MR.LEIF BO OIGAARD,HTAS DENMARK vs. COMMISSIONER OF INCOME TAX,

The Assessing Officer (AO) brought to tax the salaries paid to these assessees by HTAS in Denmark, by virtue of the provisions of the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961 ('Act', for short), because the salaries paid in Denmark were for the services rendered in India. The value of accommodation provided and the income tax paid by FACT Ltd. were also brought to tax by the AO. In case of some of the assessees, regular assessment was made under Section 143(3) of the Act, while in case of others, proceedings were initiated under Section 263 by the Commissioner of Income Tax (CIT) as also by the AO, under Section 147. 3. Appeals were filed by the assessees before the CIT (Appeals) in respect of the assessment orders passed by the AO under Section 143(3) and under Section 143(3) read with Section 147 as well as on the orders of -9- the CIT under Section 263. The appeals were all heard by the different CIT (Appeals). Eventually, there were contradictory orders. In some of the appellate orders, the CIT (Appeals) found that the salaries paid to the assessees in Denmark were not liable to be taxed, while some others were of the opinion that the salary earned by the assessees in Denmark were liable to be taxed in India by virtue of the Explanation to Section 9(1)(ii) of the Act.

Appeals were preferred by the Department as well as by the assessees before the Income Tax Appellate Tribunal, Cochin Bench, and vide the impugned common order in all the appeals, the Tribunal came to the conclusion that the salaries paid to the assessees in Denmark for services rendered in India were all liable to be taxed in India. The value of perquisites like accommodation was excluded, which the Tribunal held, could not be brought to tax under Section 56(1) of the Act. The Tribunal was of the opinion that Section 10(6A) is not applicable to the assessees and therefore, the income tax paid was rightly added on to the income of the assessees for computing the total income as their taxable income. In view of the above, the appeals filed by both the Revenue and the assessees were partly allowed.

Aggrieved by the impugned common order of the Tribunal, the assessees are before this Court. Following are the common questions of law that arise for consideration in these appeals:- “(1) Whether the Tribunal was justified in holding that salaries received by the technicians in Denmark were taxable in India under Section 9(1)(ii) of the Act? (2) Whether the Tribunal was justified in holding that the income tax paid by FACT Ltd. was on the income at the hands of the assessees, considering Section 10(6A) of the Act?”

The learned counsel for the assessees and the learned Senior Counsel, Government of India (Taxes) were heard.

It is the argument of the learned counsel for the assessees that there is no employer-employee relationship between the assessees and FACT Ltd., as confirmed by the Tribunal. In view of such finding, it was not appropriate that the assessees/employees, who were deputed as technicians by their employers in Denmark, were taxed in India for the salaries which were drawn by them in Denmark. It would be apposite to read Section 9(1)(ii) of the Act, which is as follows:

The Explanation to Section 9(1)(ii) of the Act was brought on to the statute book by Finance Act, 1983 w.e.f. 1.4.1979. A reading of the above Explanation makes it adequately clear that the income falling under the head “Salaries” would be the income earned in India for the services rendered in India, and as per the provisions of the Act, any income that is earned in India, is liable to be taxed. The Tribunal has in detail, considered the Double Taxation Avoidance Agreement between India and Denmark, and in particular Article 16 thereof, to arrive at a conclusion that the salaries paid for the services rendered in India would be taxable, though paid in Denmark. Hence, we do not find any reason to interfere with the finding of the Tribunal, insofar as bringing to tax the salaries of the assessees -12- received by them in Denmark for the services rendered in India, is concerned.

The next question that arises for consideration is whether the tax liability borne by FACT Ltd. in respect of these assessees during their deputation in India is income at the hands of the assessees. The Tribunal has referred to Article 7 of the Licence Agreement between HTAS, Denmark and FACT Ltd.. As per that agreement, FACT Ltd. has agreed to pay Indian income tax leviable on the individual salaries of HTAS's expatriate personnel deputed to India under the agreement. By virtue of the terms of the agreement, it was the contractual liability of FACT Ltd. to pay income tax in respect of the assessees. Relying on the decision of the Honourable Supreme Court in (1993) 200 ITR 483 (SC) [Emil Webber v. CIT], it was rightly observed by the Tribunal that the income tax so paid by FACT Ltd. by virtue of the agreement would come within the purview of Section 56(1) as income from other sources, because it would include income of every kind and could not be excluded from the total income under the Act chargeable to income tax. The assessees have urged that the income tax so paid by FACT Ltd. could not be brought to the income to be taxed by virtue of the provisions of Section 10(6A) of the Act. Exclusions under the aforesaid -13- Section is with regard to foreign company deriving income by way of royalty or fees received by Government of India in pursuance of agreement by the foreign company and the Government. The Tribunal has considered this issue and has rightly come to the conclusion that the assessees are individual assessees and not a foreign company, so as to exclude their income from the purview of taxation.