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TMI Blog1980 (2) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1972, is the portion of the previous year which is under consideration. The ITO assessed the income of the assessee at Rs. 39,100 against the declared nil total income of the assessee. The assessee was an employee of a French company who, pursuant to an agreement dated June 23, 1970, entered into by the French company with the Gujarat State Fertilizer Co. Ltd., made available to the Gujarat State Fertilizer Co. Ltd. the services of the assessee. The assessee accordingly worked in India and rendered services in India in the shape of supervisory and advisory assistance to the Gujarat State Fertilizer Co. (hereinafter referred to as " the Gujarat company "). In lieu of the said services the assessee was to be paid outside India by the French company certain fixed emoluments in terms of para. 3 of the French company's letter dated June 30, 1971. These emoluments are referred to as retention remuneration in the letter. The letter of June 30, 1971, contains the terms of employment of the assessee during his assignment in India. Besides the retention remuneration the assessee was also to get certain daily allowance according to the scale mentioned in the letter and also in the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal held in favour of the assessee both as regards the retention remuneration and as regards the living allowance. The Tribunal further observed that in case this allowance constituted perquisite, the assessee had not produced necessary evidence in this regard and hence it would not be exempt under s. 16(5) of the Act. The Tribunal, therefore, allowed the appeal of the assessee and set aside the order of assessment originally passed by the ITO and confirmed by the AAC. In order to appreciate the controversy which has arisen between the parties, it is necessary to refer to some of the terms of the contract between the French company and the Gujarat company. A copy of the said contract dated June 23, 1970, as subsequently amended by agreement between the parties, along with addendum has been reproduced at annex. " A " to the statement of the case. In the contract, the Gujarat company has been referred to as the owner and the French company has been referred to as " E.C. ", that is, the European contractor as distinguished from the Indian contractor referred to in the supply contract as " I.C.". The supply contract was in respect of Caprolactam Plant which the Gujarat company had d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay and Rs. 150 for stay in Fertilizernagar or Baroda in accordance with the procedure to be mutually agreed upon for the personnel of E.C. or vendor's specialists. It must be pointed out that the French company was not the vendor but was to render different types of services which we have mentioned above. Under cl. 8 of annex. IV the Gujarat company had to reimburse travel expenses of the specialists of E.C., that is, the French company, and vendors in India for travel undertaken for performance of their work and approved by the Gujarat company and the living allowance provided in annex. IV was to be paid monthly by the owner to the French company on presentation of invoices. The Gujarat company had to provide pre-paid tickets for travels within India and Europe provided in different clauses of the contract. Thus, so far as the assessee was concerned, the assessee was sent out to India by the French company to render one or the other of the services covered by the supply contract between the French company and the Gujarat company. On June 30, 1971, the French company had addressed a letter which is annex. "B" to the statement of the case, on the subject of the assessee's assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar :...... " Under the proviso to s. 5(1), in the case of a person who is not ordinarily resident in India, the income which accrues or arises to him outside India shall not be included unless it is derived from a business controlled in or a profession set up in India. It may be pointed out that ss. 4 to 9, both inclusive, are in Chap. II which deals with " Basis of charge ". Section 9 deals with income deemed to accrue or arise in India. Under s. 9(1)(ii) the following income shall be deemed to accrue or arise in India : income which falls under the head " Salaries " if it is earned in India. Clause (iii), which is also material for the purposes of this judgment, states that income chargeable under the head " Salaries " payable by the Government to a citizen of India for service outside India shall also be deemed to accrue or arise in India. Section 10 deals with incomes which are not to be included in the total income of the previous year of any person and under sub-s. (6), cl. (vi), subject to certain conditions, the remuneration received by an assessee as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the three conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifficulty by providing an artificial place of accrual in one case. Since residents are chargeable on income accruing in any part of the world, it cannot make any difference in their case whether income is treated as accruing abroad or is deemed to accrue in India. The main effect of the clause is to charge non-residents and those who are resident but not ordinarily resident on salary or pension earned in India even where it