ORDER
Ram Rattan, Accountant Member
1. This bunch of 28 appeals by the assessee i.e., M/s Oil & Natural Gas Commission, being the representative assessee of various technicians, numbering 28, is directed against identical orders passed by the Commissioner of Income-tax Under Section 263 of the Income-tax Act, holding the orders passed by the Income-tax Officer Under Section 143(3) of the I.T. Act, in respect of the above technicians to be erroneous so as to be prejudicial to the interests of the revenue and setting aside the same with the direction to pass the assessment orders de novo after disallowing the exemption of the income-tax paid by the Oil & Natural Gas Commission and to assess the same under the head “Other sources”.
2. Since identical issues are involved in these 28 appeals, these were heard together and as such we are disposing of these appeals by a common order. It was a common ground between the parties that facts in these appeals are identical, the submissions of the parties were also the same. It was further agreed that the facts as in the case of Mr. Jacob J. Sulzbach, one of the technicians may be considered and adjudicated upon and the conclusions arrived at therein may be applied in all the remaining 27 cases. In the circumstances, we shall discuss the facts in relation to Mr. Jacob J. Sulzbach.
3. M/s Gilley & Associates Incorporated, USA with its head office at 1666, General Mounton Ave., P.O. Box 52568, Lafayette Louisiana 70505, USA, a foreign company (hereinafter referred to as Gilley & A.I.) entered into an agreement with Oil & Natural Gas Commission, Dehradun, a body corporate and established under Oil & Natural Gas Act, 1959 (hereinafter referred to as the ‘Commission’) on 27th June, 1984. The Commission had invited tenders for back up consultancy and technical services in respect of off-shore, deep drilling etc. in India. M/s Gilley & A.I. represented that they were capable of providing and have been actively engaged for such consultancy services for off-shore and on-shore drilling of Deep High Pressured Wells by preparing the design of the wells, list of materials required to drill these wells and estimated cost to drill these wells, personnel required on-site supervisors to monitor the drilling operations during the drilling of the designed well programs as well as to provide drilling fluid technicians or engineers and other supervisory personnel such as Tool Pushers and Drillers, prepare recommendations for the Oil & Gas Operators to include summary reports, and to prepare completion prognosis and schedules as well as provide necessary personnel as in the drilling stage of the well to test procedure and supervise the testing etc. etc. M/s Gilley & A.I. agreed to sell the back-up consultancy and technical services and to pass on latest technical information/data relating to such services for use, application and exploitation in any manner and to impart training to the personnel of the Commission by conducting Seminars etc. Under the agreement M/s Gilley & A.I. thus, inter alia, agreed to provide field technical services including technical personnel to the Commission. Technical services as per Article 1.10 of the Agreement, meant services of field supervisory personnel provided by ‘Gilley & A.I.’. Mr. Jacob J. Sulzbach is one of such technicians. He claimed the remuneration received by him as exempt Under Section 10(6)(viia) of the Act, to the extent of Rs. 4,000 per month. Remunerations in excess of Rs. 4,000 p.m. chargeable to tax under the head ‘Salaries’ were not exempt under these provisions. On the excess income of the assessee, income-tax was required to be paid. As per agreement, the income-tax on income in excess of Rs. 4,000 p.m. was the liability of the Commission. The total income of the assessee for the asst. year 1985-86 was computed by the ITO at Rs. 9,11,450. Income chargeable to tax under the head ‘Salaries’ to the extent of Rs. 48,000 only was exempt Under Section 10(6)(viia). Income-tax on such income, in excess of Rs. 48,000 was paid by the Commission. The ITO did not include in the total income of the assessee, the income-tax paid at Rs. 3,12,986 by the Commission. The Commissioner of Income-tax was of the view that since Commission was not the employer of the assessee, the income-tax paid could not be considered as salary being the perquisite or profit in lieu thereof as referred to in Section 17(1)(iv) and Sub-section (2) thereof. According to him, this was income of the assessee, taxable under the head ‘Other sources’. Since the ITO had not done so, the CIT held the order passed by the former to be erroneous and prejudicial to the interest of the revenue and set aside the order passed by him with the direction to pass a fresh assessment order by including in the total income the taxes paid at Rs. 3,12,986 as income under the head “Income from Other Sources”. Similar are the additions directed to be made by the CIT in respect of the remaining 27 assessees. All the 28 assessees aggrieved by the orders of the CIT are in appeals before the Appellate Tribunal.
