Case Law Details

Case Name : BJ Services Company Middle East Ltd. Vs Asstt. Commissioner of Income-tax (ITAT Delhi 'H' Bench)
Appeal Number : 2008 297 ITR 141 Delhi : (2007) 109 TTJ Delhi 135
Date of Judgement/Order : 23/03/2007
Related Assessment Year :
Courts : All ITAT (6510) ITAT Delhi (1499)

The company agreed to pay income-tax on behalf of Mr. Roger David Arnold and the question was whether, in view of the aforesaid agreement, the tax had to be grossed up at multiple stages or only at single stage for working out the salary liable to be taxed u/s 15 of the Income-tax Act, 1961 (the Act)?

The only inescapable conclusion is that the salary of the assessee has to be calculated on the basis of multiple grossing up method.

The tax paid by the company was part and parcel of the salary and not any sum outside the salary or independent of salary. Thus, the tax liability of the assessee was nothing but the salary and not anything outside it. Therefore, this payment of tax on behalf of the assessee will be monetary payment. In view thereof, the provision contained in section 10(10CC) is not applicable for the reason that like salary, this payment is also a monetary payment forming part of the salary.

INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘H’ DELHI

BEFORE SHRI R.V. EASWAR; HON’BLE VICE-PRESIDENT

AND

SHRI K.G. BANSAL; HON’BLE ACCOUNTANT MEMBER

ITA No. 4033(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4034(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun

I.T.A. No. 4035(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4036(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4037(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4038(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4039(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4040(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4041(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4042(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4043(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4044(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4045(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4046(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4047(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4048(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4049(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4050(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4051(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

I.T.A. No. 4052(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

AND

I.T.A. No. 4053(Del)/2005

Assessment year: 2004-05

BJ Services Company Middle

East Ltd., as representative assessee

Of Mr. Roger David Arnold,

14, Astley Hall, Dehradun.

 

 

Vs.

Asstt. Commissioner of Income-tax,

(OSD) Range-I

Dehradun.

 

(Appellant)

 

(Respondent)

 

Appellant by: Shri M.P. Rastogi. Advocate & Shri V.K. Gupta, CA.

Respondent by: Shri B.P. Mishra, Sr. DR

 O  R   D   E  R

PER BENCH

        These appeals involve a common ground, namely, whether the learned CIT(Appeals) erred on facts and in  law in upholding tax perquisite grossing up on multiple stages and on a single stage? The appeals were argued in a consolidated manner by the learned counsel for the assessee and the learned D.R. The Ld. Counsel pointed out that the facts of all the cases are identical and that is why these appeals are being argued in a consolidated manner. In view thereof, a common order is passed. For this purpose, we shall refer to the facts in the Case of B.J. Services Company Middle East Ltd, (representative of Mr. Roger David Arnold).

