"In the employment and in any business carried on in India" occuring in sec.10(6)(VIIA). - Income Tax - 1168/CBDT

INSTRUCTION NO. 1168/CBDT Dated : May 3, 1978 Section(s) Referred: 10(6)(viia) Statute: Income - Tax Act, 1961 The question as to the correct import of the words "in the employment and in any business carried on in India" occuring in sec.10(6)(VIIA) of the I.T.Act has been engaging the attention of the Board. In this connection, the following specific points were examined by the Board in consultation with the Ministry of law:- i. whether the words 'in the employment' import a relationship of employer and employee; ii. whether the words in any business carried on in India imply that the conditions laid down in sec.10(6)(viia) would be satisfied if the foreign technician renders service in a business carried on in India by a foreign party. 2. The expressions "in the employment and in a business carried on in India would therefore imply that for the purposes of this section, there should be (i) a business carried on in India and (ii) the technician should be in the employment of that business. Accordingly to be entitled to the benefit of sec.10(6)(viia), it is necessary that t here should be a relationship of employer and employee and that the employer who might well be a foreign party should be carrying on a business in India in which the employee is employed. 3. As regards the 3rd point this is a question of fact essentially whether such charges from the Indian company have a profit element embedded in them. If the same amount that is charged from the Indian company is paid over to the employee concerned whether in India or abroad in respect of relative components of their salaries and allowances then it could not be said that the foreign collaborator derived profit by loaning its employees to the Indian company. If however, the foreign collaborator charged something from the Indian company and paid less to the employees who were loaned to the Indian company, then clearly it could be said that the foreign collaborator derived a profit from such loaning of its employees. 4. It is necessary that in cases of the type referred to at item(iii) in para 1 above the agreements are carefully examined by the Income-tax authorities with a view to ascertaining if any profit is embedded in the fees charged by the foreign party and if so, appropriate action should be taken immediately including action for the past years, if necessary.