V. Enrico vs Income-Tax Officer.
1995 Latest Caselaw 460 Del

ORDER

Per Shri Manzoor Ahmed Bakhshi, J.M. - This bunch of 12 appeals relating to expatriate employees of Italian company involving common issues are disposed of by this consolidated order.

2. All the 12 assessees are Italian nationals in the employment of non-resident Italian company, namely, M/s Snampoogetti, s.p.a. having its registered office and principal place of business at Milano, Italy. The said company has a liaison officer in New Delhi, India in connection with the contracts entered into by it from time to time with Indian concerns for providing them technical know-how, technical services and supervisory services for the construction, assembly, installation, erection and commissioning of industrial plants in India. The appellants had been deputed to work in India and their stay in connection with their employment during the previous year relevant to Asst. year 1991-92 exceeded 183 days. Exemption u/s 10(6)(vii) was not claimed by any of the appellants. The salary paid to the appellants was offered for tax under the provisions of the Income-tax Act, 1961 for the assessment of which the appellants filed the returns of income with the concerned Assessing Officers. In addition to the salary received by the expatriate employees, the Assessing Officer assessed the perquisite value in respect of rent free accommodation, free meals and tax on tax.

3. The appellants appealed to the CIT(A) but without any success. Therefore, the appeals before us.

4. Apart from challenging the decision of the revenue authorities to assess the value of perks on account of rent free accommodation, free meals and tax on tax, the appellants have challenged the validity of the assessments on the ground that proviso to section 143(2) has been violated in respect of all the appellants.

5. On the basis of the rival contentions and on perusal of the records, we record our findings in respect of the various grounds as under :

6. We shall first take up the legal ground. As already pointed out, the claim of the assessee is that the asst. orders passed u/s 143(3) of the I.T. Act, 1961 are ab initio null and void in law as notices u/s 143(2) of the Act had been issued in all the cases of the appellants after the expiry of one year, which is contrary to the proviso to section 143(2). Returns of income had been filed some time in June 1991. Notices under proviso to section 143(2) had to be issued within one year of the filing of the return. The CIT(A) has held that notices u/s 143(2) had been issued to all the appellants on 18-3-1992 and had been served upon the authorised representatives on 20-3-1992. The learned D.R. filed photostat copies of the notices in support of the finding recorded by the CIT(A).

7. Before us, the learned counsel for the assessee did not challenge this finding of the CIT(A) notwithstanding a specific ground raised in the grounds of appeal to the effect that assessee was not confronted with the evidence relied upon by the learned CIT(A).

8. The learned counsel, however, travelled beyond the scope of grounds of appeal in contending that the first notice issued and served within one year of the filing of the return of income in each case had lapsed on 28th March, 1992 when there was non-compliance on behalf of the assessees on the date fixed by the Assessing Officer. According to the learned counsel, the first notice having lapsed Assessing Officer had re-started the process of assessment by issue of a fresh notice. Such a notice was issued on 15th July, 1993 which was after the expiry of one year from the date of filing of the return of income. According to the learned counsel, the first notice having lapsed, it was only the second notice that is required to be considered to be a valid notice issued and since the said notice had not been issued within the time specified under proviso to section 143(2), the assessment was bad in law. Our attention was also invited to section 129 in support of the contention that the notice issued was not in continuation to the first notice but a fresh notice. The learned counsel further contended that there could be no waiver of mandatory provisions of law. In this connection, reliance was placed on the decision of the Gujarat High Court in the case of CIT v. Sumantbhai C. Munshaw [1981] 128 ITR 142.

9. The learned D.R. referred to the grounds of appeal statements of facts before the CIT(A) and to the grounds of appeal before the Tribunal in support of the contention that the assessee was raising new controversy which was beyond the scope of even the grounds of appeal. It was accordingly urged that contentions raised on behalf of the assessee may be dismissed. Without prejudice to the first objection, the learned D.R. contended that the requirements of proviso to section 143(2) is for initiation of proceedings with the issue of notice u/s 143(2). Such a notice has been found to have been issued by the Assessing Officer in each case by the CIT(A) as is evident from first appellate order. The subsequent notice, according to the learned D.R., are only in continuation of first notices. Shri Gupta further contended that there was no bar for issue of opportunity notices from time to time for the purposes of completing the assessment within the period of limitation. Shri Gupta further contended that in any case there was a waiver by the assessees in so far as they participated in the proceedings without any objection before the Assessing Officer. According to the learned D.R., no objection can be raised after the completing of the assessment proceedings regarding the validity of proceedings.

