CLR Editorial Note: The object of section 91(1) of the Income Tax Act is to provide relief from taxation in India to the extent of taxes which have been paid overseas for the relevant previous year term, and this relief does not depend on the payments which have also been made in the previous year.
The Order
2013-ITS-93-HC-Commissioner of Income-tax, City 19, Mumbai -Vs- Petroleum India International* ,On. JANUARY 10, 2013
HIGH COURT OF BOMBAY
Commissioner of Income-tax, City 19, Mumbai
v.
Petroleum India International*
J.P. DEVADHAR AND M.S. SANKLECHA, JJ. IT APPEAL NO. 3653 OF 2009
JANUARY 10, 2013
Suresh Kumar for the Appellant. S.E. Dastur and Niraj Seth for the Respondent.
ORDER
1. In this appeal, though the Revenue has raised four questions of law in the appeal memorandum, only the following two questions are pressed for consideration :
“(a) Whether the Tribunal was justified in setting aside the disallowance of Rs. 3,93,72,038/- made by the AO under Section 40(a)(iii) of the Act when the assessee failed to deduct tax at source on such amount?
(b) Whether on true and proper interpretation of Section 91(1) the assessee is entitled to take double taxation benefit for the taxes paid in Kuwait only during the current year and not during previous years or on provisions for future period ?”
2. The assessment year involved herein is AY 1997-1998.
3. The respondent-assessee is an Association of Persons consisting of nine public sector oil companies as its members. The respondent-assessee is engaged in doing business abroad and for that purpose deploys trained manpower to foreign companies at contracted rate.
4. Re. : Question (a)
(i) The trained man-power deployed abroad is drawn for the employees of its member companies. However, such deployed man-power continue to be the employees of its member companies but are seconded to the projects abroad by the respondent-assessee company. In the assessment year under consideration, the assessee had claimed an amount of Rs. 3.93 crores as expenditure being the overseas compensation paid to the employees of the oil companies seconded abroad under the head ‘seconded personnel expenses’. The assessing officer by his order dated 29th March 2000 disallowed the amount of Rs. 3.93 crores paid to seconded employees on account of its failure to deduct tax at source under Section 192 of the Income Tax Act, 1961 (‘the Act’). Therefore, the payment was hit by Section 40(a)(iii) of the Act.
(ii) In appeal, both the Commissioner of Income Tax (A) as well as the Income Tax Appellate Tribunal have recorded a finding of fact that these seconded personal continue to be the employees on the roll of the member oil companies even during the period of secondment. These seconded employees continue to receive their salaries and emoluments from the member oil company of which they are employees. Therefore, not being employees of the respondent-assessee, the overseas allowances cannot be subject to deduction of tax at source.
(iii) Consequently, in view of the finding of fact arrived at that the seconded personnel are not the employees of the respondent-assessee, the amount paid as foreign allowances to the seconded personal is not liable for deduction of tax. In view thereof, the occasion to apply Section 40(a)(iii) of the Act does not arise. Consequently, question (a) in this appeal cannot be entertained.
5. Re. : question (b)
(i) The respondent-assessee paid taxes of Rs. 82 lacs in Kuwait on the income earned in Kuwait by it during the period relevant to the present assessment year. In view thereof, the respondent-assessee sought benefit of deduction from the tax payable in India under Section 91(1) of the Act. The assessing officer denied the benefit of Section 91(1) of the Act on the ground that payment of taxes in Kuwait was not made in previous year relevant to the present assessment year.
(ii) In appeal, the Commissioner of Income Tax (A) by order dated 24th December 2001 allowed the appeal. The Tribunal by its order dated 5th September 2005 upheld the order of Commissioner of Income Tax (A) holding that the respondent-assessee is entitled to deduction of taxes paid in Kuwait in terms of Section 91(1) of the Act.
(iii) The only issue to be considered is whether or not the income arising abroad in the previous year has suffered tax abroad. The case of the appellant – Revenue that the benefit of Section 91(1) of the Act would be available only when payments of taxes have been made in the previous year relevant to the assessment year under consideration. We find that the Tribunal correctly held that such a requirement is not found in Section 91(1) of the Act. The object of Section 91(1) of the Act is to give relief from taxation in India to the extent taxes have been paid abroad for the relevant previous year. This deduction/relief is not dependent upon the payment also being made in the previous year. The fact that the payment of taxes on the income earned in Kuwait during the previous year has been examined and found to be correct by the Commissioner of Income Tax (A) before whom original documents evidencing payment of taxes had been produced. In view of the above, we find that Question (b) is also not required to be entertained.
6. The appeal is accordingly dismissed with no order as to costs.
