ORDER
U.T. Shah, Vice-President
1. The main issue involved in this appeal is whether Rs. 2,45,644 paid on behalf of the assessee towards his hotel expenses by his employers, during his temporary stay in India, is exigible to tax. The other issue involved is regarding charging of interest under Section 217 of the Act.
2, The assessee is an individual, as Italian national and is assessed as “not ordinarily resident”. The assessment year is 1983-84 and the relevant previous year is the financial year ended on 31-3-1983.
3. The assessee is an employee of Columbia Pictures Industries Inc. U.S.A. (U.S.A. Company). The U.S.A. Company was given distribution right of the film ‘Gandhi’. The U.S.A. Company has an agent in India namely, Columbia Film of India Ltd. (Indian Company). The Indian Company gave a letter of appointment to the assessee, who was in India, on certain terms and conditions contained in the said letter dated 6-7-1982. The said letter reads as under:
Under instructions from our New York principals, I am pleased to appoint you to the post of Home Office Representative. The post is for a period of 18 months and entails overall responsibility for the marketing of the film GANDHI.
During the tenure of your employment, which we repeat will be only for a short term of 18 months, you will be paid Rs. 3,500 per month as consolidated salary. Additionally, you will also receive Rs. 2,500 per month as housing allowance.
Please note that you will not be entitled to benefits such as Provident Fund and Gratuity, etc. normally enjoyed by our permanent staff.
You will be based in Bombay, but should be ready to travel frequently within India on sales promotion of GANDHI.
Your employment can be terminated at any time by either party, viz., the company or yourself, by serving a notice of minimum one month in writing.
Please indicate your acceptance of above terms and conditions by signing and returning the duplicate copy of this letter in the space provided here below.
The assessee agreed and accepted the aforesaid terms and conditions by signing on the said letter.
4. Thereafter on 19-7-1982, the Indian company made an application to the Reserve Bank of India for permission under Section 30 of the Foreign Exchange Regulation Act, 1973 (FERA), for taking up employment in India by the assessee as under:
We have appointed Mr. Daniele Bevilacqua, an Italian national, as our Home Office Representative in India for a period 18 months. We are now submitting herewith the following for your necessary perusal and according us your approval for such appointment:
(1) Form E.F. No. 1 in quadruplicate duly filled in by Mr. Daniele Bevilacqua.
(2) Certified copy of the contract – dated 6 July, 1982 in duplicate.
(3) Mr. Daniele Bevilacqua’s passport No. 10799437/P.
We once again request you to accord your approval at the earliest.
Form E.F. No. 1, referred to above, contains certain columns. The relevant portion of which is extracted below;
4. (i) Name and address of the Columbia Films of
prospective employer India Ltd., Metro House,
in India. Mahatma Gandhi Road,
Bombay-400 020, India
(ii) Percentage of non-resident 100%
interest, if any, in the India
(Employer) company.
5. Nature of Employment
(i) Post to be filled (i) Home Office Representative
(ii) Nature of duties (ii) Marketing of film GANDHI
to be performed
6. Period of employment One year
7. Emoluments to be paid in India by the
employer.
(i)(a) Salary (i)(a) Rs. 3,500 per month
(b) Allowance- (b) Rs. 2,500 per month.
Housing (Give details)
8. Full details of perquisites, if any, to
be provided by the employer in India such
as free boarding, lodging, conveyance etc. N. A
9. Has the approval of any Department of No
the Government has been taken for claiming
exemption from Income-tax. If so, give particulars
of the approval letter.
I hereby declare that the particulars given above are true and correct to the best of my knowledge and belief.
Signature of the applicant.
Place: Bombay. Sd/
Date: 6 July, 1982. DANIELE BEVILACQUA.
5. The Reserve Bank of India in its letter dated 9-7-1982, informed the Indian company as under:
With reference to your letter No. 2453 dated 19th July, 1982, we advise you that we have no objection to your appointing Mr. Daniele Bevilacqua as your Home Office Representative in India for a period of 18 months subject to the following conditions.
1. His salary will be paid out of funds received from abroad.
2. He should hold a valid residential permit.
The assessee arrived in India on 16-6-1982 and left on 4-6-1983. He again arrived in India on 11-7-1983 and left on 30-9-1983.
6. As the assessee was finding the monthly remuneration of Rs. 6,000 insufficient for him, the Indian company agreed to bear all the hotel expenses (boarding, lodging and laundry etc.) of the assessee during his stay in India. For the year under appeal, the Indian company paid Rs. 2,45,644 to two hotels namely Hotel Oberoi and Hotel Feryas.
