Authority Tribunal
Stanley Keith Kinnett vs Commissioner Of Income-Tax on 18 January, 1999
Equivalent citations: [1999]238ITR155(AAR)
RULINGS A.A.R. No. 428 of 1998 Decided On: 18.01.1999 Appellants: Stanley Keith Kinnett Vs. Respondent: Commissioner of Income-tax Hon'ble Judges:
Suhas C. Sen, J. (Chairman), Subhash C. Jain and Mohini Bhussry, Members Counsels:
For Appellant/Petitioner/Plaintiff: Rajiv Memani, Adv.
For Respondents/Defendant: K.K. Vyawahare, Adv.
Subject: Direct Taxation RULING
1. Mr. Stanley Keith Kinnett, the applicant in this case, is a citizen of the U.S.A. holding an American passport. He is employed by Whirlpool Corporation (WC), a company incorporated under the laws of the U.S.A. and is a resident of that country. This company has got a 100 per cent. subsidiary by the name of Whirlpool India Holdings Limited which is also incorporated under the laws of the U.S.A. and is a resident of the U.S.A. This subsidiary company has set up a branch office in India. It is in this branch office that the applicant is posted as Vice-President, Refrigeration Business Unit. Under the terms of the contract, the salary of the applicant is payable in the U.S.A. Certain utilities in the host country are also to be paid for by Whirlpool Corporation. The utilities include suitable residential accommodation, company maintained car with driver, payment of electricity and water bills, and payment of other utility bills claimed by the applicant. In addition, tax liability arising in India during the period of assignment is also to be borne by Whilrpool Corporation.
2. The applicant was in India for 76 days during the financial year 1997-98. The applicant has, therefore to be treated as a non-resident for the purposes of the present application.
3. The applicant has stated that he gets his remuneration from the U.S. company, Whirlpool Corporation (WC). The letter of appointment to him was given by WC. The remuneration is paid to him in terms of his contract of employment with the assessee. Expenses borne in India by the subsidiary company are reimbursed by WC by periodic remittances. In the background of these facts the following questions of law have been raised :
1. Whether on the facts and circumstances stated in annexure-B, the applicant is liable to tax in India ?
2. (i) If the answer to above is affirmative, then what is the quantum of income so liable ?
(ii) In calculating the taxable income how the amenities provided are to be evaluated/quantified ?
(iii) Whether "income" for the purpose of Clause (ii) shall include-
(a) Salary paid in the U.S.A, by the employer ;
(b) Expenses disbursed for facilities and local expenses in terms of the employment in India by the branch of the subsidiary company of the employer ;
(c) Taxes on the income of the applicant, if any, disbursed by the branch of the subsidiary company of the employer in India.
4. Article 16 of the DTAA between U.S.A. and India has dealt with "salary" in the following manner (see [1991] 187 ITR (St.) 102, 119) :
"Article 16, Dependent Personal Services :
(1) Subject to the provisions of articles 17 (Director's fees), 18 (Income earned by entertainers and athletes), 19 (Remuneration and pensions in respect of Government service), 20 (Private pensions, annuities, alimony and child support), 21 (Payments received by students and apprentices) and 22 (Payments received by Professors, Teachers and Research Scholars), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
(2) Notwithstanding the provisions of paragraph (1), remuneration derived by a resident of a Contracting State in respect of an employment exercised in other Contracting State shall be taxable in the first mentioned State if :
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant taxable year ;
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State ; and
(c) the remuneration is not borne by a permanent establishment or a fixed base or a trade or business which the employer has in the other State.
(3) Notwithstanding the preceding provisions of this article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operating in international traffic by an enterprise of a Contracting State may be taxed in that State."
5. In the instant case, the remuneration has been received by the applicant who is a resident of the U.S.A. The contention of the applicant is that he fulfils the conditions in Clauses (a), (b) and (c) of Article 16(2). There is no dispute that within the relevant year of account, his stay in India was very brief. His remuneration was paid by WC, a foreign company. The remuneration which is actually paid by the Indian company is ultimately reimbursed by WC. In other words, the Indian company pays the remuneration only in the first instance which is reimbursed by WC. Therefore, it cannot be said that the burden of payment of the remuneration was actually borne by a permanent establishment or a fixed base or trade or business located in India. Therefore, all the conditions laid down in Article 16(2) are fulfilled by the applicant on the basis of facts as stated by him. The questions, therefore, will have to be answered in the following manner.
"In view of the specific provisions of Article 16 of the India-US treaty and also in view of the facts stated in the application question No. 1 is answered in the negative and in favour of the applicant".
6. In view of the answer as given to question No. 1, it is not necessary to go into the other questions.