ZDZIZLAW SKAKUZ Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ONE Zdzizlaw Skakuz, a Polish national was assessed in the status of an Indian resident for the assessment years 1970-71, 1971-72, 1972 73 and 1973-74. The assessee was an employee of a Polish firm called Z.P.M. & H.Cegielski, Poznan (Poland). Under two contract of agreements dated December 17, 1965, and November 20, 1970, entered into by the Hindustan Shipyard Ltd., Visakhapatnam, with the above mentioned Polish firm, the assessee was deputed to India to supervise the work of installation and erection of machinery in the new ships of M/s. Hindustan Shipyard Ltd. Visakhapatnam. Under the terms of those contracts, the Hindustan Shipyard took the responsibility to pay income-tax which was due and payable by the assessee on the total income which he had earned during the period of his stay in India during the above-mentioned assessment years. Clause 17 of the agreement dated November 20, 1970, provides as under - "should the income-tax authorities levy any income-tax on such personnel stationed in India, such income-tax will be paid by the Hindustan Shipyard. The Hindustan Shipyard undertakes to take up and follow up themselves necessary formalities. But the technical personnel stationed in India will file necessary returns and supply necessary information, if required by the income-tax authorities". Clause 6 of the agreement dated December 17, 1965, is similarly worded as clause 17Of the agreement dated November 20, 1970.

(2.) NOW, the assessee had received his salary from his Polish employer and his allowances were also paid by the Polish firm. The Income-tax Officer assessed the assessee for the assessment year 1970-71 on April 20, 1973, and for the assessment years 1971-72, 1972-73 and 1973-74 on April 19, 1973. In doing so, he treated the taxes which have been borne by the Hindustan Shipyard Limited, Visakhapatnam, under the aforementioned contracts with the Polish firm as the income of the assessee from other sources falling under section 56 of the Income-tax Act. But, subsequently, the Income-tax Officer felt that charging only the first stage of tax as tax perquisites under the head "Other sources", was incorrect and it should be grossed up. Accordingly, the officer amended the original assessment orders in the purported exercise of his jurisdiction under section 154 of the Income-tax Act, 1961 and brought to tax the perquisites after grossing them up.

(3.) THE contention before the Tribunal on behalf of the assessee was that the Appellate Assistant Commissioner committed an error in treating the taxes paid by the Hindustan Shipyard as tax perquisites chargeable to tax and it was also contended that the entire amount of allowances paid to the assessee by the foreign company during his sojourn in India ought to have been allowed exemption under section 10(14) of the Income-tax Act. THE Income-tax Appellate Tribunal held that the Polish firm was the employer of the assessee and that the assessee was not an employee of the Hindustan Shipyard Limited. Having held so, the Tribunal ruled that the tax perquisites received by the assessee from the Hindustan Shipyard Limited could be assessed as "Income from other sources". THE Tribunal also held that the outstation allowance and the hotel charges received by the assessee in India from the Polish firm were not exempted from being brought to tax under section 10(14) of the Income-tax Act. THE Tribunal also negatived the claim of the assessee under section 16(v) of the Income-tax Act. It held that "there is no evidence on the point whether the outstation allowances paid to the assessee by the foreign company are much less than what the assessee spends by reason of his posting in India. In order to merit exemption under section 16(v) of the Act, it must be established that the assessee is required by the conditions of his service to incur expenses out of his salary also. THE tests laid down in section 16(v) of the Act are not satisfied in the instant case. THE invocation of the applicability of section 16(v) is, in our opinion, not appropriate."