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PETITIONER: C.I.T., MADRAS

       Vs.

RESPONDENT: BRAKES INDIA LTD.

DATE OF JUDGMENT06/04/1993

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) VENKATACHALA N. (J)

CITATION:  1993 SCR  (2) 993        1993 SCC  Supl.  (3)  51  JT 1993 (2)   662        1993 SCALE  (2)423

ACT: Income tax Act 1961: Sections  10(6)(vii)  and 40(c)(iii)Salary paid  to  Foreign Technical      Director--Exempt     under      the      head ’Salaries--"Whether could be included in the total income.

HEADNOTE: During  the  accounting order relevant  to  assessment  year 1965-66,   the  Respondent-assessee  paid  to  its   foreign technical  director  a  total  remuneration  of  Rs.  66,000 including  a sum of Rs. 28,576 paid by way  of  perquisites. The  Income-tax Officer allowed only a sum of Rs. 13,200  by way of perquisites and disallowed the balance of Rs.  15,376 in view of Section 40(c)(iii) of the Income-tax Act, 1961. On  an  appeal  by the  assessee,  the  Appellate  Assistant Commissioner  held  that  since the salary  of  the  foreign technical  director  was  exempt  under  S.10(6)(vii),   the provision  contained in Sec.40(c)(iii) was  not  applicable. Revenue  preferred  an  appeal and the  Tribunal  held  that S.40(c)(iii)  was  applicable.   At  the  instance  of   the Assessee, Tribunal referred the question to the High  Court. Since the High Court answered the question in favour of  the assessee, Revenue preferred the present appeal. Dismissing the appeal, this Court, HELD:  Under section 10(6)(vii) of the Income-tax Act,  1961 the  remuneration  due  to any technician,  who  was  not  a resident  in  any of the four  financial  years  immediately preceding  the financial year in which he arrived in  India, chargeable under the head ’salaries’, for services  rendered as a technician, was exempt.  Thus in the instant case,  the salary paid to the foreign technical director was admittedly exempt under Section 10(6)(vii) of the Income-tax Act, 1961. In other words, it was nil for the purposes of the Act.   If so, the second proviso to sub-clause (iii) of S.40(c) 994 is  attracted,  inasmuch  as ’nil’ income,  under  the  head ’salaries" is less than Rupees seven thousand five  hundred. By  virtue of the said proviso, the main provision  in  sub- clause  (iii) goes out of picture.  The High Court  reasoned that if income of one rupee is less than Rs. 7,500, there is no reason for saying that ’nil’ income is not an income less than Rs. 7,500. The High Court was right in taking the  view

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that  since  the  income exempted under Section  10  is  not liable  to  be included in the total income,  such  exempted salary  income  should be treated as ’nil’  income  for  the purposes of Section 40(c)(iii) of the Act. [996 B-E]

