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TMI Blog2011 (9) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax paid in USA on living allowance under DTAA. The term 'deputation' does not mean transfer of employee from one place of duty to another place of duty, rather the persons should be considered to be on tour in connection with official assignment. The basic criteria for deciding, whether a person is on tour or transfer is to examine his place of employment in consequence to the order. Period of stay does not decide whether it is tour or transfer. Impact of the fact that whether FBT has been paid or not - held that:- employer has not paid FBT. - the considerations for eligibility of exemption under section 10(14)(i) are entirely different and nothing turns around on the applicability or non-applicability of the provisions of FBT. - ITA Nos. 915 (Kol.) of 2010 - - - Dated:- 30-9-2011 - SHRI S.V. MEHROTRA, AND SHRI MAHAVIR SINGH, JJ. Represented By: S.K. Roy for the Appellant. R.N. Bajoria, B.K. Ghosh and Ms. S. Dutta for the Respondent. ORDER 1. The assessees as well as the Department have filed these appeals for assessment year 2006-07 against order of ld. Commissioner of Income Tax (Appeals)-XIV, Kolkata dated 26.02.2010. 2. All the assessees in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses on food, expenses on washing of clothes, expenses on conveyances and other routine expenses which are ordinarily incurred by any individual, while on duty at a place outside his normal place of duty. Such allowance is in the nature of sustenance allowance paid to the employees, who are sent abroad or sent out of their normal place of duty for official work to enable them to support themselves during their stay abroad or outside their normal place of duty. Such allowances is paid to the employees wholly, exclusively and necessarily for enabling the employee to meet the expenses while they are posted in abroad". 2.1 The Assessing Officer did not accept the assessees' claim under section 10(14) read with Rule 2BB(1) and, inter alia, observed as under :- "The Living Allowance" granted to the assessee in this case does not fulfil any of the conditions laid down in Rule 2BB(1). The assessee has claimed that the living allowances paid by TCS Ltd. to its employee in USA are in the nature of daily allowance to enable them to meet expenses which are required while they are on duty in USA. He has referred to Instruction No. 1407 dated 21.07.1981 of the CBDT in support of his con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employer to work at certain project. (iii) The allowance was paid to the employees wholly, exclusively and necessarily for enabling the employees to meet the expenses while they were on tour. (iv) Statement of detailed expenses incurred by the executives of TCS Ltd. for the period of their stay in USA. The appellants had utilized the amount of Living allowance for meeting foods expenses, rent, electricity, telephone, laundry, etc. (v) The case of the appellants was not covered by sub-clause (ii) of clause (14) of section 10 or Rule 2BB(2). But was covered by sub-clause (i) of clause (14) to section 10 read with Rule 2BB(1). (vi) The appellants relied on the CBDT Circular No. 6 of 2004 dated 06.12.2004 and similar circulars in the other financial years that deal with the subject of deduction of income tax at source from salaries under section 192 of the Act. (vii) The appellants relied on the Instruction No. 1407 of CBDT dated 21.07.2001 in which the CBDT clarified that allowances given by employer within the Central and State Government whether on official tours in India or abroad, the relevant provision is in section 10(14). (viii) As regards the mandate of section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the same. As regards TDS of expenses actually incurred, the appellants referred to CBDT Circular No. 33(LXXVI-5) dated 1.8.1955, wherein it has been clarified that where specific allowances are reasonable with reference to the nature of the duties performed by the assessees and are not disproportionately high compared to the salary received by him, no attempt will ordinarily be made to call for details of expenses actually incurred by him with a view to disentitling him to some extent from the exemption. In this regard, appellants relied on the decision of ITAT, Mumbai Bench in the case of Madanlal Mohanlal Narang (supra). (xii) As regards the controversy whether the appellants were on tour or transfer from Kolkata to USA, assessees pointed out that they were deputed by the employer TCS Ltd. in USA depending upon the experience, knowledge and skill. They remained on the pay roll of TCS Ltd., Kolkata. Salary and other allowances were all paid by TCS Ltd., Kolkata. Appellants were not transferred from TCS, Kolkata to TCS's Branch Offices in USA. The appellants contended that if they were transferred from TCS, Kolkata to USA, the Form No. 16 i.e. certificate under section 203 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty which was Kolkata, India and, thus, these allowances were paid wholly, exclusively and necessarily for enabling them to meet the expenses while on tour