Citation Codes

Equivalent Citations

citation codes

Case Number

IT Appeal No. 966 (Delhi) of 2004

Advocates

Pawan KumarAditya Gupta

Judges

Rajendra SinghN.K. Karhail

Acts

provisions of section 10(6)(vii)( a) [now section 10(5B)]
SECTION 200 COMPANIES ACT 1956
INCOME TAX ACT 1961
section 10(5B) of the Income-tax Act."2.
section 10(5B) of the Income-tax Act
INCOME TAX ACT
Finance Act, 1964

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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

This is an appeal by the assessee against the order dated 21-11-2003 passed by the Commissioner of Income Tax (Appeals), New Delhi, for the assessment year 2002-03. The core dispute concerns denial of an exemption claimed by the assessee under section 10(5B) of the Income-tax Act, 1961. The Assessing Officer, upon perusal of the return, noted that the assessee (a US national and employee of a US company deputed to IDEA Cellular Ltd., formerly Birla Tata AT & T Ltd., Pune) received salary from the Indian employer, and the employer was to bear the Indian tax liability. The assessee claimed the employer-borne tax should be exempt under section 10(5B) as he was a "technician" and a non-resident. The Assessing Officer disallowed the exemption (the order records a reference to section 10B at one place), and the CIT(A) confirmed that disallowance on the basis that the assessee's specialization in telecommunications did not fall within the specific field ("Information technology including computer architecture systems, platforms and associated technology, software development process and tools") specified by Notification No. S.O. 569(E), dated 27-7-1993. The Tribunal heard the appeal, reviewed the record and relevant authorities, and has rendered the order summarized here.

Legal Issues Presented

Whether the assessee qualifies as a "technician" within the meaning of section 10(5B) of the Income-tax Act, 1961, so that employer-borne tax on his salary is exempt from being treated as a taxable perquisite.
Whether the field of telecommunications (specifically work in setting up and commissioning cellular networks) falls within the phrase "Information technology including computer architecture systems, platforms and associated technology, software development process and tools" as specified by Notification No. S.O. 569(E), dated 27-7-1993, issued under clause (iii) of the Explanation to section 10(5B).
Whether the condition regarding the assessee's residential status (that he was not resident in India in any of the four financial years immediately preceding the year of arrival) has been satisfied, and if not, whether that condition should be examined by the Assessing Officer before allowing exemption under section 10(5B).

Arguments of the Parties

Appellant's (Assessee's) Arguments

The assessee claimed status under section 10(5B): he was a technician deputed to India and his Indian tax liability was borne by his Indian employer, therefore employer-borne tax should not be treated as a taxable perquisite in his hands.
The assessee relied on his curriculum vitae, degree and an employer certificate evidencing his technical experience and his role in commissioning cellular networks (IDEA), arguing that his specialized technical knowledge and long experience qualified him as a "technician" even in the absence of particular formal certificates.
The assessee relied on advance rulings (including V.R. Heffern and Amir Zai Sangin) and other AAR decisions to support the proposition that telecommunications work (including cellular networks) falls within the ambit of "information technology" for the purposes of the notification under section 10(5B).