 2.         On perusal of the assessment order, it is found that B.J. Services Co. Middle East Ltd. (hereinafter called the company) had filed the return of income on 30.9.2004 as an agent of Mr. Roger David Arnold, the employee of the company, declaring total income of Rs. 8,41,434/- and claiming refund of Rs. 31,383/-. The return was signed and verified by Mr. Carlo Agnilera, Country Manager of the company on behalf of its aforesaid employee. The return was processed on 29.12.2004. Thereafter, notice u/s 148 was issued on 10.2.2005 and the assessee vide letter dated 18.2.2005, consented to treating the return originally filed as having been filed in response to notice u/s 148. In the course of these proceedings, the assessee filed the “Appointment Agreement” dated 26.4.2004 in the case of Mr. Daniel C. Tatroman, break-up of salary and allowances, details of working days, on period, off period salary, total salary, certificate regarding duty and certificate regarding perquisites. It was stated that appointment agreements in all cases were identical. It appears that the company agreed to pay income-tax on behalf of Mr. Roger David Arnold and the question was whether, in view of the aforesaid agreement, the tax had to be grossed up at multiple stages or only at single stage for working out the salary liable to be taxed u/s 15 of the Income-tax Act, 1961 (the Act)? Before the Assistant CIT (OSD), Range-I, Dehradun (for short the Assessing Officer), the assessee relied on the decision of Hon’ble Uttranchal High Court in the case of CIT And Another Vs. ONGC (2003) 261 ITR 340; to argue that the income cannot be assessed by applying. The method of multiple grossing up of the tax. Reliance was also placed upon the order of Hon’ble ITAT in the case of ITO, Spl. Ward, Dehradun Vs. Hughes Services (FE) Pte. Ltd., as agent of Mr. Mackenzie K and others for the aforesaid proposition. It was canvassed that in spite of the fact that SLP was pending for decision before the Hon’ble Supreme Court in the case of the aforesaid ONGC, the judgment was binding, being the judgment of jurisdictional High Court in a situation where the operation of the judgment was not stayed by the Apex Court. The Assessing Officer considered the submissions of the assessee. It was pointed out that the income of the employee was undoubtedly assessable under the head “salaries” as the assessee had filed the return declaring the income under the aforesaid head. On this account, the facts of this case were distinguishable from the facts of the case of ONGC (supra), in which the Income was presumptively computed u/s44BBofthe Act Coming to the decision in the case of the aforesaid Hughes Services, it· was pointed out that the CIT(Appeals)-I, Dehradun, had dismissed the appeal of the assessee for assessment year 2003-04, in which the income was assessed by applying multiple grossing up method. It was further pointed out that Hon’ble Delhi High Court in the case of Frank & Beaton and Another Vs. CIT, Delhi-VI & Others, (1985) 156 ITR 16, had categorically observed that if in terms of employment, the employer agreed to pay all taxes which the employee may be called upon to pay in respect of the salary assessed in his hand, the entire tax calculated in accordance with the provisions of section 195A will be assessed in the year of taxability of the salary. It was also pointed out that in the instant case, the assessee deducted tax at source u/s 192 read with section 195A. Therefore, it was manifestly evident that the cost on account of tax on tax and so ort was to be borne by the company. It was also mentioned that provision contained in section 198 clearly provided that tax deducted under Chapter XVIIB shall be deemed to be the income received by the assessee for the purpose of computing his income. Thus, it was held that the tax deducted at source which was done on the basis of multiple grossing up method, was the income of the assessee under the head “salaries”.

3.         Aggrieved by this order, the assessee moved an appeal before the CIT(Appeals)-I, Dehradun. The assessee made more or less the same submissions before the learned CIT( Appeals) as made before the Assessing Officer. The learned CIT(A) pointed out that the facts of the case of ONGC and the facts of the case of the assessee were clearly distinguishable. In that case, the assessee was engaged in the business of providing services or facilities in connection with prospecting etc. of mineral oils under “net of tax contract”. The income was computed tax u/s 44BB of the Act. Moreover, the benefit or perquisite obtained by the assessee in carrying on the business was chargeable to tax u/s 28(iv) of the Act. In the instant case, the income is chargeable under the head ”salaries”. Coming to the decision of Hon’ble Delhi High Court in the case of Frank Beaton (supra), it was pointed out that the Hon’hle Court categorically observed that if under the terms of employment, the employer agreed to pay all taxes which the employee may be called upon to pay in respect of the salary assessed in his hands, the entire tax calculated in accordance with the provisions of section 195A will be assessed in the year of taxability of the salary. Coming to the -facts of the instant case) it was pointed out that the tax was deducted u/s 192rcad with section 195A. Therefore, it was clear that the cost on account of tax on tax and so on was to be borne by the company. It was further pointed out that in the agreement of employment, filed before the Assessing Officer between the assessee and the company, there was no mention that the salary will be paid net of tax”. However, from the conduct of the company, it was implicit that the assessee has been paid salary net of tax. It was also mentioned that although the department did not issue any notice to the company u/s 163 or section 201 of the Act; the company filed return of income voluntarily as an agent of the company. It had deducted tax by adopting the method of multiple stage grossing up. It was also mentioned that it was customary in oil industry to pay salaries net of taxes. The learned CIT(Appeals) also referred to the decision of Hon’ble Bombay High Court in the case of CIT Vs. H.D. Dennis and others (1982) 135 ITR 1. On the basis of the decisions of Hon’ble Delhi High Court and Hon’ble Bombay High Court, he upheld the finding of the Assessing Officer that the income had to be computed by applying the method of multiple stages grossing up. The assessee had also taken an argument that after insertion of section 10(10CC), with effect from 1.4.2003, tax on tax is not a perquisite and, therefore, there should have been no grossing up at all. The learned CIT(Appeals) referred to the aforesaid provision, which provides that in the case of an employee, being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee shall not be included in the total income. The learned CIT(Appeals) pointed out that the expression “perquisite” has been defined in section 17(2) by way of an inclusive definition, which may be in cash, in kind, i.e., in money or money’s worth; and also amenities which are not convertible into money. What has to be excluded from the total income in view of the provision contained in section 10(10CC) is the perquisite not provided by way of a monetary payment. It was held that the tax paid by the employer on behalf of the employee was a monetary perquisite and, therefore, it was not caught within the mischief of section 10(10CC). Thus, the appeal filed by the assessee was dismissed.