to USA, ld. CIT(Appeals) held that the assessees were required to reside in USA full time and they shifted their residence and family from India to that country. Their headquarters had been shifted from Kolkata to USA when the employee is given a proposal to go to the USA on deputation. It is not compulsory for him to go. He had a choice to say no also. If it is an official tour, the employee cannot refuse as it is part of his duty. The employee worked under the supervision of the incharge of USA and not in India. The agreement which was signed between the employee and TCS for deputation to USA was initially made for a long period. He also stated that the headquarter and the normal place of duty of assessees were changed from India to USA and held that the living allowance received by the appellant-assessees in the USA cannot be exempt under Rule 2BB(1). Ld. CIT(Appeals), therefore, held that appellants could not be treated on tour to USA. 9. In regard to CBDT's Circular, Ld. CIT(Appeals) pointed out that CBDT recommended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact was that headquarters had been temporarily shifted from Kolkata to USA where he works on a project. He pointed out that the deputation of assessees to the USA may not be a full-fledged transfer but it was not a tour at all. Ld. CIT(Appeals) referred to the deputation agreement and pointed out that as per the definition of deputation contained in the agreement, deputation employees shifted all their personal establishments to USA. They had gone there with their family and were living there by renting house. He accordingly held that the living allowance received by the assessees from their employer TCS Ltd. was a part of their income and was not exempt under section 10(14). 11. Shri Bajoria, Ld. senior counsel for the assessee submitted that the deputation agreement had been entered into between TCS Ltd. and its employees. Company obtained Visa on the basis of deputation agreement. Shri Bajoria submitted that in view of the provisions contained under section 2(24)(iiia) and 2(24)(iiib), there is no dispute that the living allowance was income of assessee. However, the said income was exempt under section 10(14)(i) read with Rule 2BB(1) because allowance was specifically grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uling in case of a non-resident following the established law that since the non-resident was away from his headquarters while serving in India, living expenses and the value of facilities enjoyed during service in India would be eligible for exemption under section 10(14) of the Act. Ld. counsel further referred to page 17 of the paper book, wherein in the written submission, the decision in the case of Madanlal Mohanlal Narang (supra) has been referred to in which Tribunal has held that in view of CBDT Circular No. 01.08.1955, it was not open to the revenue to call for the details of expenses actually incurred unless the specific disallowances were disproportionately high compared to the salary received by them or unreasonable with reference to the nature of the duties performed by the assessee. Ld. senior counsel submitted that Assessing Officer treated this living allowance as perquisite under section 17(2) and ld. CIT(Appeals) treated the same as income under section 2(24)(iiib) and accordingly, held that assessees were eligible for exemption under section 10(14)(ii) read with Rule 2BB(ii). In the course of hearing, ld. senior counsel filed before us the reply of TCS Ltd. date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd onwards. Ld. senior counsel Shri Bajoria referred to the decision of the Hon'ble Delhi High Court in the case of Hans Beer (supra), wherein the Hon'ble Delhi High Court has observed as under :- "If the amount paid be a kind of reimbursement for an expenditure incurred for the performance of the duties of the assessee, the same would not be liable to be taxed as salary. In those cases, as well as in the present case, the assessee were foreign technicians and were required to stay away from their homes and consequently the daily allowance given to them was related to the extra expenditure that they were required to undertake on food, etc. which was wholly, necessarily and exclusively for the purpose of the duties, and as such it was in the nature of reimbursement which would be excluded from the net cast by the Act". Shri Bajoria, ld. senior counsel further referred to the decision of ITAT, Mumbai in the case of Madanlal Mohanlal Narang (supra) for the assessment years 1997-98 and 1998-99. Ld. senior counsel further referred to the decision of the Hon'ble Bombay High Court in the case of Information Architects (supra) wherein it has been held that in view of section 40(a)(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), wherein entire amount of salaries and allowances paid by the Indian company to Italian company for services rendered by assessee, a foreign technician deputed to the Fertilizer Corporation of India Ltd. by the Italian concern, in terms of the agreement between the Fertilizer Corporation of India and the Italian concern, was held to be not assessable in the hands of the foreign