Kunti Verman vs Central Board Of Direct Taxes And ...
1996 Latest Caselaw 85 Del

JUDGMENT

Anil Dev Singh, J.

(1) The petitioner is the wife of late Dr. Lal C. Verman, who had entered into an agreement with the General Electric Company (TEMPO), a company incorporated in New York, dated August 25, 1974, as modified subsequently by supplementary agreements dated November 4, 1977, and June 27, 1975. By that agreement Dr. Verman, who was the original petitioner, was retained by the company for the period commencing from August 25, 1974 to August 24, 1975. As per the terms of the agreement, Dr. Verman was required to perform his services at the rate of 138 dollars plus 17% per. day for each days work during the term of the agreement payable at the end of each month. He was to advice and act as a consultant to the company on problems relating to formulation of detailed plans and programmes for the development, staffing and equipment of the Korean Standard System. Petitioner's husband made an application to the Government of India for approval of the agreement under section 80-RRA of the Income Tax Act, 1961 (for short 'the Act'). This application was rejected by the Government of India by its letter dated February 28, 1976 for twin reasons, namely, (a) the relationship between the applicant and the foreign party was not that of an employer and an employee as the status of the former, under the contract was that of an independent contractor; and (b) "the concession under section 80-RRA was announced in the Lok Sabha on February 28, 1975, by introduction of the Finance Bill, 1975, while the retainership agreement was entered into on August 25, 1974", i.e., prior to coming into force of the said provision, and, therefore, the concession was not available to the petitioner. Feeling aggrieved by the rejection of his application, the petitioner's husband filed the present writ petition in which after his death his wife Smt. Kunti Verman has been substituted as the petitioner.

(2) Learned counsel appearing for the petitioner submitted that the view taken by the Government of India is not in consonance with the decision of the Supreme Court rendered in Central Board of Direct Taxes and others v. Aditya V. Birla, (1988) 170 I.T.R. 137, whereby it affirmed the decisions of the Bombay High Court in Aditya V. Birla v. Central Board of Direct Taxes, (1986) 157 I.T.R. 47C. and in Central Board of Direct Taxes v. Aditya V. Biria, (1988) 170 I.T.R. 136. Learned counsel pointed out that section 80-RRA of the Act talks of payment of "remuneration" for rendering services outside India and while it uses the words "employer" and "remuneration" it does not use the words "employee" or "salary". He submitted that this goes on to show that the word "remuneration" cannot be restricted to mean "salary" alone.

(3) The other argument of the learned counsel for the petitioner is that since section 80-RRA came into force from April 1, 1975, it was effective for the assessment year 1975-76, i.e., for the previous year ending on March 31, 1975, and was, therefore, applicable, Learned counsel for the respondents, however, contends otherwise and has argued that the reasons advanced by the Government of India for rejecting the application of the petitioner's husband are correct in law.

(4) I have considered the submissions of the learned counsel for the parties. I am of the opinion that the order passed by the Governmein: of India dated February 28, 1976 cannot be allowed to stand.

(5) At this stage it will be convenient to extract Section 80-RRA of that Act which is as follows :- "80-RRA.(i) Where the gross total income, of an individual who is a citizen of India includes any remuneration received by him in foreign currency from any employer (being a foreign employer or an Indian concern) for any service rendered by him outside India, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the individual, a deduction from such remuneration of an amount equal to fifty per cent thereof: Provided that where the individual renders continuous service outside India under or for such employer for a period exceeding thirty-six months, no deduction under this section shall be allowed in respect of the remuneration for such service relating to any period after the expiry of the thirty-six months aforesaid. (2) The deduction under this section shall be allowed (i) In the case of an individual who is or was, immediately before undertaking such service, in the employment of the Central Government or any State Government, only if such service is sponsored by the Central Government; (ii) in the case of any individual, only if he is a technician and the terms and conditions of his service outside India are approved in this behalf by the Central Government or the prescribed authority. Explanation-For the purpose of this section,- (a) 'foreign currency' shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973 (46 of 1973); (b) 'foreign employer' means,- (i) the Government of a foreign State; or (ii) a foreign enterprise; or (iii) any association or body established outside India; (c) 'technician' means a person having specialised knowledge and experience in- (i) constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power; or (ii) agriculture, animal, husbandry, dairy farming, deep sea fishing or ship building; or (iii) public administration or industrial or business manage- ment; or (iv) accountancey; or (v) any field of natural or applied science (including medical science) or social science; or (vi) any other field which the Board may prescribe in this behalf. who is employed in a capacity in which such specialised knowledge and experience are actually utilised."