4.         Before us, the learned counsel for the assessee filed a copy· of the consolidated order of Hon’ble ITAT, Delhi Bench “‘H”, New Delhi in 15 cases which also includes the order in the case of the assessee for assessment year 2003-04 in ITA No. 1651 (Del)/05. In that order it was pointed out that the undisputed facts were that the company was an agent of the employees and as per terms of agreement, the employees were entitled to tax-free remuneration in India. The responsibility for payment of taxes was that of the company. The income of the assessee was taxable under the head “salaries”. There was also no dispute about the amount of salary computed by the Assessing Officer except that whether the cost of tax paid by the company was to be included in the income of the assessee on the basis of single stage grossing up or multiple stage grossing up. In this connection, it was pointed out that provisions of section 195 A were applicable for the purpose of deduction of tax and it is not provided that the income shall be increased by such an amount as would, after deduction of tax thereon, be equal to the net amount payable under the agreement. In other words, the section does not provide that income in such a case will be increased to the extent of tax deducted at source. Thereafter, the Hon’ble Tribunal referred to the decision in the case of Emil Webber Vs. CIT, 200 ITR 483 (SC). In that case the assessee was not an employee of the Indian concern. He was a foreign national whose services were provided for setting up a plant in India. As per agreement, salary paid to such a person was to be free of taxes. It was claimed by the assessee that tax paid on the income to such a person was not an integral part of the salary and, hence, it was not taxable. The Assessing Officer included tax on such income in the salary for the purpose of taxation. The Hon’ble Court pointed out that the assessee was not an employee of the Indian company and, therefore, tax paid on his behalf could not be taxed under the head “salary” Such payment was nevertheless liable to be taxed u/s 2(24) under the head “Income from other sources”. The issue regarding grossing up on single stage basis or multiple stage basis was not there before the Apex Court. The Hon’ble Tribunal also referred to the decision of Hon’ble Delhi High Court in the case of Frank Beaten (supra). It was pointed out in that case that the liability to pay tax had to be determined on the interpretation of the agreement between the employee and the employer company. On the facts of the case in terms of the agreement, first of all, it has to be determined what was the taxable salary was if it was not tax free. On the amount so determined, the tax had to be calculated and only this amount of tax had to be paid by the company. Any additional tax due, as a result of the addition of tax payable to the salary, had to be paid by the employee, as there was no agreement on the part of the company to pay tax on tax. This case was distinguished by observing that in the case at hand the entire tax payable on the income of the assessee was to be borne by the company. It was also mentioned that the facts of the case of ONGC (supra) were clearly distinguishable, as in that case the income had to be computed presumptively u/s 44BB of the Act. The Hon’ble Tribunal also referred to the decision in the case of Hughes Services (supra) in ITA No. 1924(Del)/97 for assessment year 1993-94. The question in that case was whether, perquisite value of boarding was liable to be taxed as income from other sources? The question was decided in favour of the assessee and against the revenue by relying on the decision of Hon’ble Tribunal, Delhi (Spl. Bench) in the case of Saipam Spa Vs. ITO, 76 ITD 101. In that case, it was held that the boarding provided to the assessee in steel bunkers, which could not be claimed as a matter of right, could not be considered as a benefit or perquisite. It was pointed out that the facts of the instant case were entirely different. Hon’ble Tribunal also referred to its own order in the case of ITO, Spl. Ward-I, Dehradun Vs. ONGC, as an agent of1vfr. V.T. Arasenco in ITA No. 4723(Del)/90 for assessment year 1988-89, in which it was held that the grossing up was to be done on single stage basis. It was mentioned that the copy of this order was not placed before the Bench and, therefore, it is not known whether provisions of section 195A or section 10(6) were considered or not. Having considered all these matters, it was pointed out that the learned counsel for the assessee fairly conceded that the decision in the case of ONGC was not applicable to the facts of the case. It was not known whether the case of Frank Beaten was considered by the Tribunal. Besides these, the CIT(Appeals) had decided the appeal in a summary manner without passing a reasoned order. Therefore, the Hon’ble Tribunal restored the matter to the file of CIT(Appeals) for deciding the appeal afresh after hearing both the parties with the direction that the order of the ITAT, relied upon by the assessee, shall also be considered by him. In view of the aforesaid order, it was the case of the learned counsel that either the matter may be decided in favour of the assessee or it may be restored to the file of the learned CIT(Appeals) as done in its case for assessment year 2003-04 by the Hon’ble Tribunal.

