COMMISSIONER OF INCOME TAX Vs. HARMANN AND BREAUN

JUDGEMENT

(1.) THE Tribunal has referred the following question of law arising out of its order dt. 12th July, 1982 in respect of asst. year 1977 78 and 1978 79.

(2.) THE brief facts of the case are that the assessee is a company (non resident) and entered into an agreement with M/s Instrumentation Limited on 23rd March, 1976 for supplying technical know how to the latter. As per the terms of agreement, the assessee were to depute their employees at installation works in India for a period of 15 months. The journey expenses from Germany to Kota were to be borne by Indian company and free accommodation and transport facility plus daily assistance allowance at the rate of Rs. 100 per day were to be given by the Indian company. for the first five months, the services of the technicians were free of charge and for the balance ten months the Indian company was to pay to the assessee company at the rate of Rs. 3,000 D.M. per month as compensation towards loss incurred on account of salary to be paid by the assessee to the substitutes of such technicians in Federal Republic of Germany for short, the FRG, due to the latter's absence. The sum of Rs. 11,280 and Rs. 12,766 were to be paid by the Indian company to the assessee in the asst. yrs. 1977 78 and 1978 79 respectively. The IAC (Assessment) treated these sums as income of the assessee in India and brought to tax the same through the Indian company. The said incomes were grossed up by adding to them the tax of Rs. 12,466 for the asst. yr. 1977 78 and Rs. 14,109 for the asst. year 1978 79 which was borne by the Indian company in respect of payment of tax on the sums. The IAC of computed the total income of the company at a figure of Rs. 23,746 for the asst. year 1977 78 and Rs. 26,875 for the asst. year 1978 79.

(3.) THE matter was considered by this Court in the case of CIT vs. Yamatake Honeywell Co. Ltd., DB IT Ref. No. 13 of 1984 decided on 10th Nov., 1993 [reported at (1994) 119 CTR (Raj) 347 : (1994) 210 ITR 470 (Raj)] and this Court came to the conclusion that the absence fee is in the nature of reimbursement or compensation of the amount which the assessee may be required to pay its employees in Japan. It is not the exact amount which the assessee is paying by way of salary to its employees, but the amount fixed under the agreement irrespective of the actual payment and, therefore, so far as the assessee company concerned, it will be deemed to be the income in the hands of the assessee company liable to be included in the total income for the purpose of taxation. The assessee company has not made the payment in India, and therefore, the expenditure could not be allowed.