Rajasthan High Court - Jaipur
Commissioner Of Income-Tax vs Dr. K.L. Parekh on 28 October, 1993
Equivalent citations: 1994(3)WLC668
JUDGMENT V.K. Singhal, J.
1. The Income-tax Appellate Tribunal has referred the following questions of law arising out of its order dated December 19, 1981, in respect of the assessment years 1976-77 and 1977-78, under Section 256(1) of the Income-tax Act, 1961 :
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee is entitled to deduction of full amount of tax deducted at source in Iran under Section 91(1) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that deductions made on account of compulsory health scheme from the salary is not includible in the salary income and is not taxable ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that value of perquisite on account of rent-free accommodation accruing outside India is not includible in the total income of the assessee ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the order passed by Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 ?"
2. The brief facts of the case are that the assessee is a medical officer in the employment of the Government of Rajasthan and was sponsored by the Government for employment with the Government of Iran. The assessee remained in employment from July 20, 1975, to July 19, 1976, with Red Lion and Sun Society, Dezful, Iran and received salary of Rs. 94,872 and Rs. 60,403 in the assessment years 1976-77 and 1977-78, respectively. The assessee claimed deduction of Rs. 47,436 and Rs. 30,201 which was allowed under Section 80RRA. The assessee also claimed the credit for the amount of tax deducted at source in Iran of Rs. 13,078 and Rs. 8,283 which was also allowed by the Income-tax Officer. Besides this amount, the assessee also deducted a sum of Rs. 4,217 and Rs. 1,850 from his salary of Iran on account of the assessee's contribution towards the Health Success Scheme. These amounts were not included in the taxable income by the Income-tax Officer. The assessee was also having rent-free accommodation in Iran and while completing the assessment, the Income-tax Officer did not include the value of perquisite in the form of rent-free accommodation, which was provided to the assessee by his employer in Iran. The Commissioner of Income-tax found that the order passed by the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue, inasmuch as in accordance with the provisions of Section 91(1) of the Income-tax Act, the deduction to be given on account of tax deducted at source could be only 50 per cent. of the amount which was Rs. 6,539 and Rs. 4,141, respectively. The value of perquisites of the amount of deduction for Health Success Scheme was also liable to be included and, therefore, the power under Section 263 of the Act was exercised. The assessment order was set aside in accordance with the direction given in the order to be made de novo. The order passed by the Commissioner of Income-tax was challenged before the Income-tax Appellate Tribunal and the Tribunal came to the conclusion that, the rent-free accommodation provided to the assessee in Iran could not be considered to be a perquisite as the same is not included in the total income at all by virtue of the Section 5(1) of the Act. The Tribunal also held that the deduction made from the amount of salary towards the assessee's contribution to the Compulsory Health Scheme in the total income of the assessee is allowable. It was held that the order passed by the Income-tax Officer, was not erroneous and prejudicial to the interests of the Revenue and, therefore, the order passed by the Commissioner of Income-tax under Section 263 was cancelled.
3. Section 2(45) defines total income to mean the total amount of income referred to in Section 5 computed in the manner laid down in the Act. Section 5 of the Act is as under :
"5. Scope of total income.--(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or
(c) accrues or arises to him outside India during such year :
Provided that, in the case of a person not ordinarily resident in India within the meaning of Sub-section (6) of Section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year."
4. Under the scheme of the Income-tax Act a person could be resident, ordinarily resident but not ordinarily resident. In the case of a resident certain income has to be included in the total income by the deeming fiction which has been given in Section 5 of the Act. Section 80RRA provides for the deduction in respect of remuneration received for services rendered outside India which reads as under :
"(1) Where the gross total income of an individual who is a citizen of India includes any remuneration received by him in foreign currency from any employer (being a foreign employer or an Indian concern) for any service rendered by him outside India, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the individual, a deduction from such remuneration of an amount equal to,--
(i) fifty per cent. of the remuneration ; or
(ii) seventy-five per cent. of such remuneration as is brought into India by, or on behalf of, the assessee in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, whichever is higher :
Provided that where the individual renders continuous service outside India under or for such employer for a period exceeding thirty-six months, no deduction under this section shall be allowed in respect of the remuneration for such service relating to any period after the expiry of the thirty-six months aforesaid.
(2) The deduction under this section shall be allowed-
(i) in the case of an individual who is or was, immediately before undertaking such service, in the employment of the Central Government or any State Government, only if such service is sponsored by the Central Government ;
(ii) in the case of any other individual, only if he is a technician and the terms and conditions of his service outside India are approved in this behalf by the Central Government or the prescribed authority."
5. Section 91(1) provides that if any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), has paid in any country with which there is no agreement under Section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income so included at the Indian rate of tax or the rate of tax of the said country, whichever is lower, or at the Indian rate of tax if both the rates are equal.
6. This court in CIT v. Dr. R.N. Jhanji [1990] 185 ITR 586, has held that the assessee is not entitled to relief under Section 91(1) of the full amount of tax on the total foreign income. The assessee is entitled to the relief under Section 91(1) only of the amount of tax paid on 50 per cent. of the total foreign income. The said decision given by this court is a reasoned decision taking into consideration all the provisions of the Act and the various authorities which have been cited and, therefore, in respect of an assessee who is resident and has received income from foreign countries (where there is no agreement to avoid double taxation) then in accordance with the provisions of Section 91(1) of the Income-tax Act read with Section 80RRA, 50 per cent. of the remuneration is liable as deduction and, therefore, the full amount of tax paid on such amount is not to be allowed as deduction and it is only that 50 per cent. of the income which is deemed to arise in India on which the tax has been paid could be deducted in accordance with the Section 91(1) of the Act. Question No. 1 is, therefore, decided in favour of the Revenue and against the assessee.
7. For the purpose of deductions made from salary on account of Compulsory Health Scheme and perquisite on account of rent-free accommodation it is to be seen that deduction could be allowed if there is any provision under Section 16 of the Act for such deduction or the said amount could not be included in the salary as perquisite or profit in lieu of salary in accordance with the provisions of Section 17 of the Act.
8. Section 10(14) also confers the power on the Central Government and if any amount is notified in the Official Gazette then the deduction to that extent can also be claimed. In accordance with the provisions of Section 17 "perquisite" specifically includes the value of rent-free accommodation provided to the assessee by his employer and there is no notification or provision by which the deduction by way of compulsory health scheme could be allowed as deduction. Section 15 provides as to what shall be chargeable to tax under the head "Salaries". Section 2(24) defines income which includes perquisite and Section 17(2) explains that the perquisite income shall include the accommodation provided to the assessee by his employer and, therefore, such perquisite is an income. Various heads of income have been given under Section 14 and Clause A of the said section refers to salaries. No provision of law has been brought to our notice by which the deduction by any employer from the salary of the employee in respect of Compulsory Health Scheme is to be excluded in computing the income from salary. Similarly, the rent-free accommodation provided by the employer has to be included in the category of perquisite and is an income as defined under Section 2(24). Section 4 has created the charge on income and, therefore, ignoring these provisions and not assessing in accordance with law was prejudicial to the interests of the Revenue.
9. The Income-tax Commissioner, therefore, was justified in exercising the power under Section 263 of the Act. The Income-tax Appellate Tribunal has erred and, therefore, questions Nos. 2, 3 and 4 are decided in favour of the Revenue and against the assessee. Accordingly, the reference is allowed. No orders as to costs.