(6) Interpreting the aforesaid section, the Supreme Court in Central Board of Direct Taxes and others v. Aditya V. Birla, (1988) 170 I.T.R. 137, (4) held as follows :- "WE find that the amplitude of the expressions "employee" and "employer" covers the cases of a consultant or a technician. In our opinion, employment as a technician for the purpose indicated by Shri Palkhivala could also be an object of the Act in such a case the fee received by a consultant or a technician would also come within the purview of the section concerned. The employer is one who employs the services of other persons. In the context of this Act, therefore, the expression "employee" will include a consultant or a technician employed by the foreign company because he would be working for others for hire. It is true that the respondent may serve more than one master. A man may in certain circumstances serve two masters; very often he does serve many. The expression "to employ" has been considered in Ellis v. Joseph Ellis & Co., [1905] 1 Kb 324(CA)(5) and does not mean generally to find actual employment: it rather means to retain and pay a person whether employed or not but if employed then to be employed in the work only in respect of which contract is made. "Medical advisers may be employed at a salary to he ready in case of illness: members of theatrical establishments in case their labour should be needed; household servants in performance of their duty when their masters wish; in these and other similar cases, the requirement of actual service is distinct from the employment by the party employing". In an agreement to "retain and employ", "employ" means only to "retain" in the service "and is mere tautology". See in this connecton, Stroud's Judicial Dictionary, 4th edition, Vol. 2, at page 893. The expression, however, must depend upon the context of the particular provision in which the expression appears. It was held in England that an engineer appointed by a local authority to supervise the execution of works, but not subject to the local authority's supervision, is nevertheless an "employee" within the meaning of section 40(1) of the Local Government Superannuation Act, 1937, in Morren v. Swinton and Pendlebury Borough Council, [1965] 1 Wlr 576 (QB). (6) In Chambers' 20th Century Dictionary employee" has been indicated to mean to occupy the time or attention of "Employment" means an act of employing. In the Concise Oxford Dictionary, "employee" means a person employed for wages. "Employ" means use of services of persons. It follows, therefore, that it comprehends a wholetime servant or a part-time engage. It is significant that section 80RRA of the Act uses the expression "remuneration and not salary to be. entitled to deduction. In the aforesaid view of the matter, we see no warrant to restrict the meaning of the expression "remuneration" only to salary received by an employee abroad. The literal meaning is clear and we need not bother any more about the intention or the purpose. The intention, in our opinion, is writ large. In principle also, we are unable to find anv rationale or reason for the distinction sought to be made on behalf of the Revenue."

(7) Thus it is apparent that the Supreme Court has held that a consultant or a technician employed by a foreign company and receiving remuneration from the latter in foreign currency would be entitled to avail the benefit of the provisions of section 80-RRA of the Act subject of course to the fulfillment of the conditions mentioned therein. In the above decision it is also pointed out that section 80-RRA of the Act uses the expression "remuneration". Therefore, if a person has been retamed by a foreign employer and is paid a fee in foreign currency, the payment of the fee will be covered under the term "remuneration" which is of a wide amplitude. Similarly, when a foreign employer agrees to pay to a consultant whose services are being utilised on retainership basis the payment would still be covered under the term "remuneration". Again, section 80-RRA applies where an individual receives payment from a foreign employer for any service rendered by him outside India. The reasoning of the Government of India that the contract between parties does not establish the relationship of an employer and an employee and therefore section 80-RRA of the Act is not attracted, is not sound, "in view of the law laid down by the Supreme Court in Central Board of Direct Taxes and others v. Aditya V. Birla (supra). Petitioner's husband was a consultant and received retainership for the services rendered outside India from a foreign employer. At this stage it will be necessary to refer to clause 2 of the agreement dated August 25, 1974, which reads as follows:- "THE company agrees to pay the Consultant in consideration this retainer and services to be performed hereunder at the rate of One Hundred Thirty Eight Dollars ($ 138.00) plus Seventeen Per Cent (17%) per day for each day worked during the term of this agreement, payable at the end of each month."

(8) It is common ground that the petitioners husband was not employed beyond 36 months by the foreign company. A perusal of the bio-data of the petitioner's husband (page 31 of the writ petition) clearly shows that he was a highly qualified and experienced technician and, therefore, the Government of India has not rejected the contract on that account. Therefore, the first reasoning of the Government of India for not approving the contract for the purposes of section 80-RRA of the Act was entirely incorrect. The second reasoning that concession under section 80-RRA of the Act was not applicable as the said section came into effect much after the execution of the retainership agreement is also unsustainable. Section 80-RRA of the Income-tax Act was inserted by section 17 of the Finance Act, 1975. At this stage it will be convenient to set out section 2 of the Finance Act, 1975. which gives the date when section 17 of the said Act came into force:- "2.Save as otherwise provided in this Act, Sections 2 to 30 shall be deemed to have come into force from 1st day of April, 1975."

(9) Thus, Section 80-RRA which was inserted by section 17 of the Finance Act, 1975, came into force from the 1st day of April, 1975, and was introduced from the assessment year 1975-76. This being so the benefit of the provision would be available in respect to the period relevant to the assessment year 1975-76. In other words. it means that the benefit would be available for accounting year ending on March 31, 1975. The petitioner's husband was claiming the benefit for the accounting period ending on March 31, 1975. Besides, section 80-RRA does not provide that agreement for which approval is sought should be subsequent to the date of the passing of the France Act or introduction of the Bill. Therefore, the second ground on which the impugned order was based suffers from apparent illegality.

(10) Since both the grounds on which the approval was rejected by the Government of India were wrong and since the Government of India did not disqualify the petitioner's husband from claiming the benefit on any other ground, the agreement, therefore, needs to be approved.

(11) Accordingly, the writ petition succeeds and the rule is made absolute. The order of the Government of India dated February 28, 1976, is quashed. The Government of India is directed to accord approval to the agreement dated August 25, 1974 as modified by supplementary agreements dated November 4, 1974 and June 27, 1975, under section 80-RRA of the Income-tax Act, 1961. The approval be accorded by the Government of India within four weeks. Dasti.