Income Tax Appellate Tribunal - Delhi
Saipem Spa vs Income-Tax Officer on 16 November, 2000
Equivalent citations: [2001]76ITD101(DELHI)
ORDER
Chaturvedi, V.P.
1. Under section 254(3) of the Income-tax Act, 1961 (hereinafter called the Act) the President of the Income-tax Appellate Tribunal (hereinafter called the Tribunal) has constituted the present Bench and referred the following questions :--
"1. Whether, on the facts and in the circumstances of these cases value on account of the accommodation provided to the employees at rig site in the form of Steel Bunkers on single status sharing basis, is assessable as a perquisite under section 17(2) ?"
2. "Whether, on the facts and in the circumstances of the cases, the value in respect of free meals provided to the employees at rig site is assessable as a perquisite under section 17(2) ?"
2. Briefly the facts :--
The assessees in most of the cases are foreign technicians employed by "SAIPEM spa", a foreign company. In ITA Nos. 3593, 3599 and 3601 (Delhi) of 1993 the employer was Reading & Bates Exploration Co. as agent of Mr. I.B. Amit. Facts were stated to be identical with that of SAIPEM. In these cases also the employees of these concerns were provided with free accommodation and free board. It was claimed as exempt. The accommodation in question was merely a bunker in a steel container measuring only 7' x 7'. It was occupied only by the employee where he was on his 28 days stint of duty. After the completion of the duty the assessee used to go to his country. The accommodation was at the work site. The provision of this accommodation was said to be essential for executing the drilling work. De hors such accommodation, it was not possible to work continuously. The assessee was maintaining his residential accommodation in his country.
3. The assessee was engaged on a single status as Assistant Driller located onshore India. The point of origin was Italy. The assessee was required to work on shift for 56 continuous days followed by 28 continuous days of rest at home. The company was under obligation to provide return ticket to Italy after 56 days of work. The assessee was under obligation to make himself available on call at all times during his stay at the work site. As per clause VI of the agreement dated 19-12-1984 with SAIPEM spa., the company was to provide to the assessee at the rig site, accommodation in a steel bunker which was to be shared by two people. Besides, company was required to provide three meals per day which was to be served in the mess. During the working period the assessee was not permitted to avail public holidays.
4. The employer of the assessec-company M/s. Saipem India Project undertook drilling contracts from ONGC. The drilling operations were carried out in a remote village near Tatipaka in Rajouli Talluka in East Godavari Distt. As per the terms of employment the assessee was engaged on single status basis to work onshore India. The salary received by the assessee was offered for taxation in India. The Assessing Officer assessed the perquisite value in respect of the free accommodation and free food. The Revenue took the view that the accommodation provided even in steel bunker amounts to perquisite to the employee. As such, the value of the same was exigible to tax within the ken of section 17(2) of the Act. Similarly, the value in respect of free meals provided to the assessee was held to be perquisite.
5. The Hyderabad Bench of the Tribunal in the case of some employees of Saipem India vide order dated 30-12-1998 in ITA Nos. 408 to 418 (Hyd.) of 1987 decided the issue in favour of the Revenue following the decision of the Hon'ble High Court in the case of Zdzizlaw Skakuzv. CIT [1986] 158 ITR 420 (AP).
6. In the case of Earl. W. Tallent v. Second ITO [1987] 20 ITD 512 (Bom.) the issue was decided in favour of the assessee. In the case of CIT v. D.S. Blackwood [l989] 178 ITR 470' (Cal.) it was held that the accommodation provided necessarily for the discharge of official duty cannot be construed to be perquisite. Since there was inherent contradiction as to the point in issue, to resolve the controversy, this Bench was constituted.
7. Shri Ajay Vohra, the learned counsel for the assessee appeared before us. Our attention was invited on the employment contract. It was stated that the agreements were almost on identical lines. Reading & Bates Exploration Co.'s second agreement was slightly on different lines. In this case meals were provided, de hors the employment contract. In other contracts meals were provided as per the stipulation in the agreement. The learned counsel submitted that the accommodation was provided at the rig site. It was not residential accommodation. For executing the work it was, sine qua non, to provide the accommodation. It was impossible to work without such accommodation. The assessee was maintaining accommodation in Italy. The food and refreshment was provided at the work place. As such, it cannot be construed to be perquisite.
8. The learned counsel argued that before any taxable perquisite can be said to accrue to the employee, it is essential that following conditions be satisfied :--
(i) There should be residential accommodation provided by the employer to the employee;
(ii) There should be benefit or gain arising to the employee;
(iii) The benefit or gain should arrive by way of remuneration for services rendered; and
(iv) The benefit or gain should be capable of being assigned the monetary value.