7. On the aforesaid facts, the assessee filed his return of income on 27-7-1983 declaring ‘nil’ income. In a forwarding letter of the Indian company, it was stated that no salary was paid to the assessee but the living expenses in India were directly paid to the living expenses in India were directly paid to the hotels. It was, therefore, claimed that no tax is payable by the assessee on the living expenses incurred by the Indian company. In his order made under Section 143(3) of the Act, the ITO brought to tax Rs. 2,45,644 in the hands of the assessee, as he treated the said amount as the assessee’s salary. He, however, granted standard deduction of Rs. 5,000 under Section 16(i) of the Act and taxed the balance amount of Rs. 2,40,640 as under:
Mr. Daniele Bevilacqua, an Italian national came to India on 16-6-1982 on an assignment as a Trainer to work on the release of the film Gandhi in India by Columbia Pictures International. Initially it was proposed to pay him Rs. 3,500 as a salary per month but later since it was insufficient for him to maintain in India his hotel expenses including food laundry etc, were paid. No agreement was drawn initially, he was provided in Hotel Oberoi but later in Hotel-Feryas.
The definition of the term “Income in Section 2(24) is inclusive and not exclusive. In Bhagwandas Jain v. Union of India [1981] 5 Taxman 7, Supreme Court observed that “that which can be covered into income can be reasonably regarded as giving rise to income. ” The term in Section 2(24) includes “the value of any perquisite as in Section 17(2) or profit in lieu of salary as in Section 17(5). If come under the head “salary” covers all expenses or implied contract of employmentand it includes “any perquisite under Section 17. ” The benefit, provided through others to whom otherwise the employee would have paid himself, is part of the salary. The company’s decision to meet the expenses instead of payment of cases salary of Rs. 3,500 p. m. is with a view to avoid payment tax and is colourable. Since, the free provision of boarding and lodging can be convertible into money, representing “income” character, the same is assessed as salary and taxed.
8. In appeal before the CIT (Appeals) it was once again urged on behalf of the assessee that Rs. 2,45,644 cannot be treated as his income under the head “salary”. In any event, if was further submitted that the said amount would be exempt from taxation under Section 10(14) of the Act. According to the assessee, the ITO was not justified in relying on the decision of the Hon’ble Supreme Court, in the case of Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315. The CIT (Appeals) however, was not impressed by the stand taken on behalf of the assessee. He, therefore, upheld the action of the ITO.
9. The learned representative for the assessee reiterated the submissions, which were made before the I.T. authorities and strongly urged that since Rs. 2,45,644 cannot be treated as the salary of the assessee, the I.T. authorities were not justified in bringing to tax the said amount under the head “salary”. In this connection, he stated that the decision, in the case of Bhagwan Dass Jain, which was relied upon by the ITO has no application to the facts and circumstances obtaining in the instant case, as in the reported case, the Hon’ble Supreme Court was dealing with notional income from house property. Alternatively, he submitted that even assuming for the sake of argument, Rs. 2,45,644 were to be treated as the assessee’s income, the same would be exempt under Section 10(74) of the Act, as it can be treated as special allowance or benefit specifically granted to the assessee to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of his employment. According to him proviso to Clause (if) of Section 10(74) of the Act had no application in the instant case. In this connection, he invited our attention to the certificates dated 14-5-1986 and 20-5-1986 of the U.S.A. company and the Indian company respectively filed before the CIT (Appeals). For the sake of completing our orders, the said certificates are reproduced below:
U.S.A. Company.
This will confirm that Mr. Daniele Bevilacqua was not paid a salary in India during his assignment there from June 16th, 1982 to March 31, 1983.
Indian Company.
This is to certify that Mr. Daniele Bevilacqua who was in India during the period 16-6-1982 to 31-3-1983 in connection with the release of our film “GANDHI” in India, was not paid any salary nor we have made any payment to him except the reimbursement of his travelling expenses. The living expenses in India were paid directly to the hotels, where he stayed in India.
10. It may be mentioned that at the time of hearing, the learned representative for the assessee wanted to rely on a document dated 5-5-1982, being certificate issued by The Motion Picture Export Association of America, Inc., from their New Delhi office. However, since the said document was not produced before the I.T. authorities, we declined to admit and entertain the same at this stage.
11. In support of his submission that Rs. 2,45,644 cannot be treated as the salary of the assessee and that the same would be exempt under Section 10(14) of the Act, the learned representative for the assessee relied on the decision of the Hon’ble Calcutta High Court, in the case of CIT v. D.S. Blackwood [1989] 178 ITR 470, as well as the orders of the Tribunal, in the case of Antonin Kocandrle v. ITO [1986] 15 ITD 623 (Jab.), ITO v. R.T. Lawrence [1986] 15 ITD 490 (All.) and Leif Enevold Joergensen [IT Appeal No. 5021 (Bom.) of 1986 dated 18-12-1990.]