4. Shri R.S. Singhvi, the Ld. Counsel for the assessees vehemently argued that the technician assessees were the employees of the Commission and, therefore, the income-tax paid by the Commission was salary and, therefore, the same was exempt Under Section 10(6)(viia) of the Act. The learned Sr. D.R., on the other hand contended that these technicians were the employees of M/s Gilley & A.I. and not of the Commission. According to her, master-servant relationship did not exist between the Commission and the technicians. It was also contended by her that they were not the employees of the Commission and since the income-tax paid by the Commission, nor being an employer, the same could not be termed as perk Under Section 17(1)(iv) and Sub-section (2) thereof, so as to be considered as salary and, therefore, the same was not exempt and the Commissioner had rightly invoked the jurisdiction Under Section 263. Both sides have relied upon a number of authorities in support of their claims. They have also referred to various articles of the Agreement between M/s Gilley & A.I. and the Commission in support of their claims.
5. The Ld. Counsel for the assessee, relied upon the judgment of the Bombay High Court in the case of Aditya V. Birla v. CBDT [1986] 157 ITR 470, which has been affirmed by the Hon’ble Supreme Court in CBDT v. Aditya V. Birla [1988] 170 ITR 137. According to him, the word ’employer’ is not in any technical sense, but meaning a person who uses or employs the services of other person. He further contended that employee means the use of services of any person. It comprehends whole time servant or part-time engagee. According to him, ‘a party that retains a consultant can properly be described as his employer”. Therefore, master-servant relationship was not necessary. The Ld. D.R. on the other hand relying upon the judgment of the Bombay High Court referred to by the Ld. Counsel for the assessee contended that the said judgment was rendered in relation to Section 80 RRA of the I.T. Act and in that case the Ld. Counsel for the assessee had canvassed and tried to distinguish the provisions of Section 80 RRA from Section 10(6) (via) etc. where the phrases used are “remuneration received by him as an employee of…in Section 10(6) (via)” remuneration due to or received by him chargeable under the head ‘Salaries’ for services rendered as a technician in Section 10(6)(vii), “any income chargeable under the head ‘Salaries’ received by or due to him” in Section 10(6)(ix). According to her, similar phrases were used in Section 10(6)(viia) and, therefore, the ratio of this judgment was not applicable to the facts of the case. She also referred to the judgment of the Bombay High Court in the case of Emil Webber v. CIT [1978] 114 ITR 515 where tax paid by Indian company was held as not a perquisite Under Section 17(1)(iv), read with Section 2(24)(iii) of the Income-tax Act and contended that Commission could not be regarded as employer of the assessee. She also submitted that in this case, the tax paid by the Indian company was held as taxable under the head ‘Other sources’. She also referred to a judgment of the Calcutta High Court in the case of CIT v. West Bengal State Electricity Board [1987] 166 ITR 507, where similar technicians were held to be the employees of the foreign company and not of the Indian employer. She referred to page 514 of this judgment to emphasise that master-servant relationship must exist before the remuneration received by the employee could be considered as salary. Since master-servant relationship did not exist between the Commission and the technicians, the taxes paid by the Commission could not be considered as perquisites Under Section 17 of the Act. She also referred to a judgment of the Andhra Pradesh High Court in the case of Zdzizlaw Skakuz v. CIT [1986] 158 ITR 420, where tax paid by the Indian company was held to be income taxable under the head ‘Other sources’ under similar circumstances.
