Supreme Court of India
CENTRAL BOARD OF DIRECT TAXES AND 0THERSversusADITYA V. BIRLA
- Citation
- 1987 INSC 351
- Decided
- 27 November 1987
- Disposal
- Dismissed
- Bench
- SABYASACHI MUKHERJI
Holding
Section 80RRA’s expressions "employee" and "employer" are to be given a broad meaning that includes consultants and technicians, so the respondent’s foreign remuneration qualifies for the deduction.
Summary
Aditya V. Birla, a technician, entered into a three‑year agreement with Thai Rayon Company to provide services in Bangkok and sought approval from the Indian Government to claim a deduction under Section 80RRA of the Income Tax Act, 1961. The Government refused, contending that the provision applied only to "employees" and not to consultants. The High Court quashed the refusal, but the Central Board of Direct Taxes appealed. The Supreme Court examined the construction of Section 80RRA, interpreting "employee" and "employer" broadly to include consultants and technicians, and held that remuneration received in foreign currency from a foreign employer for services rendered abroad qualifies for the deduction, provided the service does not exceed 36 months and is government‑approved. The Court found no basis to restrict the provision to salaried employees and affirmed the High Court’s decision. Consequently, the appeal by the tax authority was dismissed.
Issues considered
- Whether remuneration received by a consultant/technician from a foreign employer falls within the meaning of "remuneration" under Section 80RRA.
- Whether the terms "employee" and "employer" in Section 80RRA include consultants or technicians.
- Whether the Central Government was justified in refusing approval for the deduction under Section 80RRA.
- Whether the 36‑month limitation in Section 80RRA applies to the respondent’s arrangement.
- Whether the definition of "foreign employer" encompasses a foreign private company.
Legislation cited
- Foreign Exchange Regulation Act, 1973s. definition of foreign currency
- Income Tax Act, 1961s. 10(6)(vii), s. 80RRA
Subjects
Income TaxSection 80RRAforeign remunerationconsultanttechniciantax deductionemployee definitionemployer definition36‑month limitationCentral Board of Direct Taxes
Judgment
\
CENTRAL BOARD OF DIRECT TAXES AND 01HERS A
v.
ADITYA V. BIRLA
NOVEMBER 27, 1987
[SABYASACHI MUKHARJI AND S. RANGANA1HAN, JJ.] B
Income Tax Act, 1961-Construction of Section 80 RRA thereof.
~
> The respondent, Aditya V. Birla, described to be a technician
· with experience in the business of manufacturing and selling Stapple
Fibres, and the Thai Rayon Company, Thailand, engaged in the
c
business of manufacturing and selling Stapple Fibres, entered into an
agreement wherein the respondent was stated to be approached by the
Thai Company to make his services available to the Company as his
'employer', in Bangkok, on certain terms and conditions, for which
the Company would pay him remuneration receivable at Bangkok.
The agreement was for a .period of three years and was subject to the D
approval of the Governments of India and Thailand, etc. The res-
pondent applied to the Government of India for its approval of his
employment with the Thai Company under the agreement; for the
purpose of securing the benefits conferred by section 80 RRA of the
Income Tax Act, 1961. The Government declined to accord its
approval to the respondent's employment with the Thai Company on E
the terms and conditions contained in the agreement, for the purpose
of section 80 RRA, on the ground that the section, according to its
view, contemplates rendering service outside India in the status of an
'employee', whereas the status of the respondent under the foreign
employer was that of a 'consultant' and not an 'employee', and that,
therefore, the remuneration contemplated under section 80 RRA F
would be applicable to the case of the respondent and the benefit of the
section could not be given to him.
The respondent moved the High Court for relief against the
decision of the Government. A learned Single Judge of the High Court
quashed the order of the Government and directed it to reconsider the G
case of the respondent. The Letters Patent Appeal against the order of
the Single Judge was dismissed by the Division Bench of the High
Court. The appellant then moved this Court against the order of the
High Court by Special Leave.
Dismissing the appeal, the Court, H
115
116 SUPREME COURT REPORTS [ 1988] 2 S.C.R.
).
A HELD: An analysis of section 80 RRA reveals that, in the case
of the respondent, in order to be entitled to the deductions at the rate
enumerated in the section, the sum must be (i) remuneration, (ii) 'f
received by him in the foreign currency, (iii) from any employer
(being a foreign employer or an Indian Concern) for any service
rendered by him outside India. Further the terms and conditions of his
B service outside India must be approved by the Government of India.