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1287(NT)  of 1982. From  the Judgment and Order dated 22.2..1978 of the  Madras in Tax Case No. 24 of 1975. M.   Gaurishankar Murthy, C. Ramesh, P. Parmeswaran and  Ms. A. Subhashini for the Appellant. Ms. Janki Ramachandran for the Respondent. The following Order of the Court was delivered In this appeal preferred against the Judgment of the  Madras High  Court,  the words "whose income chargeable  under  the head  ’salaries’  occurring in the second  proviso  to  sub- clause   (iii)  of  clause  (c)  of  section  40  fall   for interpretation.   The assessment year concerned is  1965-66. During  the accounting year relevant to the said  assessment year, the assessee paid to its foreign technical director  a total  remuneration  of Rs. 66,000 including a  sum  of  Rs. 28,576  paid by way of perquisites.  The Income-tax  Officer held  that  by  virtue  of  section  40(c)(iii)  perquisites exceeding  one-fifth amount of the salary cannot be  allowed as a deduction.  He held further, the second Proviso to  the said  sub-clause  is not applicable inasmuch as  the  income chargeable  under  the head salaries was not  Rs.  7,500  or less.   Accordingly he allowed only a, sum of Rs. 13,200  by way  of  perquisites.   He disallowed  the  balance  of  Rs. 15,376. The  Appellate Assistant Commissioner, however, allowed  the assessee’s appeal holding that inasmuch as the salary of the foreign technical director was exempt from tax under section 10(6)(vii),  the provision contained in  section  40(c)(iii) was not applicable.  The appeal filed by the 995 Revenue  was allowed by the Tribunal.  The  Tribunal  opined that  merely  because  the salary is  exempt  under  section 10(6)(vii),  the  provision in section 40(c)(iii)  does  not cease  to apply.  Under the proviso to the said  sub-clause, only  an  employee whose income chargeable  under  the  head salaries was Rs. 7,500 or less is exempted.  Inasmuch as the income  chargeable under the head salaries in this  case  is more than Rs. 7,500, the exemption does not operate.   Since the  said foreign technical director was an employee of  the assessee, he was certainly governed by the provision section 40(c)(iii),  said  the  Tribunal.  At  the  request  of  the assessee,  it stated the following question for the  opinion of the High Court:               "Whether on the facts and circumstances of the               case,  the Tribunal was justified  in  holding               that the provisions of Section 40(c)(iii) were               rightly invoked for the assessment year  1965-               66  in  relation to the  remuneration  of  the               Technical Director of the assessee company." Section  40(c)(iii)  as applicable to  the  assessment  year 1965-66, read as follows:               "40.  Notwithstanding anything to the contrary               in  Sections 30 to 39, the  following  amounts               shall not be deducted in computing the  income               chargeable  under the head "profits and  gains               of business or profession".

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             (c)   in the case of any company               (iii)any  expenditure incurred after the  29th               day of February, 1964, which results  directly               or indirectly in the provision of any  benefit               or amenity or perquisite, whether  convertible               into  money or not, to an employee  (including               any sum paid by the company in respect of  any               obligation  which but for such  payment  would               have  been payable by such employee),  to  the               extent  such expenditure exceeds one-fifth  of                             the  amount of salary payable to  the  employe e               for  any  period of his employment  after  the               aforesaid date:               Provided  further  that nothing in  this  sub-               clause shall 996               apply   to  any  expenditure   which   results               directly or indirectly in the provision of any               benefit   or  amenity  or  perquisite  to   an               employee  whose  income chargeable  under  the               head "Salaries’ is seven thousand five hundred               rupees or less’ Under section 10(6)(vii) of the Act, the remuneration due to any  technician, who was not a resident in any of  the  four financial years immediately preceding the financial year  in which  he  arrived  in  India,  chargeable  under  the  head ’salaries’,  for  Services  rendered as  a  technician,  was exempt.   In  this  case, the salary  paid  to  the  foreign technical  director  was  admittedly  exempt  under  section 10(6)(vii).   The contention of the assessee which has  been accepted by the High Court, runs thus: the salary payable to the   said  director  was  exempt  by  virtue   of   Section 10(6)(vii).   In other words, it is nil for the purposes  of the  Act.   If so, the second proviso to the  sub-clause  is attracted,   inasmuch  as  ’nil’  income,  under  the   head ’salaries" is less than Rupees seven thousand five  hundred. By virtue of the said second proviso, the main provision  in sub-clause  (iii)  goes  out of  picture.   The  High  Court reasoned that if income of one rupee is less than Rs.  7500, there  is no reason for saying that ’nil’ income is  not  an income less than Rs. 7,500.  Since the income exempted under Section 10 is not liable to be included in the total income, such  exempted  salary  income should be  treated  as  ’nil’ income  for the purposes of Section 40(c)(iii),  opined  the High Court. After  hearing  the counsel for the parties, we are  of  the opinion  that  the  view  taken  by  the  High  Court  is  a reasonable one and does not call for any interference. The appeal accordingly fails and is dismissed.  No costs. G.N.                      Appeal dismissed. 997