10. We have given our careful consideration to the rival contentions. As has been pointed out above, the learned counsel for the assessee Shri Harihar Lal has travelled beyond the scope of the grounds of appeal and the controversy that had been raised before the revenue authorities. Before the CIT(A), the claim for the assessee was that notice u/s 143(2) had been served upon any of the authorised representatives within one year of the filing of the return. The CIT(A) has found this claim of the assessee to be factually incorrect. The appellants have challenged the findings of the CIT(A) on the ground that they were not confronted with the evidence regarding the service of notice.

As we have already pointed out elsewhere in this order, the learned counsel did not challenge the findings of the Commissioner with regard to the service of notices in each case nor was any evidence produced to controvert the finding. The new claim made before us is that since the date of hearing in each case was 28th March, 1992 Assessing Officer ought to have passed ex parte order. He not having passed an ex parte order, the validity of the notices lapsed. We have already pointed out that the claim of the assessee is beyond the scope of the appeal. Even otherwise we do not find any merit in this contention raised on behalf of the assessee. Under the present scheme of assessments the Central Board of Direct Taxes are encouraging the scheme of You trust us we trust we trust you. Under this scheme most of the returns are accepted without scrutiny. However, in some cases depending upon the policy of the Board from year to year scrutiny of assessments are taken up. In order to fix a limit within which a return of income can be taken up for scrutiny, the Legislature in its wisdom incorporated proviso to section 143(2) placing a limit of one year for initiation of scrutiny assessment. In other words, the Assessing Officer is given period of one year within which he can decide as to whether return is to be scrutinized or the same has got to be accepted without scrutiny. If he decides to process the return for scrutiny he has to serve a notice u/s 143(2) upon the assessee within one year of the filing of the return of income. Once that is done the assessment procedure can be completed within the period of limitation provided under the statute. As is clear from the proviso to section 143(2) the limitation is for the first notice and not for subsequent notices. At best the subsequent notices can be termed a opportunity notices in continuation to the first notice issued for the purposes of assessment. We do not find any basis for the contention raised on behalf of the assessee that if on the date of hearing, the Assessing Officer does not pass an ex parte order, the validity of the notice lapses. There is no such principle of law supported by any authority brought to our notice.

11. Section 129 of the Act relied upon by the learned counsel for the assessee does not advance the case of the assessee. On the contrary it supports the revenues case. Here notices u/s 143(2) in each case had been issued and served by one Assessing Officer. He had been succeeded by another officer who issued the fresh notices in July 1993. Section 129 provides that whenever in respect of any proceedings under the Act, an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeded may continue the proceedings from the stage at which the proceeding was left by his predecessor. Under the proviso assessee, however, is given an option to demand that before any order of assessment is passed against him he be re-heard. Thus, it is clear from section 129 that the succeeding Assessing Officer has the power to continue the proceedings under the Income-tax Act from the stage at which the proceedings was left by his predecessor. In this case, the Assessing Officer who framed the asst. had continued the proceedings from the stage of non-compliance by the assessees of statutory notices issued u/s 143(2). The successor officer in the interest of justice had decided to give an opportunity of being heard to the assessee before the completion of the assessment notwithstanding that there was no specific demand from the assessee in this regard. Therefore, we do not see any substance in the contention raised on behalf of the assessee.

12. Lastly, assessee has participated in the assessment proceedings. No objection was raised by the assessee to the asst. proceedings before the Assessing Officer. The objection raised by the assessee before the CIT(A) was found to be incorrect. Thus, for the aforementioned reasons the common ground of appeal raised by the appellants regarding the validity of the assessments are dismissed as devoid of any merit.