12. The learned representative for the department, on the other hand, strongly supported the orders of the I.T. authorities. Referring to page 31 of paper book No. 1, he pointed out that the assessee was not paid any salary right from the first day namely, 16th June, 1982. As for the thirty days ending on 15-7-1982, Rs. 29,548 was paid to the hotel in respect of the lodging and boarding expenses incurred on the assessee. Referring to the decision of the Hon’ble Supreme Court, in the case of Bhagwan Dass Jain (supra), he submitted that the interpretation of the word “income” given by the Hon’ble Supreme Court in that case, is applicable to all types of income and not restricted to “income from house property” as urged on behalf of the assessee.
13. We have carefully considered the rival submissions of the parties and the material already brought on record and we do not find any substance in the appeal preferred by the assessee. From the material available on record, it is quite clear that the assessee was engaged on regular basis by the Indian company. The Indian company had taken the permission of the Reserve Bank of India to pay monthly remuneration aggregating to Rs. 6,000. It appears that after obtaining the permission of the Reserve Bank of India, the assessee and his employers have unilaterally decided that the Indian company would bear the hotel expenses of the assessee, including laundry charges instead of paying remuneration of Rs. 6,000 per month, without obtaining any permission from the Reserve Bank of India in this regard.
In our view, Rs. 2,45,644 is nothing but a perquisite given to the assessee, if not salary. Clause (ii) and Clause (iv) of Sub-section (2) of Section 17 of the Act are clearly attracted and Rs. 2,45,644 would be taxed under the head “salary”. We have come to this conclusion as by providing the hotel accommodation to the assessee, he has got rent free accommodation from his employer. Similarly, all the hotel expenses on food, laundry etc. would be the personal obligation of the assessee, which was paid by his employer. In this view of the matter, we entirely agree with the stand taken on behalf of the Revenue that the ratio laid down by the Hon’ble Supreme Court, in the case of Bhagwan Dass Jain (supra) would clearly be applicable in the instant case.
14. As regards the exemption claimed under Section 10(14) of the Act, we have no hesitation in rejecting it outright. Firstly, in the application made to the Reserve Bank of India, the assessee has clearly stated in column 8 of Form E-F. No. 1 that he has not received any perquisite from his employer in India, such as free boarding, lodging, conveyance etc. Secondly, the Explanation to Section 10(74) of the Act would disentitle the assessee to claim exemption as the hotel expenses incurred were at the place where the duties of his office ordinarily performed by him. Again, such expenses were incurred at the place where the assessee ordinarily resided during his stay in India. In fact, since the Indian company had directly paid the hotel expenses, it would be difficult to hold that such expenses paid by the Indian company were “special allowances” as contemplated under Section 10(74) of the Act. Again, the decisions relied on behalf of the assessee would not be of much help to him as the facts and circumstances obtaining in the instant case are not only clearly distinguishable but very peculiar, inasmuch as, after obtaining the permission of the Reserve Bank of India under FERA for remuneration of Rs. 6,000 per month, the assessee and the Indian company unilaterally decided that the Indian company would bear the hotel expenses of the assessee without obtaining the permission of the Reserve Bank of India under FERA. Apart from this, in the case of D.S. Blackwood (supra) he was an employee of a foreign company and had been deputed to supervise certain erection work in India. However, in the instant case, the assessee was an employee of an Indian company and was designated as “Home Office Representative”. Similarly, in the case of Antonin Kocandrle (supra), he was a Czechoslovakian technician, who had come to India for a specific work entrusted by his Czechoslovakian employer. However, in the instant case, no evidence has been led to show that the assessee was specifically sent to India by the U.S. company. On the contrary, the Indian company had appointed the assessee to the post of “Home Office Representative” and that too, on its pay roll. Similar is the position, in the case of Leif Enevold Joergensen (supra). Shri Leif Enevold Joergensen was an employee of a foreign company and was sent to India for setting up a fertiliser plant of Rashtriya Chemicals & Fertilizers (RCF), a public sector undertaking, under an agreement entered into between the foreign company and RCF.
15. For the aforesaid reasons, we have no hesitation in upholding the orders of the I.T. authorities on this issue.
16. The second issue pertains to the charging of interest under Section 217 of the Act. The relevant portion of the order of the CIT (Appeals) reads as under:
2. The next dispute relates to the charging of interest under Section 217 which is of a consequential nature. As there is no change in the assessed figure, there is no question of any change in the interest charged under Section 217. No interference.
17. We are constrained to observe that the issue of charging of interest is not of consequential nature, inasmuch as, the provisions of Sections 209 and 209A of the Act would not be applicable in the instant case. The advance tax payable under those sections is to be reduced by the income-tax deductible under Section 192 of the Act. In other words, in the instant case, the assessee would not be liable to pay interest under Section 217 of the Act. We would, therefore, cancel the interest so charged in that section.
18. In the result, the appeal is partly allowed.