Respondent's (Revenue / CIT(A)'s) Arguments

The Assessing Officer disallowed the exemption claimed by the assessee (the order records the disallowance was under "section 10B" at one point), and the CIT(A) confirmed that action.
The CIT(A) accepted that formal technical qualifications need not always be insisted upon, but held that the exemption claimed must be covered specifically by the fields enumerated in Notification No. S.O. 569(E) dated 27-7-1993. The CIT(A) took the view that the assessee's specialization in telecommunications is distinct from "information technology" as specified in the notification and therefore the exemption could not be granted.
The CIT(A) expressed the opinion that telecommunications and information technology are fundamentally different branches of technology with no overlap sufficient to bring cellular/telecommunication work within the notified field.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Vance Robert Heffern v. CIT [2000] 241 ITR 299 (AAR)	Held that inability to produce formal educational certificates does not necessarily destroy a claim to be a "technician"; a telecom manager with specialized knowledge and long experience deputed to India can be regarded as a technician entitled to exemption under section 10(5B).	The Tribunal treated this AAR as persuasive authority supporting the proposition that telecommunications specialists may qualify as "technicians" and that lack of formal certificates is not fatal; this influenced the Tribunal's conclusion that CIT(A)'s denial was not legally justified.
David Kenneth White v. CIT [1998] 231 ITR 464 (AAR)	Held that a foreign technician with expertise in designing, setting up and operating cellular telecommunication networks would be entitled to exemption under section 10(5B).	The Tribunal cited this AAR as supporting the view that cellular network work is covered by the notified field ("information technology") and used it as persuasive authority in setting aside the CIT(A)'s order.
Shane G. Montgomery (AAR No. 283 of 1996)	Held that when educational certificates are not available, if it can be established that specialized technical knowledge and past experience were actually utilized in India, the applicant may be entitled to exemption under section 10(5B).	The Tribunal referenced this AAR to support the proposition that practical utilization of specialized knowledge and experience in India is a key factor in determining entitlement under section 10(5B).
P. No. 25 of 1996 [1999] 237 ITR 827 (AAR)	Held that lack of formal technical education is not a disqualification for treating an applicant as a "technician"; special knowledge may be obtained either by education or by special experience.	The Tribunal relied on this AAR to conclude that formal qualifications are not strictly necessary to qualify as a technician; thus, the assessee's practical experience and role in India warranted consideration.
Amir Zai Sangin [1999] 238 ITR 189 (AAR)	Expressed the view that telecommunications is covered under the field of "Information Technology" for the purposes of the notification under section 10(5B).	The Tribunal noted this AAR (and similar AAR observations) as persuasive authority that supports including cellular/telecommunications activity within the notified field of information technology.

Court's Reasoning and Analysis

The Tribunal's reasoning proceeded in the following steps, based strictly on the material and authorities referenced in the opinion:

Fact-finding: The Tribunal noted the assessee's factual profile — a US national with long technical experience in telecommunications, deputed to IDEA Cellular Ltd. to assist in setting up and commissioning cellular networks across several Indian states. The employer agreed to bear the Indian tax liability on his employment income.
Statutory framework: The Tribunal set out section 10(5B) of the Income-tax Act, 1961, including the Explanation which defines "technician" and clause (iii) authorizing the Central Government to notify "such other field" in which specialists may be covered. The Tribunal also recorded Notification No. S.O. 569(E) dated 27-7-1993 listing, inter alia, "Information technology including computer architecture systems, platforms and associated technology, software development process and tools."
Examination of CIT(A)'s approach: The Tribunal summarized the CIT(A)'s conclusion that telecommunications is a distinct branch and not included within the notified field of "information technology." The CIT(A) accepted that formal qualifications need not be insisted upon, but insisted on strict coverage by the notification.
Interpretation of "Information Technology": The Tribunal examined dictionary definitions (Oxford and Longman's) quoted in the order which expressly link computers and telecommunications as part of "information technology," and noted that cellular networks function as systems for dissemination of information and are essentially a computer network.
Consideration of advance rulings: The Tribunal reviewed relevant AAR decisions (V.R. Heffern, David Kenneth White, Amir Zai Sangin, Shane G. Montgomery, P. No. 25 of 1996) which had held either that telecommunications specialists could qualify as "technicians" or that cellular networks are covered by the notified phrase "information technology." The Tribunal acknowledged that AAR rulings are binding only on the applicant and the concerned Commissioner under section 245S, but emphasized their persuasive value.
Assessment of CIT(A)'s conclusion: The Tribunal concluded that the CIT(A)'s finding — that telecommunications is not covered by the notification — was not legally justified and appeared to be based on the CIT(A)'s personal perception rather than on legal precedent or authoritative interpretation.
Remedial direction: Because the authorities below had not examined the residential status condition under section 10(5B) ("not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India"), the Tribunal set aside the impugned order for the limited purpose of directing the Assessing Officer to examine that condition after affording the assessee a reasonable opportunity of being heard. If the assessee is found to satisfy that condition, the Assessing Officer was directed to allow the exemption under section 10(5B).

Holding and Implications

APPEAL ALLOWED FOR STATISTICAL PURPOSE

Direct effect on the parties:

The Tribunal set aside the CIT(A)'s order insofar as it denied the exemption under section 10(5B) on the ground that telecommunications is not covered by the notified field.
The matter is remanded to the Assessing Officer solely to examine and decide the residential status condition (whether the assessee was not resident in India in any of the four financial years immediately preceding his arrival) after giving the assessee a reasonable opportunity of being heard.
If the Assessing Officer finds that the residential condition is satisfied, he is directed to allow the exemption claimed under section 10(5B) (i.e., not to treat employer-borne tax as a taxable perquisite in the assessee's hands) for the permitted period under the statute.