actually accrues abroad and is received abroad. This clause applies even to salary paid by a foreign Government to its employee serving in India, because salary payable by a foreign Government which was not taxable under the head ' Salaries ' in the 1922 Act is taxable under that head (s. 15) in this Act. " The other commentators like Iyengar, Chaturvedi, Chopra, Aiyar, Sundaram and Santhanam, have all expressed views on the same lines as those of Kanga and Palkhivala in the passage cited above. It must be pointed out, however, that so far as the meaning of the word " earned " is concerned, there is a specific decision of the Supreme Court dealing precisely with the point as to the connotation of the word " earned ". In E. D. Sassoon Company Ltd. v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in praesenti, solvendum in futuro it cannot be said that any income has accrued to him. The mere expression 'earned ' in the sense of rendering the services, etc., by itself is of no avail. " (Emphasis supplied by us.) Thus, it is clear that according to the Supreme Court in E. D. Sassoon's case [1954] 26 ITR 27 the word " earned " has two meanings. One meaning is the narrower meaning in the sense of rendering of services, etc., and the wider meaning in the sense of equating it with " accrued " and treating only that income as earned by the assessee to which the assessee has contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. Therefore, unless there is a debt in favour of the assessee by reason of his rendering services, it cannot be said to be " income earned " by the assessee and this is what may be called the wider meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the sections in Chap. II which deals with the basis of charge is one of the group of sections which deals with charge on income so far as income-tax is concerned and, therefore, the words " earned in India " will have to be strictly construed. The Supreme Court itself has indicated that there is a narrower meaning and a wider meaning of the word " earned " (vide E. D. Sassoon's case [1954] 26 ITR 27 (SC)). It may also be pointed out that as in E.D. Sassoon's case the Supreme Court has in CIT v. Ahmedbhai Umarbhai Co. [1950] 18 ITR 472, at page 486, equated " earnings " with " accrual " or " arising ". It has been pointed out that the Privy Council in Kirk's case [1900] AC 588 held that " profits, having been produced by the combined operations of extraction, manufacture and sale, were assessable to tax in the colony either as derived from land by reason of the extraction or as 'arising or accruing', if not from a 'trade', certainly from a 'source', by reason of the manufacture in the colony, and were therefore 'earned' in the colony, though the profits were received outside the colony ". Thus, in Kirk's case [1900] AC 588 (PC) as interpreted by the Supreme Court in CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicated above but not a single decision has been cited by these commentators in support of their commentaries in this regard and, therefore, the commentators' opinions will not have the same weight as they would have had if their views had been supported by any decision. That takes us to the next question of allowance or what has been referred to as living allowance under the terms of the letter dated June 30, 1971. It may be pointed out at this stage once again that under that particular term of condition Rs. 220 were to be paid to the assessee when posted in Delhi or Rs. 150 per day when posted at Baroda and in case furnished accommodation for his stay in India and/or free conveyance was allowed, the daily allowance was to be reduced on a scale as may be decided from time to time. The principle is well recognised in the House of Lords' decision in Owen v. Pook (Inspector of Taxes) [1969] 74 ITR 147, that a perquisite is something which arises by reason of a personal advantage but the word " perquisite " would not apply to a mere reimbursing of necessary disbursement. It is true that in the earlier decision in Corry v. Robinson [1933] 18 TC 411, the Court of Appeal had taken a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Madras High Court in CIT v. J. Jenkin Thomas [1975] 101 ITR 511 also dealt with the question of foreign technicians who were employed in connection with the Neiveli Lignite Corporation. Salaries in that case were payable by the corporation and that is the distinguishing feature so far as the case before us is concerned. It is true that in that case the Madras High Court referred to the decision in Owen v. Pook [1969] 74 ITR 147 (HL), but it was in the light of the facts of that particular case where the subsistence allowance which was paid was not related to the duties as such but was linked with provision of furnished quarters, that it was held not to be exempted under s. 4(3)(vi) and there were no facts to show that the amount was actually of a kind of reimbursement for any expenditure incurred in the performance of duties of the office by the assessee before the court. In our opinion, in view of the facts of the case before us, it is clear that the amount of living allowance paid to the assessee per day in the light of the provisions of the supply contract between the French company and the Gujarat company and emphasised as one of the terms and conditions of deputatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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