Furthermore, in his case the deduction of the section would not be T
allowed in respect of the remuneration if the service related to any
period after the expiry of 36 months. He was not employed beyond the
period of 36 mot_nths.bI~dispthutably, thet su".'dc?nc ~rnedfl~ the _cas~, fee, -~
1
was remunera ion, e1ng e amoun pa1 m 1eu o services ren·
C dered. The sum in question was received in foreign currency for
services rendered outside India. [l20D-F]
In the context of the Income Tax Act, the expression 'employee'
will include a consultant or a technidan employed by a foreign •
company. The amplitude of the expressions 'employee' and 'employer'
D covers the case of the consultant or the technician. There is nothing in
the scheme of the section to warrant any exception, as contended for
by the revenue. [l22E; l2IBI ',
The High Court was right in dismissing the appeal. [l23E]
1
E Aiyar 'The Lexicon, 1940 Ed. at page 387, Shri Chintaman Rao
and Anr. v. The State of Madhya Pradesh. [1958] S.C.R. 1340 at
1346; Ellis v. Ellis and Co., [1905] l K.B. 324; Stroud's Judicial
Dictionary, 4th Edition, Vol. 2 at page 893 and Morren v. Swinton
and Pendlebury B.C., [1965] I W.L.R. 576, referred to.
F CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3947
(NT) of 1987.
From the Judgment and Order dated 27.8.1986 of the Bombay
High Court in Appeal No. 676 of 1986.
G B.B. Ahuja, C.V. Subba Rao and Ms. A Subhashini, for the
Appellants.
N.A. Palkhiwala, S.P. Mehta, Ms. A. Vasantji and Praveen
Kumar for the Respondent.
H The Judgment of the Court was delivered by
CENTRAL BOARD OF DIRECT TAXES v. ADIITA [MUKHARJI, l.] 117
SABYASACHI MUKHARJI, J. Special leave granted. A
This is an appeal from the judgment and order of the Division
Bench I. of the High Court of Bombay whereby the Division Bench
concurred with the judgment and order of the learned Single Judge of
the Court. The respondent herein had entered into an agreement on
or about Sth May, 1978 with Thai Rayon Company Limited at B
Thailand (hereinafter called the foreign company). It was engaged in
the business of manufacturing and selling Stapple Fibres at Bangkok
in Thailand. The agreement recited that the respondent as he was
described was a technician holding a Bachelor's degree from the
Massachusetts Institute of Technology, U .S.A. and has had several
years of experience in the business of manufacturing and selling
Stapple Fibres through his association with companies engaged in
c
similar business and the foreign Company as referred to in the
agreement aforesaid as the 'employer' had approached him, i.e. the
' technician to make available to the 'employer' his services in
Bangkok on certain terms and conditions, inter alia, that the Thai
Company would pay to the respondent remuneration of $12,000 per D
annum in quarterly instalments and it would be receivable at
Bangkok. The agreement was for a period of three years with liberty
to either 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 any.
E
The respondent applied to the Central Government in India for
its approval of his employment with the Thai Company under the
agreement for the purpose of securing the benefit conferred by
section 80 RRA of the Income Tax Act, 1961 (hereinafter called 'the
Act'). On June 8, 1979 the Government informed the respondent
that it was unable to approve the employment with the Thai Rayon F
t Company Limited, Bangkok, as per the terms and conditions
contained in the agreement dated 5th May, 1978 for the purpose of
section 80 RRA of the Act as the section, according to Government
contemplated rendering of service outside India in the status of an
'employee'. It was further stated that it was seen that the status of the
respondent under the foreign employer was that of a 'consultant' and G
not of an 'employee'. Therefore, the remuneration contemplated
), under section 80 RRA was from an employer and would not be
applicable to the instant case of the respondent, according to the
Government.
Thereafter it appears, after hearing the respondent, the H
118 SUPREME COURT REPORTS [1988] 2 S.C.R.
A Government by its letter dated 17th February, 1981 observed that the
benefit of section 80 RRA of the Act could not be given to the
respondent for the reason stated in that letter.
Was the Government right in the view it took, is the question
here?
The learned Single Judge of the High Court quashed the
communication refusing to accord approval and directed the Govern-
ment to reconsider the application of the respondent.
There was a Letters Patent Appeal before the Division Bench of
the ]:iigh Court. The Division Bench found no reason to interfere
C with \he view expressed by the learned Single Judge and accordingly
the appeal was dismissed. Aggrieved thereby the appellant who was
the respondent before the trial court has come up to this Court.
'
We are concerned in this appeal with the construction of section
b 80 RRA of the Act. The said section is as follows:
"80 RRA. (1) Where the grnss total income of an indi-
vidual 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
E 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 there<>f:
f Provided that where tlfe individual renders continuous
service outside India under or for such employer for a
p~riod 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- ;l,.