Broader implications and precedent:

The Tribunal relied on and treated AAR decisions as persuasive for interpreting the notified phrase "information technology" to include cellular/telecommunications network work. The order does not purport to lay down a binding precedent beyond the immediate parties; it recognizes the persuasive value of AAR rulings but also notes their limited statutory binding effect (section 245S). The Tribunal explicitly found that the CIT(A)'s contrary conclusion lacked legal support.

Note: This summary is prepared exclusively from the content of the provided opinion. No information beyond the opinion text has been added or inferred.

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Anthony Phillip Witek v. Deputy Commissioner of Income-tax, Circle 46(1), New Delhi

ORDER

Per N.K. Karhail, Judicial Member. - This appeal of the assessee is directed against the order dated 21-11-2003 passed by the CIT(A), New Delhi for the assessment year 2002-03. In substance, all the grounds of appeal relate to the order confirming the action of the Assessing Officer in not allowing exemption claimed by the assessee under section 10(5B) of the Income-tax Act, 1961. Briefly stated facts are that on perusal of the return of income filed by the assessee, the Assessing Officer noticed that the assessee was an employee of M/s. Birla Tata AT & T Ltd. and had received salary from the said concern. In the return of income the assessee had claimed status under section 10(5B) of the Act and accordingly tax borne by the employer for the assessee had not been grossed up and added to the income of the assessee as tax perquisites. According to the assessee he is a technician and was not a resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax is borne by the employer and, therefore, the assessee is covered under the provisions of section 10(5B) of the Act. However, the Assessing Officer disallowed the exemption claimed by the assessee under section 10B of the Act. On appeal, the CIT(A) has confirmed the action of the Assessing Officer by observing as under:—

"6. I have considered the matter carefully. I have no objection to entertain additional evidence as submitted on behalf of the appellant. On a closer look of the provisions of section 10(5B) read with the Notification No. S.O. 569(E), dated 27-7-1993 issued by the Government under clause (iii) of section 10(5B) the following field of technical specialization is covered thereunder:—

'Information technology including computer architecture systems, platforms and associated technology, software development process and tools.'

7. Admittedly, the claim of exemption has been made by the appellant under this specific particular provision of law. As the appellant had relied upon the advance ruling given in the case of V.R. Heffern v. CIT wherein it was held that the fact that the applicant has not been able to produce certificate in support of his educational qualification will not be destructive of his case.

Further, even if it is found that he does not have any technical education he cannot be held disentitled for being regarded as a 'technician' within the meaning of section 10(5B). In the case of Shane G. Montgomery (AAR No. 283 of 1996) where the educational certificates were not available this authority has held that, if it an be established that the specialized technical knowledge and past experience of the applicant were actually utilized in India, the appellant would be the benefit of exemption contemplated under section 10(5B). In P. No. 25 of 1996 [1999] 237 ITR 827 (AAR) , where the applicant did not receive any technical education from any recognized body, this authority has taken the view that lack of formal education cannot be regarded as a disqualification for treating the applicant as a 'technician' as it is of the considered view that special knowledge may be obtained either by education or by special experience. I have gone through the curriculum vitae and I am considerably impressed the appellant has commissioned the entire cellular network of 'IDEA' and it may not be necessary, in view of the aforesaid rulings to insist on a formal technical qualification certificate by the Assessing Officer. All the same the exemption claimed by the appellant should be covered specifically by the notification mentioned above. I am in clear disagreement with the appellant in that he has specialized in telecommunication technology which he has utilized during his service in India to promote the cellular technology under the brand name "IDEA". But this field of technology is not covered by the field of "Information technology including computer architect systems, platforms and associated technology, software development process and tools" finding mention in the notification. The two branches of technology are entirely different inasmuch as the branches are clearly demarcated right at the stage when a student enters training in any under-graduate engineering college. Telecommunications is a distinct branch of engineering and at the most is allied with electronics engineering. So is information technology which is a distinct branch in itself. There is no overlap. A bare perusal of the relevant clause of the notification would reveal that there is not even an indirect mention of the cellular technology or networking technology for that matter. If at all there is some connection between the two it is just that a computer and related software may be used in the same manner in which it is used in other technical fields or even in offices, factories or in research assignments for that matter. Thus when the appellant has not at all rendered services in the field notified specifically for exemption under section 10(5B), the exemption claimed cannot be granted to him notwithstanding any amount of evidence he may adduce in support of his status firstly, as a "non-resident" or a "not ordinary resident" and then with regard to his claim as a technician. The ld. AR brought to my notice the advance rulings in the case of Amir Zai Sangin [1999] 238 ITR 189 and V.R. Heffern v. CIT [2000] 241 ITR 299 wherein it has been opined that telecommunications is covered under the field of Information Technology and that therefore by the notification issued under section 10(5B). A perusal of the rulings, however, does not, however, satisfy the basic questions of the two fields being fundamentally different and that at the most information technology may find use in telecommunications and that is all. It is common knowledge that telecommunication engineering is the in thing today but information technology does not enjoy the same status. In fact, telecommunications had its own driving force, whereas the Government had to step in to provide incentives for the promotion of information technology. In the light of what has been stated above, I hold that the appellant does not qualify for exemption under section 10(5B) of the Income-tax Act and uphold the assessment order passed by the Assessing Officer. For this reason only it was not considered necessary to consider the issues of the residential status of the appellant and his claim of being a "foreign technician" within the meaning of section 10(5B) of the Income-tax Act."