technician. Shri Bajoria further referred to the decision of the Hon'ble Supreme Court in the case of Morgenstern Werner (supra), wherein it has been held that daily expenses received for services in India by foreign technician is exempt under section 10(14) of the Act. Ld. senior counsel also relied on the decision of the Hon'ble Madras High Court in the case of Shigeru Baba (supra), wherein it was held that the amounts reimbursed related to expenses which were wholly, necessarily and exclusively incurred for the purpose of duties which the assessee was required to perform in India and, therefore, would be exempt from tax under section 10(14) of the Income Tax Act, 1961. The amount spent on reimbursement of daily expenses and out of pocket expenses of the foreign technician was exempt under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iiib), which reads as under :- "2(24)(iiia) :- Any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; 2(24)(iiib) :- Any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living. Ld. counsel for the assessees fairly submitted that there is no dispute that the living allowance given to the assessees come within the ambit of section 2(24). However, his contention is that the living allowance comes within the ambit of section 2(24)(iiia) and not 2(24)(iiib) as held by the ld. CIT(Appeals). So, the first issue which arises for our consideration in the present appeals, is whether the living allowance was covered by section 2(24)(iiia) or 2(24)(iiib). The second aspect which has been contended by ld. Senior counsel, Shri Bajoria is that since the living allowance was covered under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in favour of assessees then whether the assessees fulfil the conditions laid down under section 10(14)(i) or not. Now, we take up the Issue No. 1. Clause 4(C) of the deputation terms agreement reads as under :- "Compensation in the United States : In addition to the compensation and benefits you currently receive and will continue to receive in India while on deputation, you shall receive additional compensation in the United States in the gross amount of $ 50,000 less deductions required by law or otherwise voluntarily authorized by you. This compensation shall be for living and other expenses in the United States". 16. From the above clause, it is evident that the additional compensation in the United States has been paid in lump sum without any reference to meet personal expenses at the place where the duties of office or employment were to be performed. This additional compensation was in the form of a special allowance or benefit. In course of assessment proceedings, the assessees had placed on record the object and purpose of providing the additional compensation, which has been taken note by Assessing Officer and has already been reproduced earlier. It was clearly poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are actually incurred for that purpose. 19. If we examine the above aforementioned ingredients, we find that there is no dispute that living allowance was in the nature of special allowance or benefit. Further this special allowance or benefit was not covered by section 17(2). In this regard, we may observe that Assessing Officer had taxed it under section 17(2) but ld. CIT(Appeals) has held that it should be treated under section 2(24)(iiib) and not under section 17(2). The Department has not preferred any appeal on this aspect, therefore, in any view of the matter, the special allowance or benefit does not come within the ambit of section 17(2) of the Act. 20. The Third aspect of ingredient is also not disputed because the submissions of assessees have not been controverted in this regard. 21. Now coming to the issue regarding fulfilling the conditions laid down in Income Tax Rule 2BB(1)(b). The submission of ld. senior counsel for the assessees is that the assessees are to be treated on tour to United States. He submitted that the main controversy in the present appeals is this only. In order to decide whether the assessees were on tour or not, we have to examine first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us documents. Before us, the details in regard to Saptarshi Ghosh have been filed. In the deputation letter dated 19.05.2005, it has been, inter alia, stated as under :- "Your deputation is expected to last for a period of approximately 3 months. However, various factors could necessitate your being in the USA for a shorter or longer duration, and could result in a change of location or a transfer to a TCS project for a different client in the USA. If there are any such changes with respect to your deputation, we will give you as much advance notice as is practicable under the circumstances. In order to prepare you for this deputation, I enclose a copy of the Overseas Deputation Manual for the USA. This Manual contains important information on the customers and practices in the USA as well as other information that will be helpful to you on your deputation. You should review the Manual carefully. Remember, while you are in the USA, you will be a representative of TCS, and are expected to maintain a professional