2005 (7) TMI 296 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of remuneration of expatriates under Article XIV(2) of the Double Taxation Avoidance Agreement (DTAA) with France.
2. Applicability of Section 44BB of the Income-tax Act on the assessee's income.
3. Deductibility of salaries paid to expatriates in computing the profits of a permanent establishment in India.
4. Inclusion of perquisites (free boarding and lodging) for the purpose of tax deduction at source.
5. Taxability of salary paid for off periods.

Detailed Analysis:

1. Taxability of Remuneration of Expatriates under Article XIV(2) of DTAA with France:
The assessee, a non-resident company incorporated in France, claimed that no tax was payable on the remuneration of expatriates who fulfilled all the conditions of exemption under Article XIV(2) of the DTAA with France. The conditions include:
- The individual's presence in India not exceeding 183 days in the taxable year.
- The remuneration being paid by an employer not resident in India.
- The remuneration not being deducted in computing the profits of a permanent establishment chargeable to tax in India.

The Assessing Officer (AO) rejected the assessee's contention, holding that the assessee was in default under section 201(1) of the Act for not deducting tax at source. The AO argued that the income was assessed under section 44BB, and hence, the benefit of Article XIV(2) was not available.

2. Applicability of Section 44BB of the Income-tax Act:
The assessee's income from manning and management contracts was assessed under section 44BB, which deals with the computation of income from the business of providing services or facilities in connection with the extraction or production of mineral oils. The AO allowed 30% of the contractual receipt as expenditure before applying the provisions of section 44D read with section 115A and Article III/XVI of DTAA. The CIT(A) upheld this view, noting that the assessee had a permanent establishment in India and that the salaries for the projects executed in India were borne by this establishment.

3. Deductibility of Salaries Paid to Expatriates:
The CIT(A) observed that irrespective of whether the salary was debited in the profit and loss account or not, it should be attributed to the permanent establishment to calculate its profits under DTAA. The Tribunal held that the recording of payments on account of salaries paid to expatriate technicians in the head office accounts outside India cannot be said that the assessee had not incurred expenditure in India. The Tribunal also noted that the deeming provisions of section 44BB imply that remuneration paid to expatriates is included in the 90% of the amount allowed as deduction.

4. Inclusion of Perquisites (Free Boarding and Lodging):
The AO included the perquisite value of free boarding and lodging facilities provided to expatriate technicians for the purpose of tax deduction at source. The CIT(A) upheld this inclusion, stating that these facilities are related to employment and should be charged as perquisites. The Tribunal found no infirmity in this order.

5. Taxability of Salary Paid for Off Periods:
The AO included the salary paid for off periods in the computation for deduction of tax at source. The CIT(A) upheld this inclusion, and the Tribunal noted that this issue was covered against the assessee by the ITAT in the assessee's own case for assessment years 1984-85 and 1986-87.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the AO's and CIT(A)'s decisions on all grounds. The assessee was held liable to deduct tax at source on the remuneration paid to expatriates, including perquisites and off-period salaries, under the provisions of section 44BB and the DTAA with France.