2. We have heard the parties and perused the record of the case. The assessee is a US national. He was an employee of Cellular Services Inc., USA and was deputed to IDEA Cellular Ltd. (a company formerly known as Birla Tata AT & T Ltd., Pune) to work in India for a period of one year as Vice President, Network Services. The assessee prior to coming to India, was the Technical Director of Network Services in the International Division of AT & T Wireless Inc., a US company. He was associated with AT & T Wireless Services since 1988 and has worked for the company in numerous technical positions. The prime responsibilities of the assessee in India were to assist the local company in setting up and commissioning of cellular network system across many Indian States.

3. In accordance with the terms of his employment with Indian company Indian tax liability of the assessee relating to his employment income were to be borne by his Indian employer i.e., IDEA Cellular Ltd. However, as per the Income-tax Act, 1961, the liability of the employee borne by the employer is to be treated as taxable perquisite in the hands of the employee. But as per section 10(5B) of the Act where an individual renders service as a 'technician' in India and his Indian taxes are borne by his employer, then such payment of tax is exempt from being treated as a taxable perquisite in his hand subject to certain conditions. Section 10(5B) reads as under:—

"(5B) in the case of an individual who renders as a technician in the employment (commencing from a date after 31-3-1993 of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of his clause by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax on his income for such services chargeable under the head "Salaries" is paid to the Central Government by the employer (which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956), the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India:

Provided that the Central Government may, if it consider it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plan or supervising activities connected with such designing, erection or commissioning.

Explanation.—For the purposes of this clause, "technician" means a person having specialized knowledge and experience in—

(i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or
(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or
(iii) such other field as the Central Government may, having regard to availability of Indians having specialized knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify,

who is employed in India in a capacity in which such specialized knowledge and experience are actually utilized."

4. Consequently, a Notification No. S.O. 569(E), dated 27-7-1993 has been issued by the Central Government in exercise of powers as envisaged under clause (iii) of the Explanation of section 10(5B) of the Act. The said notification has specified the following fields for the purpose of section 10(5B):—

(i) grading and evaluation of diamonds for diamond export or import trade;
(ii) cookery;
(iii) Information technology including computer architecture systems, platforms and associated technology, software development process and tools.

5. The intention of the Legislature while enacting the section 10(5B) has been explained by CBDT in Circular No. 20D, dated 7-7-1964 which explained the provisions of section 10(6)(vii)( a) [now section 10(5B)] in the following words :—

"In the context of the need for accelerating the industrial development of India, for which it is, inter alia, necessary to encourage the inflow of foreign investments in the field in which technology is of a higher order and to acquire the scientific, technological and managerial knowledge and skill developed in foreign countries, some provisions have been made in the Finance Act, 1964 for certain tax concessions to foreigners working in India."

