1980 (6) TMI 81 - AT - Income Tax

Summary

Issues:
1. Tax treatment of salary and perquisites received by an individual working for a hospital in India.
2. Interpretation of tax-free salary and grossing up on the basis of tax on tax.
3. Application of case laws in determining tax liability for salary and perquisites.

Detailed Analysis:
The judgment involves two appeals filed by an individual against the assessments made by the Income Tax Officer for the assessment years 1974-75 and 1975-76. The appellant, an American national and a nurse by profession, received remuneration from the American Madurai Mission for services rendered to a hospital in India. The tax was calculated based on the salary and perquisites received by the appellant, which included amounts reimbursed by the employer for income tax paid by the appellant. The Income Tax Officer grossed up the salary on the basis of tax on tax, resulting in a higher computed income than the returned income.

The appellant contended that the salary was not tax-free and cited case laws to support the argument that grossing up should only apply when there is an agreement for a net income after tax. The Departmental Representative argued that the absence of a written contract does not automatically mean it was not a case of tax-free salary. The Tribunal analyzed the records and arguments presented. It was noted that there was no written contract or evidence to suggest an implied understanding of tax-free salary. The Tribunal emphasized that only the actual perquisite should be considered for taxation, and grossing up should only be done if there is an agreement for a net income after tax.

Ultimately, the Tribunal allowed the appeals, limiting the perquisites for reimbursement of income tax to the actual amounts reimbursed by the employer. The judgment clarified that only the actual amount received and receivable should be taxed, and grossing up on the basis of tax on tax should only apply when there is a clear agreement for a net income after tax. The decision was based on a thorough analysis of the case laws cited by both parties, emphasizing the importance of actual perquisites in determining tax liability for salary and allowances.