Authority Tribunal
Monte Harris vs Commissioner Of Income-Tax on 4 August, 1995
Equivalent citations: [1996]218ITR413(AAR)
RULINGS Authority for Advance Rulings No. 220 of 1995 Decided On: 04.08.1995 Appellants: Monte Harris Vs. Respondent: Commissioner of Income-tax Hon'ble Judges:
S. Ranganathan, Chairman, D.B. Lal and R.L. Meena, Members Counsels:
For Appellant/Petitioner/Plaintiff: Harihar Lal and M.G.C. Goel, Advs.
For Respondents/Defendant: None Subject: Direct Taxation Acts/Rules/Orders:
Income Tax Act, 1961 - Sections 10(5B), 245N, 245Q, 245R and 245R(2) Cases Referred:
In Re: Robert W. Smith, [1995] 212 ITR 275 (AAR) RULING
1. The questions raised in this application under Section 245Q(1) of the Income-tax Act, 1961 (hereinafter called "the Act"), are capable of easy answer. However, a couple of objections to the maintainability of the application have been raised which need to be discussed as it is possible that similar difficulties may arise in other cases as well. But, before dealing with these preliminary objections, it will be convenient to refer to the facts of the case as stated and the questions sought to be raised by the applicant.
2. Mr. Monte Harris, the applicant, is a citizen of the United States of America. He is employed in India by Verifone India Private Limited (hereinafter referred to as "VIPL"). The applicant is stated to have had considerable work experience in the area of Software Development. He has served for about 25 years with various companies in the United States and Europe and claims to have gained immense experience in technical management of hardware/software development relating to the "Point of Sale Industry" in United States and Europe. The details of his work experience include : three years with the U. S. Government as system programmer and project manager, four years in RCA computer division on various RCA computer systems, two years with Sperry Univac, and four years with ICL in Europe. The applicant has been employed with Verifone Inc. of U. S. A., since May, 1992. He came to India for the first time on November 1, 1992. His stay in India during the financial year 1992-93 was for 14 days and in 1993-94 was for 137 days. Thus, the applicant was a non-resident in India during the above financial years and earlier.
3. Verifone India Private Limited, it is stated, was promoted by Verifone Inc., U. S. A. in 1990 for development and export of computer software. Since its inception the company has witnessed considerable growth and recently the company has undertaken an expansion programme. In order to provide better access to technology and technical expertise to its people, VIPL decided to engage the services of Mr. Harris. It is claimed that Mr. Harris, because of in-depth experience in the "Point of Sale of Industry", has been able to substantially lead and guide the software development efforts of VIPL. Verifone India Private Limited is currently developing "Omnihost 2.0", a key software for networks for credit card transactions/ switching authorisation, draft capture, debit using a client server architecture under a Unix operating system and Oracle RDBMS. This software is a key product of Verifone and is critical to its success. Mr. Harris is said to be leading the development efforts of "Omnihost 2.0".
4. The applicant has been engaged as Engineering Manager (Network Systems and Integrated Systems Product Divisions) of VIPL, with effect from April 1, 1994. The appointment was initially for a period of one year but vide a letter dated March 31, 1995, his services in the above capacity have been extended for a period of two years from April 1, 1995. In other words, the appointment will be valid till March, 1997. Verifone India Private Limited pays the applicant a consolidated salary of Rs. 18,170 per month together with certain other perquisites. It appears that Mr. Harris is also receiving a salary of Rs. 47,38,773 by Verifone Inc., U. S. A. It is stated that the entire compensation is paid for the services rendered in India and is taxable in India in accordance with the provisions of the Act. It is stated that the Indian income-tax on the entire salary paid by VIPL as well as its holding company, Verifone Inc., U. S. A. for services rendered by Mr. Harris in India will be borne and paid by VIPL. The applicant seeks the advance ruling of the Authority on the following questions :
(1) Whether on the stated facts of the case, exemption under Section 10(5B) of the Income-tax Act, 1961, would be available ?
(2) Whether on the stated facts, I would be considered as a "technician" for the purpose of Section 10(5B) ?
5. Before these two questions are taken up for consideration, it is necessary to deal with two preliminary objections regarding the maintainability of the application. The first objection arises on the language of Section 245N(b) of the Act. Read with Section 245Q,(1), this provision requires that a person making an application to the Authority under the Act should be a "non-resident". On the definition contained in Section 2(30) of the Act, as applicable to the present case, a "non-resident" is a person who is not a "resident" under Section 6(1) of the Act in so far as it is relevant for our present purposes. An individual is said to be a resident in India in any previous year, if he -
(a) is in India in that year for a period or periods amounting in all to 182 days or more ; or ....
(c) having within four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year.
