Bona fide belief on foreign salary tax deduction upheld; Revenue's challenge dismissed

Tax deduction at source for employees of a foreign company working in India turned on whether the assessee could rely on a bona fide belief that tax was not required to be deducted on the French salary portion. The Tribunal accepted that explanation and ruled in favour of the assessee, and the Delhi High Court dismissed the Revenue's petition, leaving that conclusion undisturbed.

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Issues: Whether the Tribunal's refusal to refer the proposed questions of law under section 256(2) of the Income-tax Act, 1961 was justified, where the first proposed question did not arise from the Tribunal's order and the second had become academic.

Analysis: The Tribunal had recorded only that, before the amendment of section 9(1)(ii), the assessee entertained a bona fide belief that no tax was deductible on the foreign portion of salary paid outside India. It had not decided whether the amendment to section 9(1)(ii) was prospective or retrospective. Since the proposed first question sought a ruling on a matter not actually determined by the Tribunal, it did not arise out of the order. The second proposed question, concerning delay in initiating proceedings under section 201(1A), was rendered academic in view of the unchallenged finding of bona fide belief.

Conclusion: The refusal to direct a reference was justified, and no referable question of law was made out.

Final Conclusion: The petition for reference failed and was dismissed.

Ratio Decidendi: A question cannot be referred under section 256(2) unless it arises from the Tribunal's order, and a proposed question rendered academic by an unchallenged finding does not warrant a reference.

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