TaxTMI 
TaxTMI 
TaxTMI 
2002 (1) TMI 949
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....appreciate that under section 192 of the Income-tax Act, the appellant could not have been regarded as a "person" responsible for paying any income chargeable under the head "Salaries", within the meaning of section 192 of the Income-tax Act in respect of which, it has been held that the appellant had defaulted, of deducting the tax at source warranting the imposition of penalty under section 271C of the Income-tax Act. 3. That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that there was no valid justification, either on facts or in law, in initiating the proceedings under section 271C of the Income-tax Act and imposing the penalty on the appellant company a non-resident who had no permanent establishment in India. 4. That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that the appellant could not be regarded to be an "assessee", within the meaning of section 2(7) of the Income-tax Act and no valid proceedings could be hence initiated against it and the appellant could not have held to be a defaulter. The findings and conclusions are totally without any valid justification and is thus untenable in law. 5. That the learned Co....
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....n which it was obliged to deduct tax. 12. That the learned Commissioner of Income-tax (Appeals) has also erred in failing to appreciate that the learned authors Shri C.K. Tikku and Shri V.P. Verma in their commentary on assessments of Non-residents had clearly expressed a view or the correct interpretation that there is no liability to deduct tax, of a foreign employer and as such, in the alternative it ought to have been held that the appellant had failed to deduct the tax (even if it was required to deduct the tax) on account of sufficient valid and reasonable cause and as such, no penalty ought to have been sustained on the appellant. 13. That in any case and without prejudice, on the basis of the observations made at page 2 of the order under section 271C of the Income-tax Act, it could not be said that there was no reasonable cause for not deducting the tax in respect of the salaries paid in Japan by Asahi Glass Company Limited which was on account of the terms and conditions of the employment of such employees. 14. That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that the assessee is a company who is a Japanese company and is carrying on no bu....
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.... and according to him the amount of tax deductible for the ten financial years in question aggregated Rs. 3 crores. It was the further observation of the Assessing Officer that the filing of details pertaining to salary payments as also the payment of tax by the assessee company was the culmination of the process of vigorous survey operations carried out at the office premises of a number of multinational corporations, who allegedly defaulted in payment of TDS, by the Department and their being subsequent representations on the part of the Japanese Chamber of Commerce & Industry in India on behalf of its members before the Indian tax authorities. It was noted as a fact by the Assessing Officer that the assessee company had made a request through the Japanese Chamber of Commerce & Industry for not conducting any survey operations against it and promised to pay the whole amount of tax deductible on the payment of salaries and allowances abroad as also the interest thereon. As a result of the aforesaid, a sum of Rs. 2.97 crores was deposited as TDS alongwith interest under section 201(1A) amounting to Rs. 2.45 crores. The company also paid tax upon the salaries of the expatriate emplo....
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.... and interest thereon and no survey had been conducted upon the company and the office upon the company had served no notice or inquiry or any communication. 5. In the case of Smt. N. Susheela Naidu v. ITO reported in Taxman 1997, Vol. 93, page 570 the Hon'ble Andhra Pradesh High Court has held that as the Assessing Officer did not determined, raised or levy tax and as no recovery proceedings were taken against the petitioner the notice proposing to levy penalty is clearly impermissible in law since there is no contrary decision of any other High Court the decision is binding upon all tax authorities [Sundar Jas Khaniaya Lal Bhatija v. Devi Saraf [1978] 113 ITR 589 and All India Lakshmi Commercial Bank Officers' Union v. Union of India [1984] 150 ITR 1]. 6. For the reasons submitted above there was reasonable cause for the company for not deducting tax at source and paying it to the Government in respect of payment made abroad. 7. From the plain reading of the letter of the JCCI addressed to the Commissioner of Income-tax, Delhi VI, it appears that there was an agreement between JCCI and Tax Department whereby, inter alia the department agreed that it would not launch penalty or....
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....rried out at the premises of the assessee company for similar reasons the Honourable Tribunal has held that their was reasonable cause for this failure and deleted the penalty levied in this case. 2. According to the recent ruling in the case of Silver Palace v. ITO [1999] 68 ITD 550 (ITAT-Pune) it has been held that no penalty is leviable where an additional income has been declared by the assessee in pursuance of survey operations and on assurance of tax officers that the penalty would not be levied. 3. We have been informed that penalty proceedings have been dropped in the case of companies who have made voluntary disclosure and where no survey has been conducted--Asahi Glass Co. Ltd. is very similarly situated. 4. As a matter of information and without prejudice to the above we would like to state that according to section 71 of the Voluntary Disclosure of Income Scheme of 1997 nothing contained in any declaration made under the scheme, shall be admissible as evidence against the declaration for the purpose of any proceeding relating to the imposition of penalty under the Act." 5. The aforesaid submissions did not find favour with the Assessing Officer, who at the outset ob....
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.....Salary income of the expatriate employees working in India was taxable in India as per Explanation to section 9(1)(ii) of the Income-tax Act, 1961 and tax at source was therefore deductible under section 192. 10.That in the case of Mitsui & Co. Ltd. (supra) relied upon by the assessee, the facts were entirely different since the Tribunal in that case had examined in detail the relevant facts coming thereafter to the conclusion that there existed a reasonable cause for the failure of the company in deducting tax and consequently deleted the penalty levied under section 271C whereas in the case of the present assessee, there was no evidence, which would prove the existence of a reasonable cause for the assessee's failure in respect of TDS provisions. 11.Section 273B provided that penalty would not be imposed if there was a reasonable cause for the failure but the assessee's stand that in its case there was a voluntary disclosure and no survey had been conducted would not advance its case and further each case had to be dealt with on its own individual merits. 6. In summing up, the Assessing Officer observed that the Japanese company had deputed its employees to the Indian company....
