MR.PEDERSON FISHER PEDER V. COMMISSIONER OF INCOME TAX,KOCHI

ITA/44/2007

AI Insights

This case involves multiple appeals by different assessees, all residents of Denmark and employees of Fertilizers and Chemicals Travancore Limited (FACT Ltd.), against the orders of the Income Tax Appellate Tribunal, Cochin Bench. The assessees were technicians deputed by Haldar Topsoe A/S (HTAS), Denmark, under an agreement for the production of Ammonia. The primary legal issues were the taxability of salaries paid by HTAS in Denmark for services rendered in India, and the taxability of income tax paid by FACT Ltd. on behalf of the assessees. The Tribunal had previously ruled that both the salaries and the income tax paid by FACT Ltd. were taxable in India, which the assessees contested.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 758688 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 26-10-2018
• Assessment Year: misc
• Other Referred Cases: Emil Webber v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P K R MENON
• Assessee Lawyers: E K NANDAKUMAR; ANIL NAIR
• Keywords: Double Taxation Avoidance Agreement; Income from other sources; Income tax appeal; Taxability of Salaries
• Section: 147; 143(3); 263; 56(1); 9(1)(ii); 10(6A)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940 ITA.No. 21 of 2007 AGAINST THE ORDER/JUDGMENT IN ITA 18/COCH/2003 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.9.2006 APPELLANT/S:/APPELLANT/ASSESSEE: MR.PREBEN SMEDEGAAD JENSON, HTAS DENMARK, C/O.FERTILIZERS AND CHEMICALS TRAVANCORE LTD,, UDYOGAMANDAL. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR RESPONDENT/S:/RESPONDENT/REVENUE: COMMISSIONER OF INCOME TAX, KOCHI. BY SRI.PKR MENON, SR. COUNSEL, GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, ALONG WITH ITA NOS.29, 32, 41, 44, 60/2007 AND 22/2007 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.21, 22/2007 & conn. -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940 ITA.No. 29 of 2007 AGAINST THE ORDER/JUDGMENT IN ITA NO.184/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.9.2006 APPELLANT/S:/APPELLANT/ASSESSEE: MR.NIELS KRISTIAN SKAARUP JORGENSES,HTAS DENMARK,C/O.FERTILIZERS AND CHEMICALS TRAVANCORE LTD.,UDYOGAMANDAL. BY ADVS. SRI.ANIL D. NAIR SRI.E.K.NANDAKUMAR (SR.) RESPONDENT/S:/RESPONDENT/REVENUE: COMMISSIONER OF INCOME TAX, KOCHI BY SRI PKR MENON, SR COUNSEL FOR GOI TAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, ALONG WITH ITA NOS.21 & 22/2007 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.21, 22/2007 & conn. -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940 ITA.No. 32 of 2007 AGAINST THE ORDER/JUDGMENT IN ITA 185/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-09-2006 APPELLANT/S:/APPELLANT/ASSESSEE: SOREN TOFT HTAS DENMARK, C/O.FERTILIZERS AND CHEMICALS TRAVANCORE LTD., UDYOGAMANDAL. BY SRI.E.K.NANDAKUMAR (SR.) ADV. SRI.ANIL D. NAIR RESPONDENT/S:/RESPONDENT/REVENUE: COMMISSIONER OF INCOME TAX,KOCHI BY SRI.PKR MENON, SR.COUNSEL, GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, ALONG WITH ITA NOS.21 & 22/2007 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.21, 22/2007 & conn. -4- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940 ITA.No. 41 of 2007 AGAINST THE ORDER/JUDGMENT IN ITA 566/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.9.2006 APPELLANT/S:/RESPONDENT/ASSESSEE: MR.LEIF BO OIGAARD,HTAS DENMARK C/O.FERTILIZERS AND CHEMICALS TRAVANCORE LTD.,, UDYOGAMANDAL. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR RESPONDENT/S:/APPELLANT/REVENUE: COMMISSIONER OF INCOME TAX, KOCHI. SRI.PKR MENON, SR.COUNSEL, GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, ALONG WITH ITA NOS.21 & 22/2007 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.21, 22/2007 & conn. -5- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940 ITA.No. 44 of 2007 AGAINST THE ORDER/JUDGMENT IN ITA 493/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.9.2006 APPELLANT/S:/RESPONDENT/ASSESSEE: PEDERSON FISHER PEDER HTAS DENMARK, C/O. FERTILIZERS AND CHEMICALS TRAVANCORE LTD., UDYOGAMANDAL. BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR RESPONDENT/S:/APPELLANT/REVENUE: COMMISSIONER OF INCOME TAX, KOCHI. BY SRI.PKR MENON, SR.COUNSEL, GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, ALONG WITH ITA NOS.21 & 22/2007 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.21, 22/2007 & conn. -6- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 26TH DAY OF OCTOBER 2018 / 4TH KARTHIKA, 1940 ITA.No. 60 of 2007 AGAINST THE ORDER/JUDGMENT IN ITA 189/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.9.2006 APPELLANT/S:/APPELLANT/ASSESSEE: MR.PETERSON LYE ERIK, HTAS DENMARK, C/O.FERTILIZERS AND CHEMICALS TRAVANCORE LTD., UDYOGAMANDAL. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR RESPONDENT/S:/RESPONDENT/REVENUE: COMMISSIONER OF INCOME TAX KOCHI. BY SRI.PKR MENON, SR.COUNSEL, GOI (TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 26.10.2018, ALONG WITH ITA NOS.21 & 22/2007 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA Nos.21, 22/2007 & conn. -7- ITA Nos.21, 22, 23, 24, 27, 28, 29, 31, 32, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 50 & 60 of 2007 and 117 of 2008 ------------------------------------------- Dated this the 26th day of October, 2018 J U D G M E N T Ashok Menon, J. These are appeals filed by different assessees, all of them residents of Denmark, employed with Fertilizers and Chemicals Travancore Limited (FACT Ltd.). They were employees of a foreign company, expert- technicians deputed to FACT Ltd. for proper performance of the agreement the FACT Ltd. entered into with their employer; executed in the year 1993. Haldar Topsoe A/S (HTAS), a Company registered under the Laws of Denmark and having its principal office at Denmark, in connection with the “processes and catalysts for production of Ammonia by steam reforming of hydrocarbons” had agreed to depute technicians in their employment, experts in the processes. As per the terms of licence agreement for setting up of the Ammonia Plant, FACT Ltd. was obliged to pay to the assessees living allowance, and fully furnished accommodation for which an amount was charged ITA Nos.21, 22/2007 & conn. -8- by FACT Ltd. That apart, income tax payable, i.e. charged in India on the salaries of the persons deputed by HTAS, was also to be borne by FACT Ltd. It is an admitted fact that the assessees were all employed in India for more than 183 days. The salaries were drawn by the assessees from their parent Company-HTAS in Denmark and all that they got here, was the living allowance and accommodation, apart from transportation facility etc; provided to them. 2. The Assessing Officer (AO) brought to tax the salaries paid to these assessees by HTAS in Denmark, by virtue of the provisions of the Explanation to Section 9(1)(ii) of the Income Tax Act, 1961 ('Act', for short), because the salaries paid in Denmark were for the services rendered in India. The value of accommodation provided and the income tax paid by FACT Ltd. were also brought to tax by the AO. In case of some of the assessees, regular assessment was made under Section 143(3) of the Act, while in case of others, proceedings were initiated under Section 263 by the Commissioner of Income Tax (CIT) as also by the AO, under Section 147. 