(i) in the case of an individual who is or was,
immediately before under.taking such service, in the
H employment of the Central Government or any State
CENTRAL BOARD OF DIRECT TAXES v. ADITYA [MUKHARJI, J.] 119
Government, only if such service is sponsored by the
A
Central Government;
(ii) in the case of any other individual, only if he 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. B
Explanation: For the purposes of this section-
(a) "foreign currency" shall have the meaning assigned to
r
it in the Foreign Exchange Regulation Act, 1973 (46
of 1973):
c
(b) "foreign employer" means,-
(i) the Government of a foreign State; or
(ii) a foreign enterprise' or D
(iii) any association or body established outside
India;
(c) "technician" means a person having specialised
knowledge and experience in- E
(i) constructional or manufacturing operations or
mining or the generation or distribution of clec·
\
tricity or any other form of power; or
(ii) agriculture, animal husbandry, dairy farming,
deep sea fishing or ship building; or F
(iii) public administration or industrial or· business
management; or
(iv) accountancy; or
G
(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 H
are actually utilised."
120 SUPREME COURT REPORTS [1988] 2 S.C.R ..
A The only question involved in this appeal is whether any
remuneration was received by the respondent in foreign currency
from his employer, being a foreign employer for service rendered by
him outside India. Mr. Ahuja counsel for the revenue contended that
the remuneration received by a part-time consultant from a foreign
employer or an Indian concern abroad cannot include remuneration
B paid to a person. Mr. Ahuja further submitted that this section was
really a counter part of section 10(6)(vii) of the Act. He further
submitted that it should be construed to be confined to deduction to
be given only in the case of remuneration given to an employee and
not the fees paid to a consultant or a technician. We are unable to
accept this contention. It has been specifically made clear that
C remuneration due should be chargeable under the head "Salaries"
for the services rendered as a technician in section 10(6)(via). Section
80 RRA does not use these phrases. Apparently, advisedly therefore,
it must follow that it did not cover fees received by the consultant for
the services rendered outside India.
b An analysis of section 80 RRA reveals that in order to be
entitled to deductions at the rate enumerated in the section by the ..
respondent, the sum must be (i) remuneration (ii) received by him in
foreign currency (iii) from any employer (being a foreign employer or
an Indian concern) for any service rendered by him outside India.
Furthermore, the terms and conditions of his service outside India
E must be approved by the Central Government. Further in the case of
the respondent the \!eduction of the section would not be allowed in
respect of the remuneration if such services related to any period
after the expiry of the 36 months. The respondent was not employed
beyond a period of 36 months. Indisputably, the sum concerned in
this appeal, being fee, was remuneration in the sense being 'amount
F paid in lieu of services rendered'. The sum iri question was received
in foreign currency. There is no dispute as to that. The only question
is whether the sum was received from 'any employer'. The other
requirement is that the sum should be received for the services
rendered outside. India. There is no dispute as to that. The only
question that requires consideration in the background of indisput-
G able facts in this case .is whether the sum received by the respondent
was from 'an employer'. In. other words, whether Thai Company was
the employer of the respondent. On behalf of the revenue it was
submitted by Mr. Ahuja that it was only as a counter part of section
!0(6)(via) and that the section should be so considered properly. Mr.
Palkhiwala appearing for the respondent pointed out the object of
H section 80 RRA of the Act was manifest to encourage, firstly earning ·
CENTRAL BOARD OF DIRECT TAXES v. ADITYA [MUKHARJI, l.] 121
of foreign exchange by India, secondly, bringing that currency by A
Indian nationals from abroad to India and thirdly, to improve the
status of the Indians abroad and increa;ing the market of Indian
technician. It appears to us to be plausible object in the present
socio-economic context. We find that the amplitude of the expres-
sions "employee" and "employer" covers the cases of consultant or
technician. We find in the scheme of the section nothing to warrant B
any exception as contended for by the revenue. If we read the section
with the object of the section in view as suggested by Mr. Palkhiwala
then there is no warrant to restrict the meaning in the manner
canvassed by the revenue before us. Mr. Ahuja, however, drew our
attention to the objects appearing in clause 31 of the Finance Bill
1975 which later on became the Act. We find nothing in clause 31 to c
suggest a restricted meaning as canvassed by Shri Ahuja. The rele-
vant portion of clause 31 reads as follows:
"31. Tax relief in respect of remuneration received from
foreign employees by Indian technicians, etc.-At
present, Indian technicians, etc., who work for a short D
A period during a financial year with a foreign Government
or a foreign enterprise are liable to Indian tax if they
remain "resident in India" for tax purposes in that year,
on the whole of the remuneration received by them from
the foreign employer, without any allowance in respect of
expenditure incurred by them out of such remuneration E
for meeting higher living costs and other essential ex-
penditure in foreign countries. To relieve this hardship,
the Bill seeks to make a provision in the Income-tax Act
for allowing a deduction in the computation of the taxable
income, of 50 per cent of the remuneration received by
i them from a foreign Government or a foreign enterprise F
t or any association or body established outside India".
