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In Re: P. No. 20 Of 1995 vs Unknown on 8 September, 1995

Authority Tribunal
In Re: P. No. 20 Of 1995 vs Unknown on 8 September, 1995
Equivalent citations: 1999 237 ITR 382 AAR
Bench: S Ranganathan, D Lal, R Meena


RULINGS

P. No. 20 of 1995

Decided On: 08.09.1995

Appellants: In Re: P. No. 20 of 1995
Vs.

Respondent:

Hon’ble Judges:

S. Ranganathan, J. (Chairman), D.B. Lal and R.L. Meena, Members

Subject: Direct Taxation

Acts/Rules/Orders:

Income Tax Act, 1961 – Sections 10(5B) and 245Q

Cases Referred:

In Re: Robert W. Smith, [1995] 212 ITR 275 (AAR); Monte Harris v. CIT, [1996] 218 ITR 413 (AAR)

RULING

1. By this application under Section 245Q,(1) of the Income-tax Act, 1961, (hereinafter referred to as “the Act”), the applicant seeks an advance ruling of this Authority on the following question :

“Whether in the facts and circumstances explained in detail in annexure- I, the applicant is a qualified technician as defined under Section 10(5B) and accordingly the applicant would be entitled to the exemption under Section 10(5B)?”

2. The facts, on the basis of which the question has been raised, have been stated thus : The applicant is a British citizen with a master’s degree in chemistry from Oxford University, England, and a master’s degree in business administration from Harvard University, United States of America. He has had over twenty years of experience in the paint industry including ten years in an English company. He was in charge of setting up a coating factory in Saudi Arabia for the English company and has wide experience in the technical, commercial and manufacturing areas of wet paint and powder applications. With effect from October 1, 1994, the applicant has been employed by an Indian company and expects to stay in India for three to five years. The said company (which is a hundred per cent, subsidiary of the English company) proposes to manufacture highly specialised products relating to the paint and chemical industry, such as marine paints, protective coatings, packaging coatings and powder coatings. These products have specialised high technology applications and are not suitable for household use. The products are being manufactured for industrial consumers and will be used in marine, aerospace and offshore applications. In order to manufacture these products, the Indian company proposes to set up two factories and a technical laboratory which will provide technical support to the two plants. It is stated that products which could meet the English company’s standards are not currently manufactured in India. Consequently, foreign technical expertise is required for the setting up and running of the manufacturing facility. The English company is not charging any technical know-how fee but is deputing three of its experienced employees to the Indian company to oversee the setting up and successful implementation of the operations in India. The applicant is one of the persons so deputed by the English company to the Indian company and holds office as its managing director. He is claiming exemption under Section 10(5B) of the Act.

3. Under Section 10(5B), the tax on the income of a foreign technician paid to the Central Government by the employer for a specified period commencing from the date of his arrival in India is exempt from tax provided the following conditions are satisfied ;

(i) The employee is a “technician” as defined in the Explanation to the above Clause ;

(ii) He should render services as a “technician”, inter alia, in a business carried on in India ; and

(iii) The employee must not have been resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India.

4. In the present case, the applicant arrived in India for the first time on February 20, 1994, though he became an employee of the Indian company only on October 1, 1994. His stay in India during the financial year 1993-94 was only for six days. He was, therefore, not resident in India in any of the four financial years immediately preceding the financial year 1993-94 when he first came to India and the financial year 1994-95 during which he became an employee in the Indian company. The applicant is employed in a concern which is carrying on business in India. Though it is true that the Indian company has not yet commenced its business in the manufacture of paints and chemicals, it has started activities for the setting up of a factory and plant in India. Nevertheless, the employment of the applicant during this period is sufficient to attract the exemption contained in Section 10(5B) as ruled by this authority in A. A, R. No. 201 of 1993 (Robert W. Smith, In re [1995] 212 ITR 275 (AAR)). The only question on which some consideration is necessary is whether the applicant can be said to be a technician within the meaning of the above provision.

5. The definition of the expression “technician” contained in the Explanation to Section 10(5B) runs as follows :

“Explanation.-For the purposes of this Clause “technician” means a person having specialised knowledge and experience in-

(i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or

(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or

(iii) such other field as the Central Government may, having regard to availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised.”

6. The present case does not attract Clause (ii) or Clause (iii) of the Explanation. Even so far as Clause (i) is concerned, the only portion of the Explanation that is relevant for our present purpose are the first two words used in Clause (i). In other words, is the applicant a person having specialised knowledge and experience in constructional or manufacturing operations and is employed in India in a capacity in which such specialised knowledge and experience are actually utilised ?

