Allowances To Foreigner Not Taxable

Q: I am the finance director of an Indian company During the previous year relevant to the assessment yeay 1999-2000, a technician was deputed by our Japansse coldaborators to assist in erecting the company's plant. He was paid a daily allowance by us for the days of stay in India. His salary was being borne by the Japanese company.

Is the daidy allowance payabde to the technician liable to income-tax in India and is the tax to be deducted at source from this payment?

A: No. A similar issue arose in the case of CIT v Goslino Mario be fore the Supreme Court (2000) 158 CTR 538 (SC). The TTAT gave a finding in this case that the daily allowance paid by the Indian company to foreign technicians is ex empt from tax. This finding was upheld by the High Court. On these facts, the Supreme Court has declined to interfere as the issue could not be argued contrary to these findings. Hence the daily allowance paid is exempt from tax and no tax is to be deducted from it at source on payment.

 

Q: I am the president of a Officers' Association. The employer has wrongfully treated certain allowances payable to workers as perquisites for tax deduction at source. The amounts considered as perqisisite can not be legally treated as such and subjected to tax. Representations made not to treat such payments as income and not to deduct tax from such amounts have been rejected by the employer company. I wish to challenge the decision of the managemengt by a writ petition, before the High Court.

A: You can file a writ petition as a representative of the officers af affected by the managements decision for their interest. This view gets support from the decision of the Andhra Pradesh High Court in the case of Steel Executives' Association v. Rashtriya Ispat Nigam Ltd. (2000) 109 Taxman 127 (AP).

Q: Section 47, vide clauses (iv) and (v) provides for exemption from capitalgain arisingfrom the transfer of a capitad asset by a holding company to a subsidiary company or vice veysa prouided the following conditions are satisfzed :

* The transferee company is an Indian company;

* The whole of the transfeyee company's share capital is held by the transferor company.

Section 47A provides for withdmwal of the benefit conferred, inter alia, on the ground that if the parent company or its nominees, or as the case may be, the holding company ceases or cease to hoid the whole of the share capital of the subsidiary company.

My query is about the interpretation of the woyd 'whole' in the above context. Does it refer to the entire share capital of a company or only to equity share capital which carries voting rights ?

A: The reasonable interpreta tion should be that the word whole should refer only to the capitat carrying voting rights, namely equity capital. This view gets support from section 4 of the Companies Act, 1956 explaining the meaning of holding and subsidiary companies. sub-section (1) of this section considers only those prefer ence shares relevant for the pur pose of determining the relationship of holding and subsidiary company in respect of which the holders of preforence shares issued before the commencement of the Companies Act, 1956 have the same voting rights in all respects as the holders of equity, shares. Similarly for determiining the relationship of holding and subsidiary company, stress has been laid in section 4(1) (b) (ii) on shares in more than half in nominal value of the equity share capital.

Section 87 of the Companies Act confers right of vote only to equity shares holders. Suirsection (2) of the section gives the right of vote to preference share holders in a limited way that is only on any resolution which affects their rights directly not in a general way.

Hence, the test to judge the concept of the 'whole' of the share capital is equity capital.