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CIT v. Shri Andre Perrian - INCOME TAX REFERENCE No. 206 of 1984 [2004] RD-AH 1305 (3 November 2004)


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Income Tax Reference No. 206 of 1984

Commissioner of Income Tax, Meerut...............Applicant


Shri Andre Perrian & another......................Respondents

Hon'ble R.K. Agrawal, J.

Hon'ble Prakash Krishna, J.

       (Delivered by Hon'ble Prakash Krishna, J)

The present Income Tax Reference is at the instance of the department under Section 256(1) of the Income Tax Act, 1961, hereinafter referred to as the Act against the order of the Income Tax Tribunal, dated 14th November, 1983 for the assessment year 1977-78 and 1978-79.

The following substantial questions of law have been referred for the opinion of this Court:-

1.   Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the order of the A.A.C who accepted that the salary paid to foreign technician was neither earned nor accrued in India and, therefore, it was not taxable, in India?

2. Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the order of the A.A.C. who held that there is no relationship of employer and employees between the BHEL and the French technician and, therefore, the perquisites were also not taxable ?

3. Whether on the facts and in the circumstances  of the case, the Tribunal was legally correct in upholding the order of the A.A.C. who held that the living allowance was taxable under the head of other sources?

The facts of the case in brief are as follows :

Andre Perrian and Henry Martingngo are the French "non resident" technicians deputed by a French Collaborator, namely, M/s Creausot Loire of France. The French Collaborator has entered into an agreement with BHEL of India. The terms and conditions of deputation of french specialists of french collaborator company with the BHEL under the contract are as follows :-

(1) Salary paid by SFAC to the technical  personnel for the period beginning from three days prior to their actual date of arrival in India till the and of the third day after their departure from India. Salary shall include, basic salary and all other allowance due and payable to the technical personnel under the SFAC's conditions of service for the time being in force.

(2) Social charges paid in France on account of the employment of the techinical personnel including but not restricted to the following  viz;

Employer's contribution for accidents in the      course of employment; family allowances, social security retirement benefits, life insurance, accident insurance, unemployment insurance, apprenticeship tax and paid leave allowance.

(3) Nine percent of the total amount included in (1) and  (2) above for covering the French company's miscellaneous expanses  in relation to the administration of the technical personnel.

(4) Cost of Railway ticket including sleeper car charges in france from starting point to any European Airport any back.

(5) Cost of sea and railway transport of the luggage of the technical personnel and their families from the place of residence in Europe to the place of posting exceeding such free baggage allowance as permitted by Air Companies.

The Income Tax Officer assessed the aforesaid french technicians through BHEL as agent of foreign collaborator on the amount remitted abroad by the BHEL to the aforesaid Collaborator. However, in pursuance of the above contract certain payments by way of living allowances and some perquisites were also paid to the French technicians in India. Free accommodation, free electricity and water and free conveyance were provided by the BHEL, which have been taken as perquisites by the Income Tax Officer.

In appeal, the Assistant Commissioner of Income Tax allowed the appeal in part. He was of the opinion that the Income Tax Officer was not justified in including the salary income and value of the perquisites of any kind in the total income of the French Technicians. However, he upheld the inclusion of the living allowances received by the foreign technicians in India in their assessable income, and has followed its earlier order in the case of Mr. Reger Cappolle W. Burgmans and Jean Pisere Thomas. The Income Tax Appellate Tribunal has confirmed the order passed by the Appellate Assistant Commissioner, following its earlier orders passed in the similar cases.

Heard Shri Shambhu Chopra, learned Standing Counsel for the department. No body has appeared for the assessee.

Learned Standing Counsel for the Revenue submitted that on correct interpretation of the terms and conditions of the contract entered into by BHEL with the  French Collaborator it is crystal clear that the salary paid by the French Collaborator to the french technician assessees was in respect of the work done by them in India. Placing reliance upon Section 9 (1) of the Act it was submitted that the salary paid to the foreign technicians was earned and accrued in India and therefore, it was taxable in India. Reliance has been placed by him on the following cases  (1993) 200 ITR 483 Webber Emil Vs.. CIT; (2002) 257 ITR 770 Addl. Commissioner of Income Tax Vs. New Consolidated Gold Fields Ltd and (2003) 264 ITR 320 CIT Vs.. Sedco Forex Drilling International Company Ltd.

For proper appreciation of the controversy, involved in the present reference, it is necessary to notice the terms and conditions of the contract entered into between BHEL and its foreign collaborators. Article 1 of Schedule 4 of the contract provides that the salary paid by the foreign collaborator to the technical personnel shall be reimbursed by the BHEL in Paris. There is no dispute that these foreign technicians worked in India at the site of BHEL.

Section 9 (1) (ii)  of the Act reads as follows :

9. (1) The following incomes shall be deemed to accrue or arise in India :-


(ii) income which falls under the head  "Salaries", if it is earned in India.

Explanation - For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India;

The aforesaid Section inter alia lays down that the income which falls under the head salaries if it is earned in India shall be deemed to accrue in India during such years. Section 9 on its plain language is a deeming Section. Explanation to Section 9 (i) (ii) provides for an artificial place of accrual of income taxable under the head "salaries". It enacts that the income chargeable under the head salaries is deemed to accrue  in India if it is earned in India, i.e. if the services under the contract for employment are rendered  in India, meaning thereby that the place of payment of sale or actual place of accrual of salary is meaningless. The relevant consideration is that if the place of service is in India, the payment of salary made at any other place shall be deemed the accrual of salary in India. The said view has been taken by the Uttaranchal High Court in the case of CIT Vs. Sedco Forex International Drilling Company (supra).  The explanation to Section 9 (1) (ii) was introduced by the Finance  Act 1983 w.e.f. 1st April, 1979. The Explanation was introduced  to get over the judgment of the Gujarat High Court  in CIT Vs.. S.G. Pignatale 1980 (124) ITR 391, wherein it was held by Gujarat High Court that in order to attract Section 9 (1) (ii) of the Act, the liability to pay must arise in India. The said "explanation" was not available for the assessment years under consideration, namely, 1977-78 and 1978-79.

In CIT Vs.. S.R. Patton (1992) 193 ITR 49, it has been held by Kerala High Court  that the "Explanation" to Section 9 (1) (ii) is operative for and from assessment year 1979-80 and cannot be applied for the assessment years 1977-78 and 1978-79.

The rulings relied upon by learned counsel for the department are not applicable to the controversy in hand. These rulings are with reference to Section 9 (1) (i) of the Act. Therefore, it is not necessary to discuss them in detail.

Following the aforesaid  judgments of the Gujarat High Court in the case of CIT Vs.. S.G. Pignatale and of Kerala High Court in the case of S.R. Patton, we answer the question no.1 and 2 in affirmative i.e. against the department and in favour of assessee.

Question No. 3 does not arise from the order of the Tribunal, therefore, the said question is returned unanswered.

Dt.   3 November, 2004



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