5.         As against the aforesaid, the learned DR referred to the order of the Hon’ble Tribunal in the case of assessee for assessment year 2003-04 (supra) and pointed out that the matter was restored to the file of the learned CIT(A) because provisions of section 195A were not considered and the decisions rendered by Hon’ble Uttranchal High Court and Hon’ble Delhi High Court were also not considered. However, in the appellate order of this year, all these matters had been considered. Therefore, no useful purpose will be served by setting aside the matter to the file of the learned CIT(Appeals).

5.1       He referred to the paragraph 2 of the order of the Assessing Officer, which deals with the issue of show cause notice to the assessee to state as to why the method of multiple stage grossing up should not be applied. The paragraph also contained the summary of submissions of the assessee to the effect that such method cannot be employed in view of the decision in the case of ONGC (supra). The assessee also relied on the decision in the case of Hughes Services. On the basis of these decisions, it was, claimed that the multiple stage grossing up method could not be employed. He also referred to the order of the learned CIT(Appeals), in which it was held that in view of the .undertaking of the company to bear all taxes of the assessee payable in India, multiple stage grossing up method had to be employed.

6.         In the rejoinder, the learned counsel for the assessee pointed out that the provision contained in section 195A is only for the purpose of tax deduction at source and it does not deal with the determination of the income or the tax liability of the assessee. He also referred to the decision of Hon’ble Uttranchal High Court in the case of ONGC (supra); at page 346, where it is mentioned that section 195A was introduced for the purpose of tax deduction at source only. Therefore, this section cannot be applied for supporting multiple stage grossing up of income in respect of computation of deemed profits u/s 44BB of the Act. It was his case that if this section does not support multiple stage grossing up u/s 44BB, it can also not support multiple stage grossing up of computation of income under the head “salaries”. He also drew our attention towards the words “an agreement or other arrangement” used in section 195A of the Act.

7.         We have considered the facts of the case and rival submissions. Before proceeding with the controversy at hand, it may be. pointed out  that while the Assessing Officer referred to the agreement of the company with Mr. Danial C. Tatroman dated 26.4.2004, the assessee filed before us the agreement with the aforesaid person dated 5.7.2004. The relevant terms and conditions, numbered 1 to 7, are reproduced below:-

1.          “You are requested to report in India on July 05, 2004 and the Country Manager/Operations Manager shall assign your duties. You shall execute and work under the supervision of Country Operations Manager for ONGC Project.

2.         You will be paid all-inclusive salary of US$ 165 (US$ One hundred and sixty five only) per day, on rig site only worked in India.

3.         Besides salary you will be provided with a suitable ticket to and fro from India and the place of Origin.

4.         This agreement will terminate as soon as you are instructed to leave India or in accordance with para 8 of this agreement, whichever is earlier.

5.         During you stay in India you will be provided with camp and other suitable housing and mess facilities only at the location assigned to you. However, due to unavoidable circumstances at any time during your employment with us, you could not be assigned any job or are required to shift to any location other than the one assigned to you, the company shall provide suitable lodging and boarding facilities.