Taking us to the facts of the present case, it was submitted that none of the aforesaid conditions did exist in the present case. The accommodation in question was not at all residential accommodation. Our attention was invited on the decision of the Tribunal rendered in the case of Earl Tallent.
9. Further it was argued that a perquisite should essentially contain an element of personal advantage to the employee. Perquisite, has known normal meaning, namely, a personal advantage. Reliance was placed on the decision of Wilkins (Inspector of Taxes) v. Rogerson [1963] 49 ITR 395 (CA), wherein it was held that perquisite is to be valued on the basis of its value to the employee and not on the basis of its cost to the employer. Reliance was also placed on the decision of the House of Lords rendered in the case of Owen v. Pook (Inspector of Taxes [1969] 74 ITR 147. It was submitted that technicians were necessarily required to stay at the site due to the peculiar nature of their duties. The provision of lodging and boarding at site, therefore, did not result in any personal advantage which could be taxed as a perquisite. The assessee stayed under difficult conditions. He was not accustomed to such surroundings. He was away from his home which resulted personal discomfort and hardship. Therefore, though the assessee stayed at site, there was no gain or advantage accrued to him. The assessee resided in a temporary structure, which had no rental value. Reference was made to the circular issued by the CBDT bearing No. 5 dated 6th Sept., 1950 wherein it was stated that shed accommodation provided at no rental value cannot be construed to be a taxable perquisite.
10. The learned counsel also placed his reliance on CBDT Circular bearing No. 33 (LXXVI)--5 dated August 1, 1955 wherein it was laid down that refreshments and subsidized meals during office hours in office premises cannot be included in taxable perquisites. It was contended that at the first instance there was no element of gain or advantage to the assessee. Even assuming that there was gain or advantage, it was not arising out of the remuneration for services rendered. The stay by the assessee, at the site was necessitated by the nature of his duties and the place of execution of the contract. The decision of the Hon'ble Calcutta High Court rendered in the case of D.S. Blackwood was relied upon. In this case the assessee, an employee of a foreign company was deputed to supervise certain erection work in India. He was provided with rent free accommodation during his stay in India. The Revenue took it as a perquisite. The Tribunal found that the rent free accommodation was provided by the foreign company to the assessee necessarily for the discharge of his official duties for which he was sent to India. The assessee was not occupying the rent free accommodation by virtue of his posting as the employee of the foreign company. Therefore, Hon'ble High Court held that the expenditure incurred in providing the rent free accommodation was wholly and exclusively incurred for the purpose of performing the official duties. As such it was not treated as a perquisite. The learned counsel submitted that in the present case also the accommodation was provided wholly and exclusively for the purpose of performing the official duties. As such, it cannot be construed as a perquisite.
11. Next it was argued that in the given circumstances the provisions of boarding and lodging did not bear any monetary value. In the eventuality of not accepting food, there was no provision for recompense. Reference was made to the decision of the House of Lords in the case of Abbot v. Philbin (Inspector of Taxes) [1962] 44 ITR 144. In this case it was held that the benefit is exigible to tax only if it lends to a definite monetary value. The learned counsel submitted that the accommodation had no commercial value whatsoever. As such, there is no question of its being a perquisite. Shri Vohra also relied on the decision of the Tribunal rendered in the case of Reading & Bates Exploration Co. on behalf of Webber v. Asstt CIT [IT Appeal Nos. 4228 (Delhi) of 1993 and 3595 (Delhi) of 1993]. In both the cases the Tribunal allowed the claim of the assessee on identical facts. Reliance was placed on the decision of the Delhi Bench rendered in the case of Hyundai Heavy Industries Co. Ltd v. ITO [1994] 51 ITD 34. In this case the Tribunal held that provision of food to assessees in the course of performance of their official duties while working on a rig cannot said to be perquisite within the meaning of section 17(2) of the Act.
12. In order to construe the meaning of the word "perquisite" the learned counsel relied on the decision of House of Lords rendered in the case of Owen (supra). In this case perquisite was held to be personal advantage. It was contended that the employees did not derive any personal advantage. As such, the accommodation and food provided at the rig cannot be termed as perquisite. The learned counsel also relied on the decision of the Apex Court rendered in the case of CIT v. Goslino Mario [2000] 241 ITR 312. In this case it was held that the amount of salaries and allowances paid by FCI to T of Italy for the services rendered by the assessee, a foreign technician deputed to the FCI by the Indian concern in terms of agreement between FCI and the Italian concern, was not assessable in the hands of foreign technicians. It was further contended that the employees had no vested right in regard to the accommodation and food. This was provided because of the exigency of the situation. Reference was made to the decision of the Apex Court rendered in the case of CIT v. L.W. Russel [1964] 53 ITR 91. It was further stated that the employer did not provide transportation for visiting the shore during the period of work. As such it was impossible on the part of the assessee to lake food from anywhere else. Nature of duties required that some place be provided to the employees for taking rest. As such, accommodation in bunker was provided and food was provided at the working place for the smooth running of the drilling work.