We find nothing to warrant a restricted construction as canvas-
sed by Mr. Ahuja. We were also referred to the speech of the Hon'ble
Minister introducing the Bill before the Parliament, where the
Hon'ble Minister, inter alia stated as follows: G
' "There are at present certain income-tax exemption limits
applying to salaried assessees relating to house rent
allowance and leave travel concessions. These are being
liberalised. Indian technicians employed abroad are also
proposed to be given some tax relief." H
122 SUPREME COURT REPORTS [1988] 2 S.C.R.
A Shri Ahuja contended that it was only to encourage salaried
employees who were going abroad and the cost of living was so high
abroad to encourage them to get an exemption from tax on the salary
earned abroad working as a technician that this provision was intro-
duced. But this does not indicate that any limitation was intended to
be confined only to the salaried employee and not extended to any
B technician or consultant employed abroad for the period stipulated in
the section. We find that there is no warrant in the section to restrain
the expression "remuneration" received from a foreign employee
only to the salary received by an employee. In our opinion,
employment as a technician for the purp6se indicated by Shri
Palkhiwala could also be an object of the Act and in such a case the
C fee received by consultant or technician would also come within the
purview of the section concerned. In Aiyar 'The Lexicon. 1940 Ed. at
page 387 it has been stated that an employer is one who employs, one
who engages or keeps men in service, one who uses or enjoys the
service of other persons for pay or salary. The words 'employer' or
'employee' are used not in any technical sense.
D
In Shri Chintaman Rao & Another v. The State of Madhya
Pradesh, [1958] S.C.R. 1340 at page 1346 of the report, it was
observed that the concept of employment involved three ingredients:
( 1) employer (2) employee and (3) the contract of employment. The
employee is one who works for other for hire. The employer is one
E who employs the services of other persons. In the context of this act,
therefore, the expression 'employee' will include a consultant or a
technician employed by the foreign Company because he would be
working for other for hire, It is true that the respondent may serve
more than one master. A man may in certain circumstances serve
two masters; very often he does serve many. The expression "to
F employ" has been considered in Ellis v. Ellis & Co., [1905] 1 K.B.
324 and does not mean generally to find actual employment; it rather
means to retain and pay a person whether employed or not but if
employed then to be employed in the work only in respect of which
contract is made. "Medical advisers may be employed at a salary to
be ready in case of illness; members of theatrical establishment~ in
G case their labour should be needed; household servants in perfor-
mance of their duty when their masters wish; in these and other
similar cases the requirement of actual service is distinct from the
employment by the party employing". In an agreement to "retain
and employ", "employ" means ony to 'retain' in the service 'and is
mere tautology'. See in this connection, Stroud's Judicial Dictionary,
H 4th Edition, Vol. 2 at page 893. The expression, however, must
CENTRAL BOARD OF DIRECT TAXES v. ADITYA (MUKHARJI. J.] 123
depend upon the context of the particular provision in which the A
expression appears. It was held in England that an engineer appoin-
ted by a local authority to supervise the execution of works, but not
subject to the local authority's supervision, is nevertheless an
'employee' within the meaning of section 40(1) of the Local Govern-
ment Superannuation Act 1937, in Morren v. Swinton and Pendle-
bury B.C., [1965] 1 W.L.R. 576. In Chambers 20th Century B
Dictionary "employ" has been indicated to mean to occupy the time
"'f
or attention of. "employment" means an act of employing. In the
Concise Oxford Dictionary "employee" means a person employed
for wages. "Employ" means use of services of person. It follows,
therefore, that it comprehends whole time servant or part time
engagee. It is significant that section 80 RRA of the Act uses the c
expression "remuneration" and not salary to be entitled to deduc-
tion. In the aforesaid view of the matter we see no warrant to restrict
the meaning of the expression "remuneration" to only salary recei-
ved by an employee abroad. The literal meaning is clear, we need not
bother any more for the intention or the purpose. The intention, in
our opinion, is writ large. In principle also we are unable to find any D
rationale or the reason for the distinction sought to be made on
behalf of the revenue.
In the aforesaid view of the matter, we are of the opinion that
the High Court was right in dismissing the appeal and we find no
reason to interfere with the order of the High Court. The appeal, E
therefore, fails and is accordingly, dismissed without any order as to
' costs.
\
S.L. Appeal dismissed.
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