T.V. Rajagopala Rao, President
1. Since a common point is involved in all these appeals, they can be taken up together and disposed of, for the sake of convenience.
2. The assessees herein are all foreign technicians who were employees of M/s Polservice, a Polish company which was carrying out seismic survey and drilling operations in India. These assessees derived income from salary. Apart from salary they were given free boarding and lodging facilities at the site of work by the Oil and Natural Gas Commission, who had engaged M/s Polservice as a contractor to dig oil wells and also to do seismic survey in Indian territory. The perquisite value of the boarding and lodging has been declared by M/s Polservice in the case of employees working for seismic survey. However, the value of free boarding and lodging in the case of drilling crew had not been disclosed. The authorised representative expressed his inability to provide any details regarding the value of free boarding and lodging facilities provided to the drilling crew. Therefore, the ITO felt that the value of these items has to be estimated. In the earlier years namely 1986-87, the perquisite value of food in the case of employees of M/s Polservice was estimated at Rs. 60 per day and it has been upheld by the learned CIT (Appeals) vide his order dated 1-7-1991. Taking that into consideration, the perquisite value of food in respect of drilling crew was taken at Rs. 100 per head per day for assessment year 1990-91.
3. Similarly, no details were made available regarding valuation of free accommodation. Therefore, the ITO felt that this was also a case of estimate. The ITO stated in his assessment order that drilling crew normally provided with well furnished accommodation which includes all the facilities for a decent living. Therefore, he estimated the value of free accommodation at Rs. 100 per day to be reasonable The assessee contended that they should not be treated as perquisites in as much as these are necessities considering the nature of work in which the crew is involved. Further they contended that these facilities were provided not by the employer but by the ONGC and hence should not be treated as perquisites. The ITO in the absence of any specific provision being shown that these facilities can be treated as exempt, held that the reasonable value of the perquisites can be added to the salary income, by these foreign technicians. Further, he held that these facilities are not exempt Under Section 10(14) and hence they cannot be treated as exempt. Further, the ITO held that though the ONGC is not an employer in the strict sense of the term, it is ONGC only which has obtained approval Under Section 10(6)(viia) from the Government of India. He held that these technicians are in the employment of the ONGC although master-servant relationship in technical sense is not there. The value of perquisites can be treated as income Under Section 2(24) since the income has not been exempt by any of the provisions of the Income-tax Act. The following amounts are added in the case of each of these technicians towards free food and free accommodation :
1. Mr. Wiech Kazimiers Free food
365 days x 100 = Rs. 36,500
365 days x 100 = Rs. 36,500
2. Mr. Laszek
Szczepanek Free food
165 days x 100 = Rs. 16,500
3. Mr. Wladyslaw
Przbwyloicz Free food
365 days x 100 = Rs. 36,500
365 days x 100 = Rs. 36,500
4. Mr. Jozef Bunjny Free food
113 days x 100 = Rs. 11,300
113 days x 100 = Rs. 11,3004.
Inter alia, aggrieved against these additions, the assessees went in appeal before the CIT (Appeals), Dehradun. Purporting to follow his own appellate order dated 18-6-1992 in the case of Aleksandar Nowah, he directed the ITO to adopt Rs. 70 per day towards the perquisite value of food and 10% of the salary as perquisite value of free accommodation, for the exact number of days when the assessees remained in India and enjoyed the twin benefits of free food and lodging.
5. Against the sustained additions, each of these assessees came up in this second appeal before this Tribunal and thus the matter stand for my consideration.
6. Hence the only question which crops up for consideration in all these appeals is whether the impugned additions can be made towards free food and free accommodation and whether they can be treated as perquisites, the value of which can be added to their salaries Under Section 17(2) or (3).