6.         At the end of your serving period, you will submit the Work sheet for payment to the Personnel Coordinator duly approved by the respective supervisors. This amount shall be transferred to the Bank account designated by you. Income Taxes, duties and other Government obligations related to work in India shall be borne by the Company

7.         Accidental Death and Dismemberment Insurances are in effect only during the time spent at site under this Agreement and as per the Insurance policy of the Company.”

It will be seen that Mr. Tatroman was paid all-inclusive salary of US Dollars 165 per day as per paragraph 2. He was also provided with camp and other suitable housing and mess facilities as per paragraph 5. Paragraph 6 clearly mentions that at the end of the service period, Mr. Tatroman will submit the work sheet for payment to the Personnel Coordinator, duly approved by the respective supervisors. This amount shall be transferred to the bank account designated by him. Income Taxes, duties and other government obligations related to work in India shall be borne by the company. Thus, there was a clear agreement and not merely an arrangement between the company and the assessee that liability for payment of income-tax will be that of the company. From the assessment order, it is seen that the assessee was paid a sum of Rs. 6,87,257/- as per terms and conditions contained in paragraph 2 of the appointment agreement. This works out to be the payment for about 150 days of the work done under the agreement.

7.1       Before the Assessing Officer and the learned CIT(A), the assessee had relied on the decision of Hon’ble Uttranena High Court in the case of ONGC (supra). In that case, ONGC had filed a return of income u/s 160 read with section 163 on 31.12.1990, as an agent of a non-resident person. The contract between ONGC and the non-resident person was a net of tax contract for the purpose of oil exploration. F or computing income in such a case, provisions of section 44BB were applicable and 10% of the gross receipts was deemed to be the income of the non-resident person. Since ONGC was liable to pay tax of the non-resident person under the agreement, the Assessing Officer held that the payment of tax amounted to benefit u/s 28(iv) of the Act. Accordingly, he added the tax component on the basis of multiple grossing up to the income of the non-resident person. The learned CIT(Appeals) held that this method was not applicable in computation of income u/s 44BB read with section 195-A of the Act. This order was confirmed by the Tribunal. The Hon’ble Court pointed out that section 44BB was a special provision for computing income of. a non-resident person from oil exploration. This section begins with a non-obstante clause. Thus, the section was a complete code unto itself and, therefore, there was no need to refer to the provisions contained in section 28(iv) of the Act. It was common -ground between the learned counsel and the learned DR that the aforesaid judgment applies only where presumptive income is computed u/s 44BB and, therefore, we do not propose to deal with the applicability of this judgment to the facts of our case, except pointing out that the income of the assessee has to be computed under the head “salaries”. Therefore, there is no question of applicability of either section 44BB or section 28(iv) of the Act.

7.2       A similar question came up before the Hon’ble Bombay High Court in the case of H.D. Dennis & Others (supra). One of the questions before the Hon’ble Court was whether, on the facts and in the circumstances of the case, the amount of tax borne by the employer, including tax on tax, on behalf of the employee, constitutes salary”, as defined in Explanation (2) of Rule 3 of the Income-tax Rules, 1962, for the purpose of determining the value of rent perquisite in terms of section 17 of the Act? The Honble Court pointed out that the definition of the term “salary” is inclusive and it is well settled rule of interpretation of inclusive definition that it is not controlled by or confined to the words or expressions which are included in the said definition. On the contrary, it is intended, to enlarge the scope of the concept which is” sought to be defined, Secondly, the purpose of Rule 3 is to lay down the mode of valuation of the perquisite for the purpose of computing the income chargeable under the head “salaries” u/s 15 of the Act. The definition of the word “salaries” given in section 17, as the section itself showed, is for the purposes of sections 15 and 16 of the Act. Therefore, it is legitimate to presume that the Legislature did not intend to give a different meaning to this word in Rule 3 from that given in section 17 (at page 11). Thereafter, the Hon’ble Court dealt with the word “pay” and pointed out that both the words “salary” and “pay” would include tax paid by the employer on behalf of the employee. In this connection, the Honlble Court referred to two English decisions in the case of North British Railway Company Vs. Scott (1922) 8 TC 332 (HL) and Hartland Vs. Diggines (1926) 10 TC 247 (HL), wherein it was held that the word “salaries” would in its natural import comprehend within it taxes paid on behalf of the employees. In the first case, it was pointed out that the sum paid by the company is not a sum outside the salary or independent of it, but is a part of salary. In the second case, in accordance with the custom, the income-tax payable by the employee was paid by the company. It was held that the ratio of the first case was equally applicable notwithstanding the fact that there was no specific agreement between the employer and the employee to pay the salary free of income-tax (at page 12). Thus, in either case, namely, where income-tax is paid by the employer as per agreement or where income tax is paid by the employer as per custom, the income-tax so paid is part and parcel of the salary and not outside or independent of it. It also follows that the aforesaid proposition holds for the computation of salary or perquisite.