3. Appeals were filed by the assessees before the CIT (Appeals) in respect of the assessment orders passed by the AO under Section 143(3) and under Section 143(3) read with Section 147 as well as on the orders of ITA Nos.21, 22/2007 & conn. -9- the CIT under Section 263. The appeals were all heard by the different CIT (Appeals). Eventually, there were contradictory orders. In some of the appellate orders, the CIT (Appeals) found that the salaries paid to the assessees in Denmark were not liable to be taxed, while some others were of the opinion that the salary earned by the assessees in Denmark were liable to be taxed in India by virtue of the Explanation to Section 9(1)(ii) of the Act. 4. Appeals were preferred by the Department as well as by the assessees before the Income Tax Appellate Tribunal, Cochin Bench, and vide the impugned common order in all the appeals, the Tribunal came to the conclusion that the salaries paid to the assessees in Denmark for services rendered in India were all liable to be taxed in India. The value of perquisites like accommodation was excluded, which the Tribunal held, could not be brought to tax under Section 56(1) of the Act. The Tribunal was of the opinion that Section 10(6A) is not applicable to the assessees and therefore, the income tax paid was rightly added on to the income of the assessees for computing the total income as their taxable income. In view of the above, the appeals filed by both the Revenue and the assessees were partly allowed. ITA Nos.21, 22/2007 & conn. -10- 5. Aggrieved by the impugned common order of the Tribunal, the assessees are before this Court. Following are the common questions of law that arise for consideration in these appeals:- “(1) Whether the Tribunal was justified in holding that salaries received by the technicians in Denmark were taxable in India under Section 9(1)(ii) of the Act? (2) Whether the Tribunal was justified in holding that the income tax paid by FACT Ltd. was on the income at the hands of the assessees, considering Section 10(6A) of the Act?” 6. The learned counsel for the assessees and the learned Senior Counsel, Government of India (Taxes) were heard. 7. It is the argument of the learned counsel for the assessees that there is no employer-employee relationship between the assessees and FACT Ltd., as confirmed by the Tribunal. In view of such finding, it was not appropriate that the assessees/employees, who were deputed as technicians by their employers in Denmark, were taxed in India for the salaries which were drawn by them in Denmark. It would be apposite to read Section 9(1)(ii) of the Act, which is as follows: ITA Nos.21, 22/2007 & conn. -11- “9 Income deemed to accrue or arise in India- (1) The following incomes shall be deemed to accrue or arise in India- xxx xxx xxx (ii) income which falls under the head “Salaries”, if it is earned in India. Explanation:- For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India;” 8. The Explanation to Section 9(1)(ii) of the Act was brought on to the statute book by Finance Act, 1983 w.e.f. 1.4.1979. A reading of the above Explanation makes it adequately clear that the income falling under the head “Salaries” would be the income earned in India for the services rendered in India, and as per the provisions of the Act, any income that is earned in India, is liable to be taxed. The Tribunal has in detail, considered the Double Taxation Avoidance Agreement between India and Denmark, and in particular Article 16 thereof, to arrive at a conclusion that the salaries paid for the services rendered in India would be taxable, though paid in Denmark. Hence, we do not find any reason to interfere with the finding of the Tribunal, insofar as bringing to tax the salaries of the assessees ITA Nos.21, 22/2007 & conn. -12- received by them in Denmark for the services rendered in India, is concerned. 