, not necessarily in a master-servant relationship. The Tribunal concluded that the income-tax paid by ONGC, although not the technical employer, should be exempt from tax under section 10(6)(viia). The Tribunal emphasized that the second part of sub-clause (A) of section 10(6)(viia), which provides for exemption of tax paid by the employer, is independent and covers income taxable under any head, not just 'Salaries'.

Conclusion:
The Tribunal annulled the CIT's order and restored the order of the Income-tax Officer (ITO), allowing the exemption for the income-tax paid by ONGC on behalf of the technicians. The Tribunal's conclusions applied to all 28 appeals, and the orders of the CIT were annulled in all cases.

Result:
All 28 appeals were allowed.