13. Shri S.K. Rai, the learned Departmental Representative appeared. It was vehemently argued that the assessee derived advantage. The value of food and accommodation can be determined in terms of money. The advantage derived by the assessee in most of the cases emanated out of the contractual obligation. As such the assessee did have vested right. The learned Departmental Representative heavily relied on the decision of the Hyderabad Bench of the Tribunal rendered in the case of Saipem India Project Office on behalf of Manfredo, France etc. being ITA No. 408 (Hyd.) of 1987. Further the learned Departmental Representative relied on the decision of the Hon'ble Andhra Pradesh High Court rendered in the case of Zdzizlaw Skakuz (supra). In this case, one Z was an employee of a Polish firm which had entered into an agreement with an Indian company. Under the terms of the agreement Z worked in India. He received salary, outstation allowance and hotel charges from the Polish firm and the Indian company agreed to pay Income-tax, due and payable, on the income earned in India. The salary received by the assessee during his stay in India was liable to be taxed under the Income-tax Act. The Assessing Officer treated the outstation allowance, hotel charges receipt from the Polish firm and the taxes paid by the Indian company also as income of the assessee. Subsequently, the Assessing Officer amended the original assessment in exercise of his jurisdiction under section 154 of the Act and brought to tax the perquisites after grossing them up. The Tribunal held that the tax perquisites received by the assessee from the Indian company could be assessed as "Income from other sources". The Tribunal also held that the outstation allowance and the hotel charges received by the assessee in India from the Polish firm were not exempted from being brought to lax under section 10(14) of the Act. The Tribunal upheld the order of rectification. On a reference the Hon'ble High Court has held that the payments by the Indian company were regular payments and provided for at the inception of contracts to be so paid. The amount which the assessee received towards payment of taxes due and payable by him was income from other sources falling under section 56 of the Act. Further it was held that the outstation allowance and hotel charges were merely allowance granted to the assessee to meet his personal expenses at the place where the duties of his office were originally performed by him. They were not exempt under section 10(14) of the Act. Grossing up was also upheld. The payments were found to be part of a scheme of contract.
14. Commenting on the applicability of circular issued by the CBDT the learned Departmental Representative submitted that circular No. 5 of the 1950 was in the context of military personnel of active service. As such the assessee cannot take advantage of the same. It was further stated that the Saipem India Project was located in the State of Andhra Pradesh. As such, the decision of the A.P. High Court in the case of Zdzizlaw Skakuz (supra) is binding on the assessee. The issue is to be decided in the light of that decision only.
15. We have heard the rival submissions in the light of the material placed before us and precedents relied upon. "Perquisite" includes the value of any benefit or "amenity" granted or provided free of cost or at concessional rate by an employer to an employee. The definition of the term "perquisite" given under section 17(2) of the Act is not exhaustive. It is enumerative. The word "perquisite" is defined in Webster's New International Dictionary, inter alia, as "a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised". In Murray's English Dictionary it is defined as "any casual emolument" fee or profit attached to an office or position in addition to salary and wages". Similarly, the expression "perquisite" is defined in the Oxford Dictionary as "casual emolument, fee or profit attached to an office or position in addition to salary or wages". "Perquisite" has a known normal meaning, namely, a personal advantage. The word would not apply to a mere reimbursement of a necessary disbursement. This view was taken by the House of Lords in the case of Owen (supra). In this case the assessee was a general medical practitioner in Fishguard. He also held two part-time appointments, at a hospital in I Haverford West, 15 miles from Fishguard. Under those appointments the assessee was on stand-by duty at certain specified times, to deal with emergency cases at the hospital and at such times he was required to be available on telephone. On receipt of a telephone call from the hospital the assessee gave instructions to the hospital staff and then either advised and awaited further report or set out immediately for the hospital. The responsibility for a patient began as soon as he received the telephone call. But not every such call resulted in his going to the hospital. Under the terms of his appointment, the hospital management committee paid to the assessee expenses at a fixed rate per mile for journeys between Fishguard and the hospital upto single journey of 10 miles. He sought to deduct the whole cost of travelling incurred. The Assessing Officer disallowed the same. It was held that expenses were not incurred "ex necessitate". Since the assessee was living 15 miles away from the hospital, he had to incur that expenditure. On appeal, Lord Wilberfore held that the travelling allowance paid by the hospital was reimbursement of actual expenditure. Lord Pearce equated the perquisite with a personal advantage which would not apply to a mere reimbursement of necessary disbursement. The assessee had shown that he performed the duties of his office in two places, namely, the hospital and the place where he received the telephone call. Therefore, the expenses incurred on travelling were in performance of his duties.