6. We have to consider the issue in the background of the facts of the case taking into consideration the Agreement and various other documents and the language of Section 10(6)(viia). Before considering the issue we consider it worthwhile to reproduce herebelow, the relevant provisions i.e. Section 10(6)(viia) of the Act under which exemption has been claimed by the assessee and denied by the revenue. These provisions read as under:
10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
** ** ** (6) in the case of an individual who is not a citizen of India, - ** ** ** (viia) where such individual renders services as a technician in the employment (commencing from a date after the 31st day of March, 1971) of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this sub-clause by the prescribed authority or in any business carried on in India and the following conditions are fulfilled, namely, that - (1) the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India, and (2) the contract of his service in India is approved by the Central Government before the commencement of such service or within six months of such commencement, the remuneration for such services due to or received by him which is chargeable under the head 'Salaries', to the extent mentioned below, namely: -
(A) such remuneration due to or received by him, during the period of twenty-four months commending from the date of his arrival in India, in so far as such remuneration does not exceed an amount calculated at the rate of four thousand rupees per month, and where the tax on the excess, if any, of such remuneration for the period aforesaid over the amount so calculated is paid to the Central Government by the employer which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956), also the tax so paid by the employer; and
(B) where he continues, with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year, to remain in employment in India after the expiry of the period of twenty-four months aforesaid and the tax on his income chargeable under the head ‘Salaries’ is paid to the Central Government by the employer which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956), the tax so paid by the employer for a period not exceeding twenty-four months next following the expiry of the first-mentioned twenty-four months:
Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition, specified in item (1) of this sub-clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning.
Explanation : For the purposes of this sub-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 in 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 the 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;
7. As noted earlier, there is an agreement between M/s Gilley & A.I. and the Commission under which the former had agreed to sell back-up consultancy and technical service to the Commission. In pursuance of this agreement, M/s Gilley & A.I. provided their technicians for working with the Oil and Natural Gas Commission. Various Articles of this Agreement go to show that the technicians continued to be employees of M/s Gilley & A.I. The master-servant relationship exists between M/s. Gilley & A.I. and the technicians. No such relationship exists between the Commission and the technicians. It is settled law that for an employee to be assessed under the head income from salary, master-servant relationship must exist. Since this is absent so far as the Commission and the employees are concerned, we are inclined to hold that the technician assessees are not the employees of the Commission in the sense of servant-master relationship. The judgment of the Calcutta High Court, in West Bengal State Electricity Board’s case (supra) is a direct authority on the subject. However, it is important to note that at page 514 of the report, the Court observed that “in this reference, we are not concerned with the taxability of the amount earned by the assessee while working in India nor were they concerned with the method of grossing up of the assessee’s income on the basis that tax had been paid by somebody else.” In other words, the issue as to whether the tax paid by the Indian company on the income of technicians was exempt or not was still open. In Emit Webber’s case (supra) relied upon by the department it has been held that the tax paid by the Indian company could not be regarded as perquisite within the meaning of Section 17(1)(iv) and Sub-section (2) read with Section 2(24)(iii) of the I.T. Act. It was further held that these fell under the head ‘Other sources’. The question of taxability of these taxes was not the subject-matter of consideration before the Hon’ble High Court. Similar is the position in relation to other authorities relied upon on behalf of the revenue. The question, therefore, has to be considered in the light of the provisions and the language used in Section 10(6)(viia) of the I.T. Act, which we have reproduced above. All the conditions for qualification for exemption in this case have been complied with. The dispute, however, is in relation to the words “employment’ and “employer” occurring in clause 6(viia) in the second line and Sub-clause (A) and also the words “the remuneration for such services due to or received by him, which is chargeable under the head ‘Salaries’ to the extent mentioned below”, just above Sub-clause (A). We shall try to simplify this clause by omitting the conditions which are not in dispute. It will read as under: –
Where such individual renders services as a technician in the employment of the Government or of a local authority or of any corporation set up under any Special law, the remuneration for such services due to or received by him which is chargeable under the head “Salaries” to the extent mentioned in Sub-clause (A), shall be exempt.
Sub-clause (A), we have already reproduced above. Under this sub-clause, income from salary above Rs. 48,000 per annum is liable to income-tax. In terms of the Agreement, clause 8.2 of Annexure III of the Agreement – Terms and conditions read with Article 9 of the agreement this liability is to be discharged by the Commission. It states : –
Income-tax on Gilley A.I. and expatriate personnel payable in India, if any, will be borne by the Commission.