13. Next ground of appeal is relating to the assessment of perquisite value on account of rent free accommodation and free meals provided to the appellants during their stay in India. Assessees are claiming exemption u/s 10(14)(i) of the Income-tax Act, 1961. The claim on behalf of the assessees is that their normal place of employment is in Italy. They had been directed by the Italian company being employer of the appellants to work in India for the limited period. During their stay in India, the Indian company had contracted to the Italian company to provide accommodation and free meals to the employees during their stay in India. According to the learned counsel for the assessees, the expatriate employees were on tour to India because they had undertaken a journey from the place of their regular employment and had to return to the place of their employment after their assignment in India was completed. According to Shri Harihar Lal, the learned counsel for the appellants, the rent free accommodation and free meals provided to the appellants were to be treated as special allowance granted to the appellants in kind for the performance of their duties while on tour. In this connection, reliance was placed on Notification No. 143E dated 21st February, 1989 which specifies the following allowance to be exempt u/s 10(14)(i) :

(a) ........................................................... ..

(b) any allowance whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by the employees on account of absence from his normal place of duty.

The perquisites on account of rent free accommodation and free meals were also claimed exempt on the ground that neither the accommodation nor free meals were provided by the employer. According to the learned counsel, the facility was provided by the Indian company and as such these could not be assessed as perquisite in lieu of salary.

14. The learned D.R., on the hand, contended that the claim made by the assessee u/s 10(14)(i) was frivolous in so far as no cash allowance was paid to the assessee or assessed to tax by the Assessing Officer. According to the learned D.R. exemption u/s 10(14) is in respect of cash allowances granted for meeting the expenses and actually incurred by the assessee. There was thus no merit in this ground of appeal of the assessee. It was further contended that even if without admitting, the perquisites are treated as cash allowances, they are liable to tax as held by the Andhra Pradesh High Court in the case of Zdzizlaw Skakuz v. CIT [1986] 158 ITR 420. Shri Gupta contended that assessee was not on tour. In this connection, our attention was drawn to the employment letters issued in the case of each of the assessees which, according to Shri Gupta, clearly establish that the appellants were specifically appointed for performing the duties in India and their likely period of employment was 12 months. Shri Gupta further contended that even otherwise a distinction has got to be made between a tour and deputation. Even if the appellants were to be treated as the employees of the Italian company whose ordinary place of employment is in Italy, they are to be considered on deputation in India as their expected stay in India would be about 12 months. Tour, according to Shri Gupta, could be for a temporary period. It was further contended that there is an agreement between the Italian company and the expatriate employees for providing of accommodation and free meals in India. As per the agreement between Italian company and the Indian company, the obligation of the Italian company had been undertaken to be performed by the Indian company. Therefore, what was provided to the employees the Indian company was on behalf of the Italian company. Therefore, rent free accommodation and free meals were part of salary package between Italian company and the appellants. Our attention was also drawn to section 2(24) which has been amended retrospectively. Sh. Gupta read section 2(24)(iii)(a) & (b) and contended that if benefit by way of rent free accommodation and free meals provided to the assessee by the Indian company was not a perquisite within the meaning of section 17(2) then the value of the benefit was income assessable to tax u/s 2(24). The value of the benefit as well as the tax paid by the Indian company was assessable under the head Income from other sources, as provided under section 56. It was accordingly contended that the contention raised on behalf of the assessee may be rejected.

