COMMISSIONER OF INCOME TAX Vs. MR CIRO MANZO

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, New Delhi, has referred the following question of law under Section 256(1) of the Income Tax Act, 1961, hereinafter referred to as the Act, for opinion to this Court.

(2.) The present Reference relates to the Assessment Years 1985-86 and 1986-87.

(3.) Briefly stated the facts giving rise to the present Reference are follows:- All the respondents-assessees are non-residents working in India for ELITOS S.P.A. They claimed before the Assessing Officer that all their cases are covered by Double Taxation Avoidance Agreement between India and Italy and their respective salaries were not taxable with reference to Article 16(2)(c) of the said agreement. According to this article, it was claimed that M/s. ELITOS S.P.A. did not have a permanent establishment or fixed base in India. The Income Tax Officer had rejected the contention and had held that the employer M/s. ELITOS S.P.A. had both a permanent establishment and a fixed base in India. According to the Assessing Officer, since condition in Clause (c) of Article 16(2) of the Double Taxation Avoidance Agreement was not fulfilled, the salaries so received along with perquisites of tax paid by the employer, was taxable in their respective hands and accordingly the assessments were framed, which order was upheld by the Commissioner of Income Tax (Appeals). However, in further appeal the Tribunal had held that the employer did have a permanent establishment or a fixed base in India in terms of Article 5(1). It had held that the remuneration of the employees in question is not borne by the permanent establishment or fixed place which the employer had in India. The salaries to the non-residents technicians were paid in Italy and hence the same were not borne by the permanent establishment in India and, therefore, the respondents-assessees were not exigible to Indian Taxation in terms of Article 16(2)(c) of the Double Taxation Avoidance Agreement. It had also rejected the plea that the tax collected from O.N.G.C. on behalf of M/s. ELITOS S.P.A., the employer company as a taxable perquisite in the hands of the employees under Section 17(2)(iv) of the Act.