According to the revenue, if the tax was paid by the employer i.e. M/s Gilley & A.I., then the tax paid would be exempt. Since the tax has been paid by the Commission who is not the employer, the tax paid by it is not exempt and, therefore, it is taxable under the head “Income from other sources”. It is in this context that we have to consider the implications of the words “employment” and “employer” referred to above.
Now, an individual is supposed to be in the employment of the Government or a local authority or any corporation set up under any special law etc. It is a common ground between the parties that the services are rendered by such individual as technician to ONGC. In this view of the matter, we are of the opinion that the word ’employment’ is used not in any technical sense, where master-servant relationship is necessary but has meaning as a person, uses or employs the services of another. Further, the word ’employee’ means the use of service of any person. It comprehends full time servant or part-time engagee. Master-servant relationship need not exist for such employment. What is needed is the engagement or the use of a technician by the Commission. The word ’employment’ has, therefore, to be considered as engaged not in relationship to master and servant. The interpretation of the word ’employment depends upon the context in which it has been used. If the interpretation as placed by the Ld. D.R. is adopted than the very purpose of Clause (viia) shall be frustrated. The word ’employer’ used in Sub-clause (A) referred to above, has also to be considered not in any technical sense but meaning a person who uses or employs the services of another person. In the present case, undoubtedly, the word ’employer’ used in Sub-clause (A) is with reference to the user of the services of the technician and not in master-servant relationship. Another point which needs consideration is, the submission by the revenue in relation to the interpretation of the words “the remuneration for such services due to or received by him which is chargeable under the head ‘Salaries’.” Various High Courts have held, as noted earlier, that the taxes paid by Indian companies under similar circumstances is not perquisite within the meaning of Section 17(1)(iv) and is, therefore, income under the head ‘Other sources’. For assessment of income under the head ‘salaries’, master-servant relationship is a necessary condition as held by various authorities including the Hon’ble Supreme Court of India. The emphasis by the department was that it will be exempt only if it falls under the head income from ‘Salaries’. We are in respectful agreement with various High Courts that the tax paid by the ONGC is not paid by the employer of the technician in the technical sense as. the master-servant relationship does not exist between the Commission and the assessee technicians. To our mind, it is not remuneration chargeable under the head ‘income from salaries’ alone which will be exempt. Under Sub-clause (A), even the income assessable under the head ‘other sources’ on account of income-tax by the Commission will be exempt from payment of tax. Clause (A) has two parts. The first part puts a ceiling on remuneration which are chargeable under the head ‘Salaries’. Salaries have been granted exemption up to Rs. 4,000 p.m. and the balance salary income will be taxable. The second part is that the taxes paid on such salary in excess of the ceiling of Rs. 4,000 p.m., if paid by the employer will also be exempt. We have already held that the ’employer’ here is not in the technical sense but with reference to the user of services of the engagee. In this case, the engager of the services is the Commission, who is to be held as an employer in its non-technical sense. The second part of Sub-clause (A) is independent of the first part. Therefore, the tax paid by the Commission, taxable under whatever head will be exempt under the second part of Sub-clause (A). Both the parts, in our view, are independent and not cumulative in their operation. Both cover their respective fields. First part covers exemption for income taxable under the head ‘Salaries’ and the second part covers the income which is in relation to the tax to be paid by the employer as discussed above, irrespective of the head under which the same is taxable. In view of the above discussion and taking into consideration, the totality of the circumstances of the case, we are of the opinion that there is no error in the order of the ITO allowing exemption to tax paid by the Commission. We are, therefore, unable to sustain the order of the Commissioner passed Under Section 263, setting aside the order of the ITO. His order is, therefore, annulled and that of the ITO is restored. The above conclusions apply mutatis mutandis to the remaining 27 appeals. The orders of the CIT (Appeals), passed Under Section 263 in all these cases are annulled.
8. In the result, all the 28 appeals are allowed.