7.3       We now turn our attention towards the decision of Hon’ble Delhi High Court in the case of Frank Beaton & Another (supra). The facts of that case were that Mr. Frank Beaten was the Area Manager in Delhi of M/s Quantas Airways Ltd. from January, 1968 to November 12, 1971. He received tax-free salary and also rent-free accommodation. In the period relevant to assessment year 1971-72, his salary was Rs. 73,712/- and rent-free accommodation in the form of a house rented at Rs. 2,400/- p.m. was provided to him. During the period relevant to assessment year 1972-73, he received a salary of Rs. 39,072/- and the corresponding rent-free accommodation for a shorter period. The ITO calculated the income for assessment year 1971-72 at Rs. 8,33,486/- and for assessment year 1972-73 at Rs. 3,04,311/-. The tax was collected from M/s Quantas Airways Ltd. The calculation of income for assessment year 1971-72 was explained in some detail although the method of calculation was not very clear from the order. The assessee was paid salary of Rs. 73,712/- as tax-free salary as per the certificate of Area Manager, M/s Quantas Airways Ltd. In addition, free furnished accommodation of the rental value of Rs. 22,266/- was provided to him. Income-tax of Rs. 5,46,530/- was deposited by M/s Quantas Airways Ltd. It was pointed out on behalf of the revenue that the assessee would have earned tax-free salary of Rs. 73,712/- only if he earned salary of Rs. 4,90,946/-. In other words, the salary would be Rs. 4,90,946/- if the net amount of Rs. 73,712/- was to be left in the hands of Mr. Frank Beaton after the payment of tax. The perquisite was worked out on the basis of this salary. In short, the contention of the revenue was that the tax liability had to be determined by first finding the salary and then the perquisite, adding the two and then computing the amount which would have been left in the hands of the assessee as tax-free salary, amounting to Rs. 73,712/-. The Hon’ble Justice Kapur pointed out that if this is the correct method of calculating the tax, there is no doubt that the salary calculated by the Commissioner was absolutely correct. However, some difficulties have been found in accepting this, method of computing the tax. The question was that if tax was paid by M/s Quantas Airways Ltd., then, how many times the grossing up has to be done of the tax with the salary? It was pointed out that as an infinite number of calculations is necessary, it was not reasonable to calculate the amount of tax by this method. Therefore, the Court has either to say that the tax on further tax has to be paid by Mr. Beaton or it has to say that the entire tax has to be paid by M/s Quantas Airways Ltd., so that an infinite number of calculations has to be made, which may eventually lead to the calculations made by the department. The Hon’ble Court examined the agreement between Mr. Beaton and M/s Quantas Airways Ltd. and came to the conclusion that the company had to pay Mr. Beaton a salary and tax on that salary. There was no obligation on the company to pay tax on tax paid on behalf of Mr. Beaton. That additional tax had to be paid by Mr. Beaton. Thus, the writ was granted in favour of the petitioner to the effect that tax on the salary had to be paid by the company as if it was a taxable salary. Any further tax resulting from that payment had to be paid by Mr. Beaton. Of course, the Court found difficulties because Mr. Beaton had left the country in 1971 and was not available in India for payment of tax on tax. Speaking on behalf of the court, Hon’ble Justice Ranganathan, while agreeing with Hon’ble Justice Kapur, pointed out that if the employer pays any income, tax, the obligation to pay which lies on the employee, the amount of income-tax paid will be assessable in the hands of the employee as part of his salary. The result of this proposition will be that if an employer stipulated that he will pay his employee a tax-free salary of Rs. 50,547/- and what it means really is that he will go on paying whatever income-tax the employee will be called upon to pay in respect of his salary, then, the real salary of the employee is not the amount he has been actually paid, but an amount calculated in such a manner that the employee will be left with a net salary of Rs. 50,547/- in his hand and that no liability whatsoever to pay income-tax thereon. This would mean the payment of stupendous sum by the employer. The real question, however, will be whether such was the intention of the parties? In order to answer this, the terms of agreement will have to be considered and interpreted according to normal canons of construction of deeds and documents, particularly those of commercial nature. On the basis of the terms of the agreement, namely, payment of any local Indian income-tax on the above salary and allowance will be the company’s responsibility, the Hon’ble Judge came to the conclusion that the employer was required to pay only tax on salary and allowance and perquisites and not tax on tax. In this connection, it was pointed out that the employer was a foreign company and it could not be presumed that it entered into the contract with full awarencess of tax laws in India.

