In the case of Yoshio Kubo v.
Commissioner of Income Tax, the Tax Commissioner contended that such payments
were taxable perquisites under Section 17(1) of the India tax law. They were
for the benefit of the employee, and vested in the employee. The employer
contended that the payments did not confer an immediate vested benefit because
any benefit would only accrue at the time any benefits were withdrawn.
This is not an issue in many
countries to which foreign employees are assigned because the United States and
those countries have entered into so-called “totalization agreements” under
which U.S. Social Security Taxes are not necessary if the company is paying
such taxes under the other country’s welfare system. However, the United States
and India do not have a totalization agreement.
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In the India case, lower courts
agreed with the employer, and the case moved to the Delhi High Court on appeal.
That court strongly endorsed the employer’s position that the employees had no
immediate right to the benefits, which were held as investments until the
employees satisfied conditions (such as age) necessary for access to them. The
court also rejected an argument by the Tax Commission that the law had changed
when the India tax laws were revised in 1961.
A contrary decision would have
greatly increased the costs for companies with employees working in India. Companies
that are continuing to pay U.S. or other home country Social Security, medical
benefits, or pension contributions will not have to account for them for Indian
income tax purposes.
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