9. The next question that arises for consideration is whether the tax liability borne by FACT Ltd. in respect of these assessees during their deputation in India is income at the hands of the assessees. The Tribunal has referred to Article 7 of the Licence Agreement between HTAS, Denmark and FACT Ltd.. As per that agreement, FACT Ltd. has agreed to pay Indian income tax leviable on the individual salaries of HTAS's expatriate personnel deputed to India under the agreement. By virtue of the terms of the agreement, it was the contractual liability of FACT Ltd. to pay income tax in respect of the assessees. Relying on the decision of the Honourable Supreme Court in (1993) 200 ITR 483 (SC) [Emil Webber v. CIT], it was rightly observed by the Tribunal that the income tax so paid by FACT Ltd. by virtue of the agreement would come within the purview of Section 56(1) as income from other sources, because it would include income of every kind and could not be excluded from the total income under the Act chargeable to income tax. The assessees have urged that the income tax so paid by FACT Ltd. could not be brought to the income to be taxed by virtue of the provisions of Section 10(6A) of the Act. Exclusions under the aforesaid ITA Nos.21, 22/2007 & conn. -13- Section is with regard to foreign company deriving income by way of royalty or fees received by Government of India in pursuance of agreement by the foreign company and the Government. The Tribunal has considered this issue and has rightly come to the conclusion that the assessees are individual assessees and not a foreign company, so as to exclude their income from the purview of taxation. We find no reason, whatsoever, to interfere with the orders passed by the Tribunal. The questions of law are all answered in favour of the Revenue and against the assessees. All the Income Tax Appeals are rejected. No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE ITA Nos.21, 22/2007 & conn. -14- APPENDIX OF ITA 21/2007 APPELLANT'S EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER DATED 13.03.2000 PASSED BY THE ASST.COMMR. OF INCOME TAX, ERNAKULAM. ANNEXURE B: TRUE COPY OF THE ORDER OF THE RESPONDENT DATED 26.03.2002, NO.CIT/CHN/TBR-16/2001- 02. ANNEXURE C: TRUE COPY OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, KOCHI DATED 28.09.2006. [TRUE COPY] jg ITA Nos.21, 22/2007 & conn. -15- APPENDIX OF ITA 29/2007 APPELLANT'S EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER DATED 07.03.2005 PASSED BY THE ASST.COMMR. OF INCOME TAX, ERNAKULAM. ANNEXURE B: TRUE COPY OF THE ORDER OF THE RESPONDENT DATED 15.12.2005, NO.ITA-29/R-2/E/CIT- IV/05-06.(AY-1998-99) ANNEXURE C: TRUE COPY OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, KOCHI DATED 28.09.2006. [TRUE COPY] jg ITA Nos.21, 22/2007 & conn. -16- APPENDIX OF ITA 32/2007 APPELLANT'S EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER DATED 07.03.2005 PASSED BY THE ASST.COMMR. OF INCOME TAX, ERNAKULAM. ANNEXURE B: TRUE COPY OF THE ORDER OF THE RESPONDENT DATED 15.12.2005, NO.ITA-28/R-2/E/CIT- IV/05-06.(AY-1998-99) ANNEXURE C: TRUE COPY OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, KOCHI DATED 28.09.2006. [TRUE COPY] jg ITA Nos.21, 22/2007 & conn. -17- APPENDIX OF ITA 41/2007 APPELLANT'S EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER DATED 24.1.2003 PASSED BY THE ASST.COMMR. OF INCOME TAX, ERNAKULAM. ANNEXURE B: TRUE COPY OF THE ORDER OF THE RESPONDENT DATED 30.3.2004, NO.ITA-96/R-2/E/CIT- V/2002-03.(AY-1997-98). ANNEXURE C: TRUE COPY OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, KOCHI DATED 28.09.2006. [TRUE COPY] jg ITA Nos.21, 22/2007 & conn. -18- APPENDIX OF ITA 44/2007 APPELLANT'S EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER DATED 24.1.2003 PASSED BY THE ASST.COMMR. OF INCOME TAX, ERNAKULAM. ANNEXURE B: TRUE COPY OF THE ORDER OF THE RESPONDENT DATED 26.2.2004, NO.ITA-98/R-2/E/CIT- II/02-03.(AY-1997-98) ANNEXURE C: TRUE COPY OF THE ORDER OF INCOME TAX APPELLATE TRIBUNAL, KOCHI DATED 28.09.2006. [TRUE COPY] jg ITA Nos.21, 22/2007 & conn. -19- APPENDIX OF ITA 60/2007 APPELLANT'S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 7.3.2005 PASSED BY THE ASST. COMMR. OF INCOME TAX, ERNAKULAM. ANNEXURE B TRUE COPY OF THE ORDER OF THE RESPONDENT DATED 15.12.2005, A.NO.ITA.32/R-2/E/CIT- IV/05-06 (A.Y.1998-99) ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, KOCHI DATED 28.9.2006. [TRUE COPY] jg "