Meaning of “Employer”

The meaning of employer under section 80RRA of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of employer.

Meaning of employer defined by court

The phrase ’employer’ used in section 80RRA of the Income Tax Act came up before hon’ble Supreme Court in CBDT vs. Aditya v. Birla [1988] 170 ITR 137/36 taxman 9 (SC) and it explained.

Meaning : In chintaman rao v. State of madhya pradesh [1958] scr 1340, 1346, 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 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 employ’ has been considered in ellis v. Ellis & co. [1905] 1 Kb 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 establishments in case their labour should be needed; household servants in performance 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 only to ‘retain’ in the service ‘and is mere tautology’. See in this connection, strouds judicial dictionary, 4th edn., Vol. 2 At page 893. The expression, however, must depend upon the context of the particular provision in which the expression appears. It was held in england that an engineer appointed 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 government superannuation act, 1937, in morren v. Swinton and pendlebury b.C. [1965] 1 Wlr 576.

In chambers 20th century dictionary, ’employ’ has been indicated to mean to occupy the time 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 a person. The word ’employer’ is used in section 80rra not in any technical sense but as meaning a person who uses or employs the services of another person. ‘Employ’ means the use of services of any person : it comprehends whole-time servant or part-time engagee.

Section 80RRA of Income Tax Act

Deduction in respect of remuneration received for services rendered outside India.

80RRA. (1) Where the gross total income of an individual 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 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—

(i) sixty per cent of such remuneration for an assessment year beginning on the 1st day of April, 2001;

(ii) forty-five per cent of such remuneration for an assessment year beginning on the 1st day of April, 2002;

(iii) thirty per cent of such remuneration for an assessment year beginning on the 1st day of April, 2003;

(iv) fifteen per cent of such remuneration for an assessment year beginning on the 1st day of April, 2004,

as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year :

Provided that no deduction under this sub-section shall be allowed unless the assessee furnishes a certificate, in the prescribed form78, along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

(2) The deduction under this section shall be allowed—

(i) in the case of an individual who is or was, immediately before undertaking such service, in the employment of the Central Government or any State Government, only if such service is sponsored by the 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.

Explanation.—For the purposes of this section,—

(a) “foreign currency” shall have the meaning assigned to it in the Foreign Exchange Management Act, 1999 (42 of 1999);

(b) “foreign employer” means,—

(i) the Government of a foreign State; or

(ii) a foreign enterprise; or

(iii) any association or body established outside India;

(c) “technician” means a person having specialised knowledge and experience in—

(i) constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power; or

(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building; or

(iii) public administration or industrial or business management; or

(iv) accountancy; or

(v) any field of natural or applied science (including medical science) or social science; or

(vi) any other field which the Board may prescribe79 in this behalf,

who is employed in a capacity in which such specialised knowledge and experience are actually utilised;

(d) “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

In this article, you can get guidance from high courts on the meaning of employer under section 80RRA of the Income Tax Act.

Updated up to Finance Act 2021.