Law:

Section:

section 17(2)(iv) of the income-tax act, 1961-perquisite-remuneration was paid by indian company to technician deputed by foreign company under an agreement without deduction of tax at source-tax was payable by indian company-whether remuneration was to be grossed up on tax-on-tax basis treating it as perquisite-held, on facts, no Facts For setting up an ammonia plant under its Durgapur Fertilizer Project, Fertilizer Corporation of India entered into an agreement with an Italian firm Ansaldo SPA, inter alia, for supply of machinery and equipments and to send its technical personnel. For rendering services, under the agreement, the Corporation was to pay remuneration to the technical personnel free of any tax in India. In case of levy of any tax, the Corporation agreed to pay the same. Pursuant to the agreement, Ansaldo sent the assessee, an Italian technician to work on the project. His engagement was approved by the Government of India under section 10(5)(vii). For the assessment year 1971-72, the ITO added a sum of Rs. 27,17,496, to the total income of the assessee, being the amount of tax agreed to be borne by the Corporation, as a perquisite under section 17(2)(iv) The AAC upheld the addition on the ground that salary includes perquisite due, whether paid or not. The Tribunal also sustained the addition holding that the grossing up of the salary on tax-on-tax basis was justified. On reference : Held There could be no grossing up of income on tax-on-tax basis and the sum of Rs. 27,17,496 could not be treated as perquisite, taxable in the hands of the assessee, for the reasons stated below : 1.The agreement was not an agreement between the Corporation and its employee but was only between the Corporation and Ansaldo and there was no relationship of employer and employee between the Corporation and the assessee. 2. Under the agreement, the corporation was bound to pay to Ansaldo the tax payable by the assessee and there was no finding that the remuneration was inclusive of tax payable by the employer. 3.For the purpose of section 17(2)(iv ), perquisite must have been paid before it could be treated as part of salary, and since the liability to pay tax by the…

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