6. While Section 245N stipulates that only a non-resident can make an application under Chapter XIX-B, it does not say in specific terms that it should be a non-resident as on the date of the application. In fact, it could not say so. As will be seen from the definition set out earlier, conceptually, residence or non-residence for the purpose of the Act has to be determined with reference to a financial year which is referred to as the "previous year" and not with reference to a particular date.
7. In the present case, the applicant has been in India during the financial year 1992-93 for 14 days, during the financial year 1993-94 for 137 days and during the financial year 1994-95 for a period of 303 days. In other words, he was a non-resident in the previous years 1992-93 and 1993-94 and earlier but is a resident in the previous year 1994-95. Since the applicant has been in employment in India since April 1, 1994, with VIPL and is claiming exemption in respect of the tax on the salaries received by him from that company, his claim for exemption becomes relevant, for the first time, in the assessment year 1995-96, in respect of the previous year 1994-95. During this previous year, the applicant is obviously and admittedly a resident. The question, which therefore, arises is whether the application filed by the applicant is maintainable.
8. The issue for consideration is : which is the previous year to be taken into account for purposes of Section 245N ? If the previous year in which the application is made is to be taken into account, the present application will not be maintainable as in that previous year, the applicant is a resident. It is argued for the Department that the application has been filed on the 31st March of 1995 and as on the date of the application the applicant is fully aware that he has been in India during the financial year 1994-95 for more than 182 days. He is, therefore, fully aware that he will be treated as a resident for this previous year and so the application should be rejected. Attractive as this argument is, there are difficulties in considering the previous year as the financial year in which the application is made under Section 245Q. In the present case, it so happens that the application has been presented on the last day of the previous year and one knows with certainty the number of days for which the applicant has been in India during that previous year. But this may not always be so. An application may be presented soon after the commencement of the financial year. It may also have to be disposed of before the end of that financial year. In that event, both on the date of the application as well as on the date on which the application is heard and disposed of, it may not be possible in all cases to predict with reasonable accuracy whether the stay of the applicant in India during that financial year will exceed 182 days or not. In other words, it will be difficult to determine the residential status of the applicant with reference to the previous year of the date of application. It should be borne in mind that the expression "previous year" should be so construed as to be applicable uniformly to all cases. It cannot be said that a previous year should be taken as the financial year in which the application is made provided the stay of the applicant up to the date of the application or the estimated stay of the applicant in India in that financial year exceeds 182 days and that it should be the previous year preceding that financial year in case it is not possible to determine the duration of the stay of the applicant in India in the financial year in which the application is made. It appears more practical and reasonable, for purposes of determining the residential status of an applicant under Section 245Q, to look at the position in the earlier previous year, i.e., the financial year immediately preceding the financial year in which the application is made. This is a period with reference to which the residential status of the applicant in every case can be determined without any ambiguity whatsoever. In the present case, though the applicant is resident in India in the financial year 1994-95 during which the application has been made, he was non-resident in India during the immediately preceding financial year, i.e., 1993-94. The applicant must, therefore, be treated as a non-resident for purposes of the present application. The application is, therefore, maintainable.
9. It may be mentioned in this context that this aspect of Section 245N(b) read with Section 245Q{1) was dealt with in an earlier order of the Authority in the case of Robert W. Smith, In re [1995] 212 ITR 275 (AAR) (Authority for Advanced Rulings No. 201 of 1993). There also the same conclusion as above was arrived at tentatively but no final opinion was expressed as it was possible to dispose of that application on different considerations.
10. The second preliminary objection to the maintainability of the application arises in view of the terms of the proviso to Sub-section (2) of Section 245R. Section 245R{2) in so far as it is relevant reads as follows :
"245R. (2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application :
Provided that the Authority shall not allow the application where the question raised in the application,--
(a) is already pending in the applicant's case before any income-tax authority, the Appellate Tribunal or any court ;
(b) involves determination of fair market value of any property ;
(c) relates to a transaction which is designed prima facie for the avoidance of income-tax :"
11. In the present case, after making the application under Section 245Q, to this Authority, the applicant is also stated to have filed a return of income for the assessment year 1995-96 and, in this return of income, a claim has been made for exemption from tax under Section 10(5B) of the tax borne by the employer VIPL on the salaries paid to the applicant. This return was filed on June 15, 1995, and does not appear to have been processed so far.
