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TMI Blog1996 (8) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... duration of his assignment, a period of 12 months. Thus, his stay in India during the financial year 1994-95 was only of 35 days. Since the stay of the applicant in India during the financial year 1994- 95 was only for 35 days and he had not been in India earlier, he is a nonresident for the purposes of the Income-tax Act, 1961 (the Act), during the financial year 1994-95. The applicant has presented this application under section 245Q(1) of the Act seeking the ruling of this Authority on the following two questions: (1) Whether, on the facts and in the circumstances of the case, exemption under section 10(5B) of the Income-tax Act, 1961, would be available to the applicant ? (2) Whether, on the facts and in the circumstances of the case, the applicant would be considered as a technician for the purpose of section 10(5B) of the Income-tax Act, 1961 ? The applicant, being a non-resident in the financial year 1994-95, is entitled to maintain this application in view of the ruling given by this Authority in the case of Monte Harris v. CIT [1996] 218 ITR 413. It may also be mentioned here that the applicant was not a resident in India in any of the four financial years i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India in a capacity in which such specialised knowledge and experience are actually utilised; Leaving out the irrelevant portions of the exemption clause, the point for consideration before the Authority is whether the applicant can be stated to be a person having specialised knowledge and experience in constructional or manufacturing operations . This involves a consideration of the nature of the operations which the applicant carried out during the period of his assignment in India. The statement of facts having a bearing on the above issues may now be set out. The U. K. company, as part of its efforts to expand its business operations in the Asian region, obtained permission from the Foreign Investment Promotion Board for establishment of a 51 per cent. joint venture company in India. The Indian company (known as Kodak India Limited) has since been established with its head office located at Bombay and a factory at Goa. The factory at Goa is engaged in the production of two commodities: (i) 35mm film cassettes, and (ii) Eastman colour print motion picture films. The Indian company imports emulsion coated rolls of cellulose triacetate base in huge rolls of the width o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to an internal world- wide audit to ensure that standard norms are followed by the company throughout the world. It is claimed that through these efforts the company has been able to secure the first position in quality control in the world. At present, the company manufactures 60,000 rolls per month of camera films and 5 million linear feet per month of motion picture. The applicant has worked as production operation manager with the U. K. company for over 17 years and has acquired and contributed his experience and knowledge in all aspects of film processing, including finishing process operations, to Kodak s business world-wide. The statement of facts accompanying the application gives a detailed description of the steps involved in the production of these two types of films and leaves no doubt that the applicant has expertise and specialised knowledge of the processes to be applied to film rolls before a camera film or motion picture film emerges from the factory as a finished product. In that sense, no doubt, the applicant is a technician. Section 10(5B), however, does not extend its exemption to all kinds of technicians or persons having specialised knowledge and expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is film and what is produced by the company is also the same commodity except for differences in size, shape and packaging. Can these operations which preserve the shape and nature of the original product and introduce no qualitative changes therein be described as manufacturing processes at all ? The applicant s contention is that the true scope and real significance of its processes has been over-simplified in the above paragraph. The huge rolls imported by the company, according to the applicant, constitute the raw material for a manufacturing process carried on by it. The processes applied are not just mechanical processes of slitting, perforating and the like. They have to be done by high precision instruments and have to be carried out in rigid atmospheric and light conditions which are of great moment in ensuring the final quality of the picture. The final product has to conform to international quality standards. At every stage of the process, there have to be rigid quality standards and even a very minute variation or defect could render several rolls of the product totally worthless. The original rolls are not marketable commodities in a true sense: they cannot be so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and manipulation, every change is not manufacture. Something more is necessary and the application of labour must be carried out to such an extent that the article suffers a species of transformation and a new and different article emerges. (emphasis* added). Whether an article is converted into a different article depends on several criteria and one of the essential tests is whether in a commercial sense, the original article has ceased to exist and a new article has taken its place. It is, however, not necessary that the original article or material should have lost its identity completely: all that is important is whether, what has emerged as a result of the operations is a different commercial commodity, having its own name, identity, character or end use. This determination is essentially one of fact and has to be arrived at on a consideration of all relevant factors such as the quality and nature of the original article, the extent and magnitude of the operations carried out on, or in relation to, it, and the commercial identity, character and use of the article produced. Judicial precedents, which very often turn upon the language of the definition of the expression in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates (CIT v. Ajay Printery Pvt. Ltd. [1965] 58 ITR 811 (Guj)); the conversion of mica mined into cut mica (Chrestien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC)); the mere crushing of limestone into rodi and powder (CIT v. Best Chem and Limestone Industries Pvt. Ltd. [1994] 210 ITR 883 (Raj)) and the twisting together of two types of yarn to produce a different type (Aditya Mills Ltd. v. Union of India [1989] 73 STC 195 (SC)) have been held to be manufacturing processes. These illustrations show that it is not necessary that the original article should completely stand annihilated and changed beyond recognition. Indeed, the concept of total change and loss of identity of original material cannot be helpful in the context of all types of processes, particularly such a one as prevails in the present case. The film roll is by its very nature such a commodity that any change in its structure will totally destroy its basic quality. In cases like this, where the emphasis has to be on the preservation of its photo-magnetic quality and its sensitivity, the concept of change of that quality is irrelevant. What is important is to see whether the various processes carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l authority, corporation or scientific research body, the exemption will not be available to such a technician as he cannot be said to be in the employment of that is, he is not employed by the Government, local authority, corporation or body and that the present case can be no better. This interpretation may also gather some support from clause (vi) of section 10(6) which provides an exemption for the remuneration received by an employee of a foreign enterprise for services rendered by him during his stay in India, subject to the fulfilment of certain conditions. It could be said that it is the special provision in section 10(6)(vi) that should be resorted to for determining the exemption available to an employee of a foreign enterprise and that section 10(5B) should be limited only to an employee of an Indian enterprise. The Authority has come to the conclusion that no such limitations can be read into the language of section 10(5B). It only talks of a technician employed in a business in India. The applicant, in the present case, is undoubtedly a technician employed in a business in India . The clause places no restriction regarding the status of the employer, that he shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for arriving at a proper interpretation. One will be to say that clause (6)(vi) is a general provision covering all employees of foreign enterprises, whereas clause (5B) deals with a special category of employees called technicians . Applying the well settled rule that a special provision will override the general, clause (5B) should be held to apply to all technicians . The suggestion that technicians employed by foreign enterprises should be outside the scope of this clause, is not acceptable for the reason already indicated. Hence, any technician as defined under section 10(5B), is entitled to the exemption under that clause, irrespective of whether he is the employee of an Indian enterprise or of a foreign enterprise. The other approach is to look upon both the clauses as special provisions intended to deal with employees caught up in different types of situations. In this view, the language of each of the clauses should be construed in its full amplitude and neither should be allowed to restrict the scope of the other. Actually, the overlapping between the two provisions will be insignificant. Employees of foreign enterprises will not all be technicians; technician ..... X X X X Extracts X X X X X X X X Extracts X X X X
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