7. Before going further into the matter, I felt it is very essential for me to look into the contractual terms entered into by the ONGC with M/s Polservice with regard to the deployment of technical personnel for conducting drilling operations of oil wells in India and also for conducting seismic survey. Copy of the contract was provided at pages 1 to 15 of assessee's paper book dated 9-9-1987. ONGC which was referred to as the 'owner' while M/s Polservice, Poland having its Head Office at Warsawwas referred to as a 'contractor' in the contract. In the preamble of the Agreement it is stated that the 'owner' was having mechanical land drilling rigs for drilling and for exploration and development of oil and natural gas in onshore areas. The contractor was described as similarly engaged in the onshore drilling business and was in a position to provide to the owners expatriate supervisory staff and personnel with expertise in operation and management of onshore rigs for deep oil well drilling. It was stated that the 'owner' desires to utilise the services of three crews of such expatriate personnel of the contractor for performing, maintaining and managing the operation of three land rigs for the exploration and development of oil and natural gas for the onshore areas. It is agreed that the contractor has to provide the personnel to conduct drilling operations and such personnel would be called contract personnel. The contract was to remain in force initially for a period of two years from the commencement of the contract. Rs. 26,500 per crew per day was the operating day rate agreed to under the contract. It stated that this rate is unalterable throughout contract and extended period if any without any escalation whatsoever. When the rig is under move or is non-operational at drill site after commissioning, due to mechanical or other breakdown/failures of any equipment including lack of power supply, water or shortage or non-availability of any material required for continuing drilling the owner will pay only 80% of the operating day rate to the contractor for the crew at the site. A driller is entitled to Rs. 3,600 daily rate. The owner shall have the right to phase out any member of the contractors crew by giving 30 days written notice, except drilling Superintendent/Manager/Rig Mechanic/Rig Electrician, all other crew members will work on 12 Hrs. shift basis. The drilling operations will be carried out on the basis of 2 x 12 Hrs. daily shift system and 28 days on/28 days off crew rotation system. The contractor shall bear and pay all taxes leviable or imposed on his employees in India, personal as well as corporate or any other taxes leviable or imposed in India on the contractor on account of payment received or services rendered under this contract. Paras 22.1 specifically states the following:
Personnel deployed by Contractor hereunder shall be employees of Contractor, who shall be responsible for payment of all compensation to the said personnel including personal taxes and fringe benefits. Contractor shall arrange at his cost round trip to and from their residence and ONGC drill site cars for each of his personnel listed in Clause 6.
Clause 39.0 of the contract lists out the general responsibilities of the owner. 39.5 which is important for our purposes and it reads as follows:
To provide boarding and lodging at drill site/camp both to the owner's and contractor's operating personnel.
Listing out the obligations at the close of the contract, item No. 14 is agreed to be the obligation to be discharged by the owner and the obligation is to provide food and housing of the contractor's personnel at the drill site/camp.
8. Therefore, after going through the stipulations in the contract it is crystal clear that the obligation to provide free food and housing for the contractor's personnel is that of the owner, namely ONGC and it is also made very clear that the expatriate technicians provided by M/s Polservice were its own employees and were never considered to be the employees of ONGC. It is stated that onshore drilling takes place at far flung areas and since the contract was to operate the rig or carry on drilling operations all the 24 Hrs. with two shifts of 12 Hrs. each, the owner himself is interested to see that the expatriate technicians should be present at the work site all the 24 hours. Most often it is stated that the drilling would take place in hilly regions where there may not be any habitation whatsoever in and near the drill site and, therefore, the owner for the sake of its own advantage of having the services of the expatriate technicians all the 24 Hrs. would provide temporary shelters at drill site mostly in bunkers or tents etc. and would also provide free food. The free food and free accommodation would be provided to the expatriate technicians by the ONGC along with its own personnel working along with them.
The question is whether the free food and free accommodation thus provided can be considered to be perquisites whose value can be added to their salaries. Each of these assessees or expatriate technicians would not enjoy the company of the relatives or friends at the places where free accommodation is provided to them. They will be cut out with other society while living at such make shift residences. Further these conveniences were provided to the assessees not at their asking but for the advantage of the owner (ONGC). If one were to leave the contract site and go to food at any nearby village, it would unnecessarily cause so much waste of time. So also if they were to live at distant places, the transportation would be an extra expenditure to the owners. Therefore, in order to cut short their own expenditure, the owners (ONGC) provided them with free food and free accommodation along with their employees to the expatriate foreign technicians. It is contended that under the facts and circumstances, the perquisite of free accommodation, even assuming that it would be added in the hands of each of these assessees should be computed by invoking Rule 3 of the Income-tax Rules. Under Rule 3(iii)(a) ordinarily 10% of the salary should be taken to be the value of rent free residential accommodation. However, under proviso No. 2 of the said rule, the assessee can satisfy the Assessing Officer that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value.
9. The learned counsel for the assessee contended that if an accommodation is provided in a bunker in a thick forest area whether it commands any rental value at all. If such make shift shelters do not command any rental value, the value of free accommodation should be taken to be nil It is contended that the working conditions of these expatriate foreign technicians would be equally arduous that we can compare their services with the services of military personnel protecting our borders. Therefore, circular No. 5 of 1950, dated 6th September, 1950 should aptly apply to these expatriate foreign technicians also. The circular is as follows :
Under Explanation I to Section 7(1) of the Indian Income-tax Act, 1922, the right of a person to occupy free of rent as a place of residence any premises provided by the employer is a perquisite for the purposes of this section and is usually taken at 10 per cent of the emoluments of the person concerned for the purposes of his income-tax assessments. It has been represented that military personnel serving in forward operational areas and in isolated localities on the frontier and other posts are provided with rent free accommodation consisting of dug out trenches, places in open fields and under the trees etc. As the accommodation furnished has no rental value, no addition should be made for income-tax purposes to the total income of the personnel concerned in respect of the value thereof. Where, however, the accommodation provided has a rental value or the value thereof can be ascertained an addition therefor should be made for income-tax purposes subject to the usual maximum of 10% of the emoluments.
