Aditya V. Birla v. The Central Board Of Direct Taxes And Others

1. The petition involves the interpretation of Section 80 RRA of the Income Tax Act, 1961. It reads thus:

“80 RRA. (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 fifty per cent thereof: 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 lie 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.

Explanation: For the purposes of this section—

(a) “foreign currency” shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973 (46 of 1973)

(b) “foreign employer” means,

(i) the Government of a foreign State; or

(ii) a foreign enterprise; or

(iii) any association or body established outside India;

(c) “technician” means a person having specialised knowledge and experience in—

(i) constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power; or

(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building: or

(iii) public administration or industrial or business management; or

(iv) accountancy; or

(v) any field of natural or applied science (including medical science) or social science; or

(vi) any other field which the Board may prescribe in this behalf, who is employed in a capacity in which such specialised knowledge and experience are actually utilised.”

2. The petitioner entered into an agreement on 5th May 1978 with the Thai Rayon corporation Ltd., Thailand. It was engaged in the business of manufacturing and celling staple fibre at Bangkok in Thailand. The agreement recited that the petitioner, referred to as the Technician in the agreement, had several years experience in the business of manufacturing and selling staple fibre, that the Thai company, referred to in the agreement as the Employer, had approached him to make available to it his, services on terms and conditions which the agreement recorded. The terms and conditions, inter alia, were that the Thai company would pay to the petitioner a remuneration of U.S dollars 12,000 per annum in quarterly instalments and it would we receivable in Bangkok. The agreement was for a period of three years with liberty to other party to terminate it after six months' notice. It was subject to the approval of the Governments of Thailand and India and other authorities, if necessary. The petitioner applied to the Central Government for approval of his employment with the Thai Company under the agreement for the purposes of securing the benefit conferred by Section 80RRA. On 8th June 1979 the petitioner was informed by the Government of India that it was unable to “approve your employment with Thai Rayon Co. Ltd., Bangkok, Thailand as per the terms and conditions contained in the agreement dated 5-5-1978, for the purpose of Section 80RRA of the income-tax Act, 1961, owing to the following reasons:— (i) Section 80RRA of the income-tax Act, 1961 contemplated rendering of service outside India in the status of an employee. It is seen that your status under the foreign employer Thai Rayon Co. Ltd., Bangkok, is that of a consultant and not of an employee (ii) Section 80RRA contemplates receipt of remuneration from an employer, whereas in your case the mount was not received by you as remuneration from an employer”. Thereafter a hearing was afforded to the petitioner but the Government, by its letter dated 17th February 1981, stated that the benefit under Section 80RRA could not be given to the petitioner for the reasons stated in the letter dated 8th June 1979.

3. This petition seeks to quash and set aside the order dated 8th June 1979 and direct the Government to pass orders approving the agreement under the provisions of Section 80RRA.

4. Mr. S.P Mehta, learned counsel for the petitioner, submitted that the Income tax Act used the phrases “remuneration received by him as an employee of ….” in Section 1O(6)(via), “remuneration due to or received by him chargeable under the he “Salaries” for services rendered as a technician” in Section 10(6)(vii), “any income chargeable under the head “Salaries” received by or due to him” in Section 10(6)(ix) and “remuneration received by him as an employee” in Section 10(6)(xi). He drew attention to the fact that Section 80RRA did not use any of these phrases. He submitted that Section 80RRA covered a consultant who received remuneration for services rendered outside India.

5. Mr. Parekh, learned counsel for the Union of India, submitted that unless the individual was an employee he was not entitled to the benefit of the provisions of Section 80RRA. In support of his submission he relied on the fact that the benefit thereunder was restricted to an individual. He referred also to sub-clause (2)(i) which mentions in individual in the employment of the Central or any State Government. He placed emphasis upon the Notes on Clauses and the Memo explaining the provision of Finance (No. 2) Bill, 1977, by which the section as it now reads was, introduced (These are to be found in 107 I.T.R at P. 157 and 185).

6. Section 80RRA talks of “any remuneration….for any service” rendered outside India. While it uses the word ‘employer’ it does not use the words ‘employee’ or ‘salary A party that retains a consultant can properly be described as his employer. The word “any remuneration” are wide enough to cover the fees payable to a consultant (provided, of course, he is a technician as defined by the section) and the words “any service” are wide enough to cover consultancy services. That the benefit under Section 80RRA is given only to an individual does not detract from this interpretation. There in nothing in the section which restricts its benefit only to an individual who rendered service as or in the status of an employee and receives a salary as remuneration.

7. The section being clear and unambiguous, it is not permissible to use external aids for its interpretation. In any event, I find nothing in the Notes on Clauses and the explanatory memo to support the restrictive interpretation.

8. The only ground upon which the Government refused approval was that Section 80RRA contemplated the rendering of service outside India in the status of a employee. This interpretation of the section being incorrect, and there being no other ground for refusal of approval, the Government must be directed to accord to the petitioner approval for his agreement dated 5th May 1978 with the Thai Co. under Section 80RRA.

9. Taking, as I do, this view, it is not necessary to go into the alternate argument that the petitioner is an employee of the Thai company on a proper construction of the agreement between them.

10. The petition is made absolute in terms of prayers (a) and (b). No order as to costs.

11. Rule accordingly.

Rule made absolute.