7. It can perhaps be suggested that the applicant is being employed in India at the present stage of the company’s business only in a managerial capacity and not by reason of his knowledge and experience in constructional operations. It is pointed out that Section 10(6)(vii), the predecessor to Section 10(5B) included within the scope of the expression “technician” also persons having knowledge and experience in industrial or business management technique but this has been omitted when the present Clause (5B) was inserted by the Finance Act, 1993. It can, therefore, be urged that the applicant does not fulfill the definition of “technician” within the meaning of the Act.

8. Though the precise functions entrusted to the applicant by the Indian company have not been set out in the letter of employment, it has been explained in annexure-I to the application that the applicant has been in charge of setting up a coating factory in Saudi Arabia for the English company and that this expertise and knowledge is being utilised by the Indian company by entrusting to him the following functions :

(i) Using his prior experience to oversee the project in India, supervise design and layout of the factory to achieve the objectives of optimum operational efficiency, maximum utilisation of space, compliance with international requirements on safety and hygiene, etc ;

(ii) Liasing with consultants and contractors to ensure project implementation according to plan ;

(iii) Creating awareness within industry on the specialised application and technical superiority of the Indian company’s products and consequently develop a customer base for the company ;

(iv) Utilising the contacts developed world-wide in the industry to promote the business in India ;

(v) Directing and implementing systems followed by the English company world-wide in various activity areas like production, planning, commercial, finance and customer service ; and

(vi) Establishing a corporate culture consistent with the English company’s world-wide policies both in terms of. quality and service.

9. It is no doubt true that the applicant is a graduate in business administration and is also the managing director of the Indian company. During his employment in India for three to five years he will be having the overall responsibility not only for the establishment of the factory but also for the management and administration of the manufacture and sales, once production starts. The factory is a paints factory and the setting up of the factory also involves a good deal of technical and chemical expertise. For the time being, the applicant is only concerned with supervising the design and lay out of the factory and in seeing to it that the constructional operations are so carried out that the factory conforms to necessary standards ensuring the quality of the products ultimately produced. The design and construction of the factory should meet the requirements of the manufacturing business, sought to be set up and this involves various technical aspects in which the applicant’s knowledge and experience will come in useful. Immediately after constructional activities are over, the manufacturing activities will commence and the applicant, as the managing director of the company, will be in full charge of the manufacturing operations as well. Though the applicant is also a graduate in business administration and may be looking to the business aspects also it is important to note that the applicant is also a graduate in chemistry and that he has practical knowledge of the setting up of a chemical plant during the period of his employment with the English company. It is this knowledge and experience in the field of chemistry and previous experience in the setting up and commissioning of a plant manufacturing paints in Saudi Arabia that is being utilised by the Indian company. So long as this requirement is fulfilled, the fact that the applicant may also be attending to some other functions will not be sufficient to disentitle him from claiming the exemption sought. The Authority is, therefore, of the opinion that the applicant has specialised knowledge and experience in constructional and manufacturing operations relevant to the nature of the business which is being set up by the English company in India and that it is the specialised knowledge and experience in such operations that is being utilised by the Indian company in its Indian business. The applicant is, therefore, a “technician” within the meaning of Section 10(5B) of the Act and is entitled to the exemption conferred by that Clause.

10. Two possible minor objections may also be dealt with : (i) that a scrutiny of the applicant’s passport shows that he stayed in India for a period of 206 days in the financial year 1994-95, making him a resident in India for the financial year 1994-95 during which he made the present application ; and (ii) that the applicant has been travelling out of India very frequently the purpose of which has not been explained, the suggestion being that he also possibly engaged in other business of the principals and visiting other places where similar plants were being set up.

11. Neither of these objections is well-founded. The Authority has recently held in A. A. R. No. 220 of 1995 (Monte Hams v. CIT [1996] 218 ITR 413 (AAR)) that the non-residential status of an applicant for the purpose of maintaining an application under Section 245Q, has to be determined with respect to the previous year immediately preceding the financial year in which the application under Section 245Q, is made, which, in the present case, is the financial year 1994-95. The applicant during the said previous year was not in India at all except for six days from February 20, 1994, to February 25, 1994. The applicant, therefore, was a non-resident during the relevant period and can maintain the present application.

12. The second objection is also without force. Apart from the fact that there is no material to indicate that the applicant has been employed elsewhere too, the terms of Section 10(5B) do not require that the employee who claims exemption under that Clause should be exclusively employed in the Indian business. So long as he is employed in a business carried on in India and is employed with a view to utilising his knowledge and experience in the special fields indicated in the Explanation, the tax paid by the employer on his salary would be exempt and the question whether he is also employed elsewhere is irrelevant for the purpose of the claim.

13. In the light of the above discussion, the Authority hereby gives the following ruling on the question raised by the applicant.

RULING

14. On the facts and circumstances, as stated in the annexures to the application, the applicant is a “technician” within the meaning of the Explanation to Section 10(5B) of the Income-tax Act, 1961, and, accordingly, would be entitled to the exemption provided under the said Clause.

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