The learned counsel for the assessee had brought to our notice Acharya Shuklendra's Law of Income-tax, Vol. I, Second Edition, pages 846 and 847 in which the following is stated :
(ix) Perquisites exempt from tax - The following perquisites will be exempt from tax in all cases:
(1) ** ** **
(2) ** ** **
(3) House rent allowance.
(4) Provision of refreshments to employees during office hours in office premises.
Circular No. 33, dated 1-8-1955 was invoked in support of the 4th item quoted above and Section 10(13A) was quoted in support of the 3rd item noted above. Therefore, the contention of the assessee is that even supposing both the items are to be treated as perquisites in the hands of the assessees, they are exempted perquisites and hence they should not be added in the hands of the assessees.
10. Nextly, it is contended that unless there is employer-employee relationship exists there is no possibility of postulating a perquisite or adding its value in the hands of the assessee. The sine qua non for any such addition is that the assessee should be employee of the ONGC. Here in this case, we have already pointed out as per the terms of the contract that the expatriate foreign personnel are the direct employees of M/s Polservice and they were never in the direct employment of ONGC. The ONGC is only the owner who employed the services of M/s Polservice. Since the free food and free accommodation was provided not by the employer but by the third party like ONGC, the value of those benefits cannot be added in the hands of the assessee as perquisites. A right to claim perquisite must be inherent in the employee and such a right is not there to claim the perquisite, the value of it cannot be added to his salary. A mere reimbursement of a necessary disbursement would not amount to perquisite - See CIT v. S.G. Pgnatale  124 ITR 391 (Guj.).
11. Lastly our attention is drawn to 'C Bench decision of this Tribunal dated 5-10-1994 passed in I.T.A. Nos. 4066,4067 and 4074 to 4083/Del./92 which represents the appeals of the Korean technicians similarly engaged in drilling operations in free economic zone and the Continental Shelf of India. In the facts of that case, the employee is obliged to furnish the free accommodation and free food to the Korean technicians. Even in that case, the Tribunal found that the provision of free bunker accommodation and food to the employees while they are at work in platform on high-seas does not result to any perquisite within the meaning of Section 17(2) of the Act. However, in this case we have already pointed out that the so-called benefit of free accommodation and free food were not proceeding from the employees themselves but from outsiders like ONGC. Therefore, we hold that they cannot be considered to be perquisites and the value of those perquisites cannot be added in the hand of the assessees.
12. Before the benefit of free boarding and free accommodation extended to these assessees by ONGC is considered to be a perquisite, it should bear the character of income within the meaning of Section 2(24) of the Income-tax Act. If the money value of these benefits cannot be considered to be income then nothing can be added in the hands of these assessees towards alleged perquisite value of free boarding or free accommodation. In this connection, Section 2(24) which is no doubt an inclusive definition of income can be examined. Section 2(24)(iva) which was inserted by Finance Act (No. 2) of 1980, w.e.f. 1-4-1980 is as follows :
(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in Clause (iii) or Clause (iv) of Sub-section (1) of Section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as to 'Beneficiary') and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary.
If the benefit or perquisite is obtained by any representative assessee or the benefit is receivable by the representative assessee or any sum is paid by the representative assessee in respect of an obligation which but for such payment would have been payable by the beneficiary then such benefit should be treated as income. Here beneficiary, according to the revenue is the assessees. Representative assessee is M/s Polservice. Firstly, M/s Polservice was not in receipt either of the benefits or perquisites, though it was a representative assessee of these four foreign technicians. It is not all kinds of representatives which are contemplated Under Section 2 (24)(iva). The 'representative assessees' mentioned in Clauses (i) and (ii) of Section 160 seem to have been excluded. Section 160(1) is the following :
160(1) For the purposes of this Act, 'representative assessee' means -
(i) in respect of the income of a non-resident specified in Sub-section (1) of Section 9, the agent of the non-resident, including a person who is treated as an agent under Section 163.
So it is clear that the agent of a non-resident or the person who is to be treated as an agent of such non-resident Under Section 163 cannot be considered to be 'representative assessees' for purposes of Section 2(24)(iva). Therefore, the intention of the Legislature is very clear that even if the benefit or perquisite is received by the agent of a non-resident, since he is not the representative assessee' the benefit or perquisite received by him cannot be considered to be income. By means of the above reasoning, the intention of the Legislature appears to be that any benefit or perquisite or their value if received by a representative assessee or agent of the assessee in India cannot be considered to be a perquisite and the Legislature always intended to exclude such perquisite from the definition of income. For this reason also the free boarding and lodging facilities extended to the expatriate technicians of M/s Polservipe, especially those who were engaged in the drilling of oil wells cannot be considered to be income and therefore, cannot be brought to tax in their hands. Having regard to all the above arguments which were advanced on behalf of the assessee with which I fully agree, the appeals stand allowed. I direct that the amount of perquisite added in the hands of these assessees towards free boarding and lodging facilities are hereby directed to be deleted.
13. In the result, the appeals are allowed.