Law: Income Tax Act, 1922

Section: 4(3)(xiii),proviso(ii)

Income Tax Act, 1922 (XI of 1922)-Section 4(3)(xiii), proviso (ii)- Exemption-Foreign technician-Pakistani company entering into contract of service with foreign technician for any of the purposes stipulated in clause (xiii)-Service contract whether can be approved and exemption allowed for a maximum period of 3 years if it is within five years of "setting up or commencement of the undertaking"-Held yes-Five years period whether starts from the date when erection of building and installation of plant and machinery is complete so as to permit commencement of production of required goods-Held yes Clause (xiii) as analysed in para 9 above shows that the exemption can be allowed to a technician for a period not exceeding three years whether the technician was employed before or after the commencement of production. According to clause (ii) to the proviso the period of three years must fall not beyond the expiration of period of five years from the date of setting up or commencement of the undertaking. So the starting date of the exemption may be a date either before or after the commencement of the commercial production. It would depend upon the purpose for which the services of the technician had been hired. That clause further makes it clear that the employment must be tor one of the purposes given therein and there is no dispute about the purpose of employment either. Thus the employment has a connection with one of the above purposes and the date of incorporation figures nowhere. Thus it is proved that the service agreement was referable to any of the above purposes, it could be approved and exemption allowed for a maximum period of three years if it lay within five years of setting up or commencement of the undertaking. The departmental view and that of the other Courts referred to above appears to be the same. It is that the "setting up and commencement of the undertaking" means that state of the particular project of an assessee which brings it to a state of production of the goods for which it had been contemplated. The five years period, therefore, starts from the date when the erection of building and installation of the plant and machinery is complete so…

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