6. Thus, the intention of Legislature in providing the exemption under section 10(5B) of the Act to non-resident working in India is to encourage them to come to India and lend their knowledge and assistance to the Indian industry for setting up, developing and modernizing their operation in India. Therefore, the intention of the Legislature is to grant exemption liberally in respect of foreigners working in India and having expertise and knowledge in various fields. Thus, the exemption as contemplated under the provisions of section 10(5B) of the Act is available to a non-resident individual who is a 'technician' having a specialized knowledge and experience in the information technology including computer architecture systems. The assessee is a specialist in the area of Wireless Telecommunication (Field Operations) having a vast engineering experience. His formal education included a Degree in Bachelor of Science from Columbia College and graduate honours in Telecommunications. He is also affiliated to the Society of Logistics Engineers. The copy of his degree and a certificate from the Indian employer certifying his technical experience is placed at Annexure-4 to the paper book. It would appear from the Indian employer's certificate that the job responsibilities of the assessee encompassed various technical aspects of the business of its employers, which required extensive application of his technical knowledge, skill and experience. The Ld. CIT has agreed that it may not be necessary to insist on formal technical qualification certificate. However, he has taken the view that exemption claimed by the assessee should be covered by the notification dated 27-7-1993 (supra). According to him, the specialization in telecommunication technology is not covered by the field of "Information Technology" including computer architect systems platforms and associated technology, software development process and tools as mentioned in the aforesaid notification. According to him two branches of technologies viz., telecommunication technology and information technology are different and distinct.

7. It may be mentioned that the expression 'Information Technology' has been defined in the Oxford Dictionary to mean "The study or use of system (especially computer and telecommunications) for storing, retrieving and sending information. The expression "Information Technology" has also been defined by Longman's Dictionary of Contemporary English (New Edition 1987) as the science or practice of collecting, storing, using and sending out information by means of computer systems and telecommunication. Thus the definition of the expression do not exclude the field of cellular telephones from the purview of the expression "information technology" as they also refer to the process of dissemination of information through the medium of computers. The cellular network is a medium for dissemination through a system of computer and is essentially a computer network. It may be mentioned that the Authority for Advance Rulings in the case of Vance Robert Heffern v. CIT [2000] 241 ITR 299 has held that foreign national having specialized knowledge and long experience in the field of telecommunication deputed as telecom manager in India who is providing technical assistance in the field of telecommunications is a technician and is entitled to exemption under section 10(5B) of the Act. Again the Authority for Advance Rulings in the case of David Kenneth White v. CIT [1998] 231 ITR 464 has held that the foreign technician having expertise in designing, setting up and operating cellular telecommunication network would be entitled to exemption under section 10(5B) of the Act. The observation of AAR are as under:—

"It is clear from the above that the cellular network is a medium for dissemination through a system of computers and is essentially a computer network. In the light of this information, there can be no doubt that the expression "information technology" as elaborated in the notification of 27-7-1993 also covers the area of cellular network."

8. It may be mentioned that as per section 245S of Income-tax Act, ruling of AAR are binding only on the applicant and the concerned Commi-ssioner in respect of transaction in relation to which ruling had been sought but at the same time the ruling of AAR has the persuasive value. Hence the same is required to be taken into consideration with respect by the Tribunal while deciding the similar issue. In view of what has been discussed, we are of the view that the finding of the Ld. CIT(A) that the applicant does not qualify for exemption under section 10(5B) are not legally justified inasmuch as the same are not based on any legal precedent. The observation of the Ld. CIT(A) seems to be based on his personal perception about the information technology. We, therefore, set aside the impugned order. It is, however, seen that other condition viz., "the assessee was not resident in India in all the four financial years immediately preceding the financial year in which he arrived in India" has not been examined by authorities below. For this limited purpose the matter is set aside and restored to the file of the Assessing Officer; who examine the same after affording a reasonable opportunity of being heard to the assessee. If the assessee is found to have satisfied this condition, the Assessing Officer is directed to allow the exemption claimed by the assessee under section 10(5B) of the Act.

9. In the result, the appeal filed by the assessee is allowed for statistical purpose.

285/128

Anthony Phillip Witek v. Deputy Commissioner of Income-tax, Circle 46(1), New Delhi

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's) Arguments

Respondent's (Revenue / CIT(A)'s) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Anthony Phillip Witek v. Deputy Commissioner of Income-tax, Circle 46(1), New Delhi

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