15. We have given our careful consideration to the rival contentions. The first issue involved in this case is as to whether the value of rent free accommodation and free meals could be treated as special allowance granted to the assessee specifically to meet the expenses in performance of their duties. If the said value of the facilities provided to the assessee can be treated as special allowance granted to the assessee then the question arises as to whether such allowances are exempt from tax u/s 10(14)(i) of the Income-tax Act, 1961. The language of section 10(14), in our view, is wide enough to included not only the cash allowances but also any benefit not being in the nature of perquisite within the meaning of clause (2) of section 17 specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as the Central Government may by notification in the Official Gazette specify : Therefore, the objection raised on behalf of the revenue that section 10(14)(i) is applicable only in respect of cash allowances, in our view, is not well founded. However, in order to consider the claim of the assessee u/s 10(14), it is essential for us to consider as to whether the benefit allowed to the assessee in the form of rent free accommodation and free meals is not in the nature of perquisite within the meaning of clause (2) of section 17. At this stage it is, therefore, necessary for us to consider as to whether the assessee has got the benefit of rent free accommodation and free meals by virtue of the employment contract between the employer company and the assessee or has the Indian company provided such facilities on their own without their being any obligation resulting in a benefit to the assessee. If the answer to the above query is in affirmative and in favor of assessees then we have to consider as to whether such a benefit granted to the assessees has been notified by the Central Government for the purposes of qualifying for exemption u/s 10(14). First we shall consider as to whether the benefit allowed to the assessee in the form of rent free accommodation and free meals was in the nature of a perquisite within the meaning of clause (2) of section 17. At this stage, we consider it necessary to refer to the employment letter issued in the case of Mr. Evangelista Vincenzo placed at page 3 of the paper book (It has been stated before us that the terms and conditions of employment of all the 12 appellants are same as in the case of Mr. Evangelista Vincenzo) :

"With the present we confirm that you have been appointed in India in relation to the contract with Nagarjuna Fertilizers and Chemicals Ltd. with the qualification of administrator.

During your stay in India the following conditions and benefits will apply :

1. A monthly salary of Lit. 1.050.000 to be paid in Italy.

2. Medical assistance at Companys cost.

3. Five weeks of vacation per each year of service of that country including one round-trip from your residence in Italy to your place of work in India at the beginning and end of your assignment at company cost.

4. Board and lodging will be provided at Site by the company.

5. Company will pay all the statutory contributions for any provident funds in Italy and/or in India.

The estimated period of this contract will be 12 months."

16. Condition Number 4 of the employment letter clearly establishes the fact that the employer was obliged as part of the employment contract to provide boarding and lodging at site to the employee. Therefore, providing of rent free accommodation to the expatriate employees and free meals was by virtue of the employment contract and it was not voluntary act of the Indian company, namely, NFCL.

17. We now refer to section 17(2) which defines perquisites. It reads as under :

"Perquisites includes :

(i) the value of rent free accommodation provided to the assessee by his employer;

(ii) ...........................................................

(iii) the value of any benefit or amenity granted or provided free of cost or at a concessional rate in any of the following cases :

(a) ...........................................................

(b) ...........................................................

(c) by any employer (including a company) to an employee to whom the provisions of paragraph (a) and (b) of this sub-clause do not apply and whose income (under the head Salaries) (whether due from or paid or allowed by, one or more employers) exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees.

(The other clauses of section 17(2) are omitted as being irrelevant)."

In all the 12 cases before us the salary received by the employees is more than Rs. 24,000. It is not disputed before us that free meals have been provided to the employees during their stay in India. But for this facility provided to the employees the latter would have to incur the expenditure on such amenity. Therefore, the benefit/amenity was provided to the employees free of cost during their stay in India. From the language of section 17(2), it is abundantly clear that the value of rent free accommodation provided to the assessee by his employer and the value of benefit/amenity provided free of cost by way of meals fall within the ambit of perquisites as defined u/s 17(2). That being so, the claim of the assessee for exemption u/s 10(14)(i) falls to the ground as the basic condition for grant of exemption under the said section is that the allowance or the benefit should not be a benefit in the form of perquisites within the meaning of section 17(2).

18. In view of our above finding it is not necessary for us to consider as to whether the expatriate employees could be said to be on tour to India during their stay in India in connection with the project and as to whether the notification issued by the CBDT granting exemption in certain circumstances is applicable. However, it will suffice to refer to the letter of appointment which we have reproduced elsewhere in this order which clearly indicates that the appellants had been specifically appointed in India in relation to the particular contract. As per the contract, the estimated period of employment was only 12 months. This letter does not indicate that the appellants were the permanent employees of Snamprogetti, Italian company and that they had to report back for duty in Italy after the completion of their assignment in India. Since there is nothing on record to establish that the appellants were permanent employees of Italian company and that they would continue to be employees even after the completion of the project in India, it is not necessary for us to consider as to whether their assignment in India could be treated as on tour or on deputation. Considering the totality of the facts and circumstances of this case, we are of the firm view that assessee is not entitled to any benefit u/s 10(14) in respect of the rent free accommodation and the value of benefit in the form of free meals. Regarding valuation of such perquisites we need not express any opinion as no dispute has been raised in regard to the valuation part of the benefit. We, therefore, confirm the assessment of value of benefits provided to the expatriate employees by way of rent free accommodation and free meals during their stay in India in connection with the NFCL project.