7.4       Coming to the facts of this case, there was a clear agreement between the company and the assessee that income-tax, duties and other Government obligations, related to work in India shall be borne by the company. This means that the assessee was to be paid tax-free salary @ US$ 165 per day. It is not a case where the company was not aware of the provisions contained in the Income-tax Act, particularly with regard to deduction of tax at source and payment of tax on behalf of its employees. The assessee had deducted tax u/s 195-A on the basis of multiple grossing up method. Thus, it is not a case similar to the case of M/s Quantas Airways, who was obliged to pay tax by the revenue on the basis of multiple grossing up method. It was because of that reason that the Hon’ble Delhi High Court held that the contract between Mr. Frank Beaton & M/s Quantas Airways should be interpreted reasonably, as M/s Quantas Airways was not expected to know the Indian tax laws in a great detail. Such is not the case here, as we have already pointed out that the company was aware of the provision contained in section195-A and deducted tax accordingly. The company suo motu deducted tax u/s 193A of the Act and suo motu filed return of income on behalf of the employee to claim refund. The Hon’ble Delhi High Court clearly held at page 22 that if entire tax has to be paid by the employer, an infinite number of calculations have to be made, which may eventually lead to the same conclusion as arrived at by the department. The same conclusion was arrived at page 26, where it is mentioned that if, by terms of employment, the employer has agreed to pay all taxes, which the employee may be called upon to pay in respect of the salary assessed in his hand, the entire tax of Rs. 34,114/- will be added in respect of taxability of the salary itself. It may be mentioned that the aforesaid amount of Rs. 34,114/- was calculated by adopting multiple grossing up method. The only reasonable interpretation of paragraph 6 of the appointment agreement is that the company was to bear income-tax related to work in India. The company entered into a large number of such agreements as it habitually deployed its employees in India. It is also assessed to tax in India on a regular basis. The company was aware of the provisions of Income-tax Act, in as much as the tax was deducted in accordance with provisions of section 195-A. Thus, the facts are quite distinguishable from the facts of the case of Frank Beaton. On the facts of this case, the only inescapable conclusion is that the salary of the assessee has to be calculated on the basis of multiple grossing up method.

7.5       We may also refer to the decision of Hon’ble Bombay High Court in the case of H.D. Dennis (supra), in which reference was made to the decision in the case of North British Railway Company Vs. Scott and Hartland V s. Diggines. The decision in both the cases was that the tax paid by the company was part and parcel of the salary and not any sum outside the salary or independent of salary. Thus, the tax liability of the assessee was nothing but the salary and not anything outside it. Therefore, this payment of tax on behalf of the assessee will be monetary payment. In view thereof, the provision contained in section 10(10CC) is not applicable for the reason that like salary, this payment is also a monetary payment forming part of the salary.

8.         In the result, the appeal is dismissed.

9.         It was the common ground between the learned counsel for the assessces and, the learned D.R. that facts· of-all other cases listed above, are identical with the facts of this case. Following our order in this case, all other appeals are also dismissed.

The order was pronounced in the court on 23 March, 2007.

NF

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