image at all times. After you have reviewed the enclosed materials, or if you have any questions while you are reviewing them, you should contact the personnel Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement, and all other current agreements between the Employee and the Employer regarding the employment relationship in India, remain in full force and effect This Agreement governs the terms of the Employee's Deputation to the United States. A "Deputation" is defined as an overseas assignment to the United States when, for this Deputation Agreement, unless otherwise terminated or amended according to its terms, shall govern and apply to each and every Deputation of the Employee to the United States, and it shall remain in effect during the Employees employment by the Employer. With respect to each separate Deputation of Employee to the United States a separately executed DTA SHALL GOVERN THE PARTICULAR TERMS OF THAT DEPUTATION and shall be in effect only during the Deputation to which it applies. 1.2 Period of Deputation. The Deputation will begin on the date the Employee leaves India for the United States following execution of a DTA, and shall continue until the stated term of the Deputation, or extension thereof, has expired. The initial term of the Deputation is set forth in the applicable DTA. However, the Employer reserves the right to shorten or end the period of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States. The Employer will bear the cost of this airfare, and this amount will not be included in gross compensation. The Employer shall also bear the cost of transportation within the United States between the place of arrival and the site where Employee shall report to work. Compensation and Benefits in India - During the period of the Deputation, the Employee will continue to receive his/her salary and benefits in India, as if the Employee had continued to work for the Employer in India, subject to any tax requirements under the laws of the United States and its states. Moreover, the period of the Deputation will be treated as approved service with the employer and counted for all of the following purposes in India, based on the salary the employee continues to receive in India while on Deputation, Privilege Leave, Promotion, Annual Increment and payment of Housing Subsidy, performance reward, Provident Fund contributions and Superannuation Fund contributions. Compensation in the United States- During the period of the Deputation the Employee will receive additional compensation in U.S. dollars, in the amount stated in the DTA. This compensation shall be for living and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for living and other expenses in the United States. (D) Total Gross Compensation Amounts of salary paid by TCS in India (under Paragraph 4 (b) above) and the additional compensation in the United States (under Paragraph 4(c) above) shall be aggregated and thus shall be treated as your total gross compensation for purposes of U.S. law with respect to your employment in the United States. 24. From the above noted contents of deputation letter and agreement, etc. it is clear that the place of posting did not change to USA and the employees were sent there with reference to the specific projects though the projects could change at the instance of employer. The employees were to report back to the employer and serve the employer after acquiring skill from USA projects. The salary structure of employees remained same and the additional amounts were paid only for the purposes of additional routine expenses in USA. This is evident from deputation agreement, which deals with compensation and benefits noted above. It is specifically mentioned in para 2.3 that during the period of deputation, the employee will continue to receive his salary and benefits in India. This clearly shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held that "it is not open to the revenue to call for the details of expenses actually incurred unless the specific allowance are disproportionately high compared to the salary received by him or unreasonable with reference to the nature of the duties performed by the assessee". Further, the assessees had submitted that FBT must have been paid by the employer. However, as noted earlier, employer has not paid FBT. In our opinion, the considerations for eligibility of exemption under section 10(14)(i) are entirely different and nothing turns around on the applicability or non-applicability of the provisions of FBT. In view of above discussions, the appeals of the assessees as well as the Cross Objections are allowed. 26. With regard to the Departmental appeals, we have already held that living allowance is not taxable. Therefore, interest levied under section 234B cannot be sustained. Even otherwise, we find that the issue is covered by the decision of ITAT, Special Bench in the case of Sumit Bhattacharya (supra). In view of the above, the Departmental appeals are dismissed. 27. Before parting, we may further observe that, in any view of the matter, the entire co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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