Madras H.C : The assessee is an employee of an Italian company—Italviscose Eastern Trading S.P.A. Milan, which had entered into an agreement with South India Viscose Ltd. in connection with the expansion project of the latter company’s pulp plant.

High Court Of Madras

CIT vs. Marco Brandolin

Sections 17(2), 195

R. Jayasimha Babu & K. Gnanaprakasam, JJ.

Tax Case Nos. 1242 & 1243 of 1990

20th December, 2000

Counsel Appeared

Mrs. Chitra Venkataraman, for the Revenue : P.P.S. Janarthana Raja, for the Assessee

JUDGMENT

R. JAYASIMHA BABU, J.:

The assessee is an employee of an Italian company—Italviscose Eastern Trading S.P.A. Milan, which had entered into an agreement with South India Viscose Ltd. in connection with the expansion project of the latter company’s pulp plant. Under the terms of that agreement out of the sums paid by the Indian company to the Italian company, the employee of the Italian company was to receive the amounts specified in that agreement, the rate being 75,000 Italian Lira per day payable in an Italian bank. No payments were made by the Indian company to the assessee directly. The Indian company was only to provide the boarding and lodging facilities and allowance for his day- to-day expenses while in India.

The Indian company, as required by s. 195 of the IT Act at the time of making payments to the Italian company deducted tax thereon, and remitted the same to the Government. The ITO construed that the remittance as indicating the payment of tax-free salary to the assessee. On that basis, he grossed up the salary and demanded tax from the assessee on the amounts so grossed up. The CIT(A) set aside that order. The Tribunal having upheld the order of the CIT, the Revenue has brought this reference before us.

On the facts as found by the Tribunal, it is amply clear that the assessee was not an employee of the Indian company, and he had not been paid any salary by the Indian company. He was a technician, who had been sent by his Italian employer pursuant to an agreement between that employer and the Indian company with regard to the expansion of the pulp plant of the Indian company. The Indian company under the terms of that agreement was only required to pay the Italian company the amounts specified in the agreement. The payment of the technician’s salary was to be made by the Italian company in Italy. The Indian company was required to, and did comply with s. 195 of the IT Act by deducting the tax at source on all the amounts paid by it to the Italian company. These facts did not in the least warrant the view taken by the ITO that the Indian company had paid a tax-free salary by having remitted to tax-free salary to the technician sent by the Italian company. The view taken by the ITO was perverse, and was rightly reversed in appeal by the CIT, and that reversal again rightly upheld by the Tribunal.

We see no merit whatsoever in this reference. The question referred to us, as to whether the Tribunal was right in law in holding that there could be no grossing up of income on tax basis, and that the ITO erred in law in treating the tax paid by the company as perquisites taxable in the hands of the assessee, against the Revenue, and in favour of the assessee. The Revenue shall pay costs in the sum of Rs. 2,000.

[Citation : 249 ITR 43]

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