19. We now take up the issue regarding the assessment of tax on tax. We shall have to elaborate the facts relating to this issue. As is clear from the term of the employment as reproduced elsewhere in this order, there was no obligation of Snamprogetti to provide a tax free salary to the assessee. However, NFCL being the Indian company agreed with the Snamprogetti, Italian company, by virtue of clause 3.15 of the agreement to bear all taxes as may be imposed on contractor, sub-contractor, licensor and their personnel for the execution of the work as well as custom duties and charges as may be imposed for the equipment and materials to be temporarily imported in India. In other words, the Indian company agreed to reimburse the taxes imposed, inter alia, on the personnel deputed by the Italian company for the execution of their work in India. It is clear from facts that the Italian company had not agreed to provide tax free salary to the appellants. However, as a result of the contract between the Italian company and the Indian company, a benefit has accrued to the expatriate employees to the extent that the taxes imposed under the Indian Tax Laws were borne out by the Indian company and the brunt of taxation was not passed on to the expatriate employees. This benefit is assessable in the hands of the expatriate employees as income from other sources u/s 56 as held by their Lordships of the Supreme Court in the case of Emil Webber v. CIT [1993] 200 ITR 483. Reference in this regard may usefully be made to the decision of the Delhi High Court in the case of Frank Beaton v. CIT [1985] 156 ITR 16. Since the employer company had not specifically agreed for providing tax free salaries to the appellants there is no justification for assessing the perquisite value of the tax on tax as done by the Assessing Officer. The Assessing Officer shall assess the amount of tax payable by the assessee on the income and perquisites as borne by the Indian company. Such amount of tax as works out in respect of the salary and perquisites be assessed under the head Income from other sources. Thus, the appeals in regard to this ground are partly allowed.

20. A contention had been raised on behalf of the assessee that the benefit accruing to the assessee by way of the payment of taxes by the Indian company is not assessable in the year under appeal as the taxes have been paid in the subsequent asst. year. We do not find any merit in this contention raised on behalf of the assessee. Under section 192 of the Act, the employer company was under an obligation to deduct tax on the salary income and deposit the same with the Government within the specified period. Because of agreement between the NFCL and Snamprogetti, the obligation of the Italian company has been undertaken by the Indian company. The benefit with regard to the obligation of payment of taxes had accrued to the assessee in the year taxes became due for payment. It is not disputed before us that the taxes were due to be paid during the financial year by way of tax deducted at source. As held by their Lordships of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42, the words "accrue and arise" are used to contradistinguish the word received. Income is said to be received when it reaches the assessee; when the right to receive the income vests in the assessee, it is said to accrue or arise. In this case by virtue of the agreement between the assessee and the Italian company, assessee was absolved from payment of taxes in so far as the obligation was undertaken to be discharged by the Indian company. Therefore, the benefit accrued to the assessee during the year under appeal. Thus, even if the amount of tax had not been deposited during the previous year relevant to asst. year under appeal, the benefit having accrued to the assessee, the same was assessable in the year under appeal, i.e., the year of accrual. We, therefore, do not find any merit in this contention raised on behalf of the assessee.

21. The only other ground in these appeals is relating to levy of interest u/s 234B of the Income-tax Act, 1961. The appellants had raised the specific ground before the CIT(A) denying their liability to the levy of interest u/s 234B of Income-tax Act, 1961. The CIT(A) has not disposed of this ground of appeal though specifically raised. In para 10 of his order, it has been held "other grounds of appeal taken also do not merit acceptance". There is no decision on merits. Since the issue has not been decided by the CIT(A) on merits, we restore this ground to his file for the purposes of deciding the same afresh on merits by passing speaking orders in each of the case. An opportunity of being heard shall be given to the assessee before disposal of this ground of appeal.

22. In the result, appeals are partly allowed.