Delhi High Court

Joint Cit vs Peter Salwiezek on 12 January, 2004

Equivalent citations: (2004) 91 TTJ Del 63

ORDER

B.R. Jain A.M.:

This appeal by the revenue arises from the order of the learned Commissioner (Appeals)-XXV, New Delhi, dated 17-12-1998, raises the following two grounds :

"1. On the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in allowing exemption under section 10(5B) to the assessed ignoring all the material facts and evidence on record.

2. On the facts and in the circumstances of the case, the learned Commissioner (Appeals) has erred in deleting addition of Rs. 75,000 as a perquisite under section 17(l)(iv) of the Act. "

2. In ground No. 1, the learned Departmental Representative states that the assessing officer found that the assessed was employed with M/s G.E. Plastics Europe B.V. (hereinafter referred to as GEPE). His services were assigned to the joint venture company, namely M/s G.E. Plastics India Ltd. The taxes on his behalf have however been paid by the Indian company. The assessed, however, claimed exemption of the income which has accrued to him in India as exempt under section 10(5B) of the Act. He refers to the provision as contained in sub-section (5B) of section 10 and stated that the essentials are : (i) that the person should be an individual, (ii) he renders services as a technician, (iii) he is in the employment of any corporation, etc., set up in India for carrying business in India, and (iv) he was not resident in India in any of the four immediately preceding years in which he arrived in India. The attention was further drawn to the Explanation below section 10(5B) of the Act where "technician" has been defined to be a person employed in India in any capacity in which such specialised knowledge and experience of having manufacturing have actually been utilised.

3. In view of statutory provisions, it was contended that the person should have specialised knowledge or experience which should have been utilised in India in the manufacturing operations. The assessed, however, is a man from marketing and selling. The assessing officer had already recorded such a finding at internal p. 3 of the assessment order. Such a finding was based on the joint venture agreement dated 3-1-1996, according to which the main object of the employment of the assessed was initially for marketing and selling the product purchased from M/s GE Plastics and IPCL in India. The assessed, however, also remained an employee of GEPE who have been doing work in the field of marketing and finance in India. Thus, it is evident that the job assigned to the assessed in India is in the field of marketing and selling and not in the field of manufacturing. Further reference was made to the finding recorded by the assessing officer on the basis of personal profile of the assessed as reproduced at internal p. 2 by the assessing officer in his order. In this profile the assessed himself has stated that since April, 1994 he was allocated to GEPE to lead the marketing efforts in this new growth market where through the complete team with local hires complete the ADC facility to highest standards and excite the industry with high class educational seminars. Programs for accelerated growth with industry focus in market development are in place, GE values and work out programs are introduced and practiced. The work experience also shows that he was a director in marketing. The perusal of facts reveal that the assessed is not a technician within the meaning of definition as contained in Explanation to sub-section (5B) of section 10 as he does not have specialised knowledge and experience in the field of manufacturing. His present assignment as a director marketing is to excite industry and the joint venture is only for marketing and selling and not intended to be used for any manufacturing purposes. The learned Commissioner (Appeals) has erred in coming to the conclusion that the assessed is a qualified Chemical engineer who has specialised knowledge and experience and was deputed to India by GEPE India to assist in the development of plastic technology and he was later supervisor of the Application Development Centre which was involved in designing and development and testing of product who after discussion help in developing and manufacturing of new products made of plastics. He has also erred in coming to the conclusion that his experience in manufacturing of polycarbonic technology was used by GEPE for their manufacturing operation in India. This is contrary to the joint venture agreement which clearly says that the joint venture was for the purpose of marketing only. Other findings of the learned Commissioner (Appeals) are not borne out from record. The past experience which has also been made as a basis of coming to his technical experience was only for very brief period as a, training program and the same cannot be conclusive to categorise a person with specialised knowledge and experience in the field of manufacturing. Reference was also made to the Tribunal's order in ITA No. 1619/Del/1997 by 'C' Bench, New Delhi, to paras 28 to 34 according to which the manufacturing has to take place in India and the operation should be carried on in India and to be a technician is a condition for the grant of exemption. All these facts are absent in the appellant's case. Reference was also made to certain advance rulings as under

(1) XYZ, In re (1999) 237 ITR 428 (AAR);

(2) ABC, In re (2000) 242 ITR 698 (AAR);

(3) John A. Sayre, In re (1999) 236 ITR 652 (AAR).

It was, therefore, prayed, that the decision taken by the learned Commissioner (Appeals) needs to be set aside and that the assessing officer may be restored.