16. It is of utmost importance to see with exactitude the nature of benefit given. A particular nomenclature given to a payment is not by itself conclusive. What for the amount was paid ? Whether it was gained beyond the regular salary. Whether it amounts to benefit or amenity to the assessee. It is to be seen that whether the benefit provided to the assessee is facility or necessity for the execution of duties. Whether it is advantage in the true sense of meaning. Circular No. 5 of 1950 was rendered in the context of military personnel on active service. It was represented before the CBDT that military personnel serving in forward operational areas and in isolated localities on the trencheries and other posts were provided with rent free accommodation consisting of dug out trenches, places in open field and under the trees etc. The Board found that the accommodation provided had no rental value. As such it was decided that no addition should be made for Income-tax purposes to the total income of the personnel concerned in respect of the value thereof. The assessee, in the present case, cannot be said to have vested right from his employee, qua the food and accommodation. In Black's Law Dictionary, "vested rights" are defined as such rights which have so completely and definitely accrued to or settled in a person that they are not subject to be defeated or cancelled by the act of any other private person. In the present case, we find that it was not a benefit as such, to the assessee. The accommodation and food were provided to the assessee, to meet the exigency of the situation. It was in the interest of the business of the employer. Drilling operation continued round the clock. Presence of the assessee on the site was a must. In the case of Re Ellis & Puiship Northwood UDC [1920] 1 KB 343 at p. 370 amenity was described to mean "pleasant circumstances or features, advantages." Indisputably the assessee was engaged with a very difficult work. He remained vigilant round the clock for smooth running of the drilling operation. Sitting at the rig amid the water all around cannot be described to be a pleasant circumstance. As such, in our opinion, it can neither be termed as benefit nor amenity. It can also not be termed as facility or advantage because it was, sine qua non, for the execution of his duties. It had no money value to the assessee. The facility was provided to the assessee for his survival. The assessee was not supposed to leave the site. He was not allowed to take away the food. Therefore, the value of this free food cannot be measured in terms of money.
17. We have considered the decision of the Hon'ble Andhra Pradesh High Court in Zdzizlaw Skakuz's case (supra). It was stated to be binding precedent by the learned Departmental Representative. We find that the facts of the said case are different from the facts of the present case. In the present case expenditure was incurred "ex necessitate". This aspect was not considered in the case of Zdzizlaw Skakuz's (supra). Besides each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation as said by Cordozo, by matching the colour of one case against the colour of another. We are reminded of the great philosopher Heraclitus who said :
"You never go down the same river twice."
What the great philosopher said about time and flux can relate to law as well. The Apex Court in the case of Mumbai Kamgar Sabha v. Abdul Bhai Faizullabhai AIR 1976 SC 1455 has said : "the principle that a ruling of a superior court is binding law is not of scriptural sanctity, but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame."
18. The word of a statute should be given a sensible meaning so as to make them effective. This principle of law is enunciated in the well known maxim :
"Ut res magis valeat quam pereat"
However, complicated or mind twisting a provision may be, the court will attempt to give it a meaning. Such a meaning shall be given to effectuate to the fullest extent the intention of the Legislature.
We have perused the prescription of section 17(2) of the Act. The expression "perquisite" is defined by an inclusive definition. When there is an inclusive definition the ordinary meaning of the word prevails. Benefits or amenities provided to the employee are treated as perquisites. The panoply of law to deal with the perquisites is erected on a set of regulations. Such regulations require that in order to be construed as perquisite there should be a residential accommodation for the benefit of the employee which should be capable of being assigned the monetary value. If the accommodation provided is ex necessitate to discharge the duty assigned, it cannot be termed as perquisite. In the present case we find that the accommodation at the rig site in the form of steel bunker on single status sharing basis was provided to the assessee ex necessitate, qua the nature of his duties and the place of execution of the contract. It was no rental value. Therefore, it cannot be termed as perquisite. Ex consequent, no addition is warranted on this count.
19. Coming to the value in respect of free meals, we find that it was provided at the place of work. In the eventuality of not accepting food, there was no provision for recompense. As such the benefit did not lead to a definite monetary value. Circular of the CBDT bearing No. 33 (LXXVI) dated 1st August, 1955 makes it clear that refreshment and subsidized meals during office hours in office premises cannot be included in taxable perquisites. In the present case also the assessee was engaged round the clock in the execution of drilling work. He was staying at the work place. The food was provided ex necessitate. Therefore, the value of free meals provided to the assessee at the rig site cannot be construed to be perquisite. As such, it is not exigible to lax.
20. In the result, the appeals of the assessec, stand allowed.