12. The question that arises is whether, in view of the claim for exemption made before the income-tax authorities in the return which is pending consideration by them as on the date of the hearing of this application, this Authority is precluded from dealing with the application in view of the mandate contained in the proviso to Section 245R(2). At first sight and on a cursory reading of the above proviso, it might appear that the Authority will have to reject the application as the question sought to be raised before the Authority is "already pending" i.e., pending as on the date of the hearing and disposal of the application. But this, on second thoughts, would be seen to be not a tenable view. The date on which the Authority hears the application and the date on which it disposes of application may not be the same and the maintainability of the application cannot be made to depend on the pendency of the issue before the income-tax authorities on varying dates. It would appear more correct and practical to construe the embargo as applicable to cases where, while the issue is already pending before the income-tax authorities, the Appellate Tribunal or any court, the applicant also seeks recourse under Section 245Q. Having already availed himself of the remedies available under the Act, the Legislature understandably requires that an applicant should not be encouraged to have recourse to another remedy by way of an application before the Authority. It is true that subsequent to filing the application before the Authority, the applicant has also filed a return and made a claim before the authorities. But this is something which is not entirely based on the volition of the applicant. The statute requires a return of income to be filed within the prescribed time (very early in a financial year) and failure to do so might lead to consequences of a penal nature. No applicant can afford to ignore this mandatory provision merely because he has filed an application before the Authority. That step has to be taken by the applicant by way of protective action or as a precautionary measure. It does not also confer any great advantage on the applicant since, once his application before the Authority gets decided, the conclusion of the Authority will have to be given effect to by the income-tax authorities in the pending assessments. It is perhaps possible to think of cases where an applicant might take advantage of the above interpretation to have his problems resolved both in the course of regular income-tax proceedings as well as by moving an application to the Authority. During the course of the arguments, such an instance was put to the applicant's counsel. Suppose an applicant makes a claim in the return which is rejected by the Income-tax Officer. Immediately thereafter and before moving an appeal before the Appellate Commissioner, the applicant may move an application before the Authority and claim that the application should be disposed of because, as on the date of the application, no proceeding was pending before any income-tax authority, Appellate Tribunal or court. But this does not really confer a double advantage on the assessee because, once the application is heard and disposed of by the Authority, even if subsequent to such an application the applicant files an appeal before the Appellate Commissioner or higher appellate authority he will not be able to get any different relief as the opinion of the Authority will be binding on the applicant in the course of those appellate proceedings. The interpretation suggested above, therefore, appears to be more appropriate in the context of Section 245R. On the other hand, if the interpretation suggested on behalf of the Revenue is accepted, a non-resident applicant will forfeit the remedy provided by Chapter XIX-B for no good reason because he will, invariably, be compelled or constrained to file a return and make his claim in the regular assessment proceedings as well if he wishes to keep such claim alive. The words "already pending" should, therefore, be interpreted to mean : "already pending as on the date of the application" and not with reference to any future date. In the present case, since there was no return or claim before the authorities before the application was filed before this Authority, the application cannot be rejected by invoking Clause (a) of the proviso to Section 245R(2).
13. Turning now to the questions posed in the application, the answer to them depends on the provisions of Section 10(5B) of the Act. That provision reads as follows :
" (5B) in the case of an individual who renders services as a technician in the employment (commencing from a date after the 31st day of March, 1993) of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause or Sub-clause (viia) of Clause (6) by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax on his income for such services chargeable under the head 'Salaries' is paid to the Central Government by the employer (which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956)), the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India :
Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning :
Explanation. - For the purposes of this clause, 'technician' means a person having specialised knowledge and experience in -
(i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or
(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or
(iii) such other field as the Central Government may, having regard to availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised."
14. Taking up the second question raised in the application for consideration first, the applicant's case does not fall within Clause (i) or Clause (ii) of the Explanation. However, the field in which the applicant possesses specialised knowledge and experience falls within the terms of Notification No. S. 0. 569(E) (see [1993] 203 ITR (St.) 56), dated July 27, 1993. By this notification, the following three fields have been notified under Sub-clause (iii) of the above Explanation :
(i) Grading and evaluation of diamonds for diamond export or import trade ;
(ii) Cookery ; and
(iii) Information technology including computer architecture systems, platforms and associated technology, software development process and tools.
15. On the facts as stated, though no information has been furnished as to the precise academic as well as educational qualifications or degrees taken by the applicant, there can be no doubt that the applicant has vast knowledge and wide experience in the field covered by item (iii) of the above notification which is being availed of, with profit, by VIPL in its Indian business. The second question has, therefore, to be answered in the affirmative.
16. Turning now to the first question, it will be seen that an assessee is entitled to exemption under Section 10(5B) provided the following conditions are fulfilled :
(i) He is an individual who was non-resident in India in all the four financial years immediately preceding the financial year in which he arrived in India ;
(ii) He is rendering service as a technician ;
(iii) His employment commences from a date after March 31, 1993 ;
(iv) He is employed in a business carried on in India ; and
(v) The tax on his income for such services chargeable under the head "Salaries" is paid by the employer.
17. These conditions are all fulfilled in the present case. The first question also has, therefore, to be answered in the affirmative.
17. In the light of the above discussions, the Authority pronounces the ruling as follows :
Question No. 1 : On the stated facts, the applicant is entitled to exemption under Section 10(5B) of the Income-tax Act, 1961.
Question No. 2 : On the stated facts, the applicant is a technician within the meaning of the Explanation to Section 10(5B) of the Act.