4. On the other hand, the learned counsel for the assessed Shri K. Sampath while relying on the decision taken by the learned Commissioner (Appeals) stated that the revenue has not brought on record the joint venture agreement to prove that the joint venture is only for the purpose of marketing and selling and not for the purpose of manufacturing, besides failure of the revenue to produce terms of employment which can dilate upon his responsibility. It was contended by the learned counsel that there has been a change in law and the existing provisions in section 10(5B) have been substituted in place of provisions as contained under section 10(6)(viia) of the Act. Earlier, a prior approval was required from the CBDT but such an approval is no longer required now after insertion of section 10(5B) of the Act. His predecessor Peter Van Damme whose case has also been decided by the Tribunal in ITA No. 3370/Del/1997 dated 14-2-2000, got exemption in India after necessary approval as technician was granted by the CBDT. The expression 'business employed' in India has been considered as sufficient for grant of such an exemption. In this case, the assessing officer does not show to go by the issues of business carried in India as he assumed so on the basis of CBDT Circular. Strict interpretation has to be made and decision has not been taken on the basis of casusomisuss in the referred order of the Tribunal. Reliance has been made to advance rulings which are as under :

1. Robert W. Smith, In re (1995) 212 ITR 275 (AAR);

2. Monte Harris, In re (1996) 218 ITR 413 (AAR);

3. Arthur E. Newell, In re (1997) 223 ITR 776 (AAR);

4. Volve India (P) Ltd. (AAR No. 351 of 1997).

5. It was further contended that the issues which have already been concluded by the assessing officer cannot be reopened at this stage. The learned Commissioner (Appeals) has concluded that by holding the qualification as a technical person the assessed has worked as a technical manager. The joint venture is only for manufacturing which presumption can be drawn from the approval granted by the CBDT under section 10(6)(viia) of the Income Tax Act, 1961, in respect of his predecessor Peter Van Damme. The basic point for denying the exemption by the assessing officer is that the assessed has no experience in the field of manufacturing while the learned Commissioner (Appeals) has already recorded the positive finding based on the material produced before him. In that view of the matter it cannot be said that the learned Commissioner (Appeals) has erred in coming to a wrong conclusion. His order, therefore, needs to be upheld and revenue's appeal has to be dismissed.

6. In rejoinder the learned Departmental Representative contends that the learned Commissioner (Appeals) ignored the material facts which were on record whereas the assessing officer has arrived at a decision on the basis of material and cogent evidence before him. The assessed's plea of approval from CBDT in respect of his predecessor is without any basis as no such finding is on record. The exemption was in respect of different individual within the same organisation. There can be several persons who can be technician by virtue of their individual knowledge and experience and each and every person cannot be considered at par. The Tribunal has also not recorded any finding that he possessed a requisite qualification. All the case laws relied by the assessed are stated to be distinguishable on facts. The Act requires that the employment has to be in India. The mandate of the Act has to be given strict construction. In that view of the matter the revenue's ground needs to be allowed.

7. We have heard the parties with reference to material on record. The issue before us relates to exemption clause. Where an exemption is conferred by a statute, the same has to be interpreted without any violence in the language used in the statute. Where certain conditions are specified for allowing exemption and those conditions are not complied with the liberal interpretation cannot be made to the exemption clauses in fiscal laws. In Nova Pan India (1990) 73 ELT 769 (SC) it has been held that exemption has to be interpreted strictly and benefit should go to State. Above view also stands fortified by the decision of Hon'ble AP High Court in Action For Welfare & Awakening In Rural Enwronment (Aware) v. Dy. CIT (2003) 263 ITR 13 (AP).

8. In the assessed's case certain conditions are stipulated for grant of exemption under section 10(5B) of the Act. The employment of the individual who renders services as a technician is an essential condition. Whether the assessed was employed in India or factually was an employee of GE Plastics Europe by at the relevant time can be delved only from the terms of employment which have not been placed before us by any of the parties, though different claims are being made by them. As regards the issue of use of technical expertise in the field of manufacturing the assessed placed some evidence before the assessing officer only on 27-3-1998, but as the case was getting barred by limitation on 31-3-1998, the assessing officer found it difficult to verify the genuineness and correctness of the claim and proceeded to come to his conclusion without appraisal of material produced before him. The learned Commissioner (Appeals) also appears to have been persuaded by the submission of the assessed without factually applying his mind to the material document which formed the basis of conclusion arrived at by the assessing officer. In that view of the matter we consider it appropriate to restore the matter back to the assessing officer for appraisal of the correct facts and material including the evidence which has been brought on record on 27-3-1998, before him by the assessed and come to a conclusion in accordance with law in the light of our observations as contained herem before. He shall give a reasonable and effective opportunity of being heard to the assessed before coming to a conclusion in accordance with law.

9. In second ground the revenue has challenged deletion of addition of Rs. 75,000 as perquisite under section 17(l)(iv) of the Act.

10. We have heard the parties with reference to material on record. Section 17(1)(iv) of the Act deals with such amounts which has actually been paid by the employer in respect of an obligation, payment for which would have been payable by the assessed in case such payments were not made by the employer. In this case, the assessing officer was persuaded to treat the reimbursement of expenses to the extent of Rs. 75,000 to the appellant on account of party and decoration expenses at his residence, payment for driver, helper, repair of furniture and club membership, etc. The learned Commissioner (Appeals) found such an expenditure as that of company and there was nothing brought on record by the assessing officer to hold that the expenditure was related to the appellant. No contrary material to such finding was brought on record. In that view of the matter, the deletion of disallowance of Rs. 75,000 made on estimate basis as perquisite does not call for any interference. Ground of the revenue stands allowed.

11. In the result, the revenue's appeal stands partly allowed.