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.... action or lack of bona fides on the part of an assessee, then the question of examining a reasonable cause would not arise. On the ground that the assessee had not brought forth any evidence, which would indicate the existence of a reasonable cause for its failure in deducting tax at source, the Assessing Officer ultimately proceeded to pass the order under section 271C for the financial years in question and levied an aggregate penalty of Rs. 3 crores. 8. Being aggrieved with the levy of the aforesaid penalty, the assessee filed appeals before the CIT(A) for the various financial years and a perusal of the consolidated order of the CIT(A) shows that detailed arguments were advanced and which are somewhat identical to those tendered during the course of the penalty proceedings. At the outset it was submitted that provisions of section 192 were not applicable to the assessee, which was a company incorporated in Japan and not engaged in any business in India. According to the assessee, it had not operated in India and nor did it have a business establishment in India. It was emphasized that the employees who had rendered services in India were the employees of the Indian joint vent....
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....t by virtue of the deeming provisions of section 9(1)(ii), the amounts received by the employees outside India could be made taxable in their hands but such deeming provisions could not be further extended to make the Japanese company liable for any default in respect of deduction of tax at source under section 192. A reference was made to the judgment of the Hon'ble Supreme Court in the case of Electronics Corporation of India Ltd. v. CIT [1990] 183 ITR 43 for the proposition that unless a nexus with something existed in India, the Parliament had no competence to make a law to tax income. According to the assessee's counsel, no nexus had been established in India since all that had happened was that the Japanese company had deputed some of its employees to a joint venture of the Asahi group of companies having business in India and from the aforesaid it could not be concluded that such persons who were deputed were paid salaries for having rendered services to the company in India. Further, such persons were employees of the Indian company and therefore there was no obligation under section 192 on the Japanese company to deduct tax at source as per provisions of section 192. 11. ....
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....ii) of the Income-tax Act. According to the ld. counsel, there existed a bona fide belief for not having deducted tax at source which even otherwise in law the assessee a Japanese company was not obliged to deduct vis-a-vis the remuneration paid outside India to the expatriate employees by the Japanese company. 15. In considering the aforesaid submissions, the CIT(A) at the outset opined that section 192(1) did not visualize any territorial limitation on the obligation of a person making payment on account of salary to deduct tax at source. According to him, the assessee had made payment to the expatriate employees in Japan deputed to work in India with its joint venture and such payments had been made as remuneration for the services rendered in India by the expatriate employees. According to him, there could not be any dispute that such payments were taxable in India in view of explanation to section 9(1)(ii) since once an income is taxable under the head "Salaries" in India, the same was liable to deduction of tax at source as per section 192(1) of the Income-tax Act. The CIT(A) further opined that laws made by Parliament in India could have extra-territorial operations and a r....
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....reign company and the expatriate employees generally got small portion of their remuneration in India and the major portion was paid by the employer abroad and on whose behalf they were working in India with the Joint Venture company. 19. The further observation of the CIT(A) was to the effect that expatriate employees were technical experts and their services were being utilized for the business of the joint venture company in which the principals had a major business interest. According to him, the rendering of services in India resulted in payment of technical fee, dividend, sales royalty to the principal employer and the fact of payment of salary/remuneration in Japan/abroad to these expatriate employees by the assessee company had not been disputed anywhere. Further, according to the CIT(A), the very fact that Japanese company had chosen to pay then a substantial amount in Japan although the expatriate employees were rendering services in India and apparently employed with the joint venture clearly showed that the Japanese company had some interest in their working in India and that is why it continued to pay them in Japan. The further observation of the CIT(A) was to the eff....
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.... liability on payments made to these expatriate employees. 23. In concluding, the CIT(A) observed that the conduct of the assessee could not be treated as bona fide by any stretch of imagination and in the final analysis on the ground that the assessee had failed to give any satisfactory explanation that it was prevented by reasonable cause as contemplated under section 273B of the Income-tax Act for its failure to deduct tax at source, he proceeded to confirm the penalty levied by the Assessing Officer. 24. Before us, the ld. counsel for the appellant argued at length reiterating in the process the arguments advanced before the CIT(A). He highlighted the following :-- (i) There were two companies, the one in India and the other in Japan and the employees of the latter were seconded to the company in India for all intents and purposes of the Income-tax Act including the TDS provisions these expatriates were the employees of the Indian company; (ii)There was no obligation in law for the Indian company to deduct tax at source on the salary paid by the Japanese company to such employees in Japan. Insofar as the payment of salary in India was concerned, the Indian company had fulfi....
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....f that it being a Japanese company having no office in India and the expatriate employees seconded to the Indian company being paid salaries in India, which had been subjected to TDS provisions had not violated any provisions of the Income-tax Act, 1961 more so when salaries paid by it to such expatriate employees in Japan had also been subjected to tax in that country. 25. In conclusion, the ld. counsel contended that penalty under section 271C was not leviable under the circumstances highlighted aforesaid and this being a case where the amount of shortfall had been made good in spite of being under the bona fide belief that TDS provisions were not attracted to the assessee being a Japanese company having no base in India and the TDS provisions being complied within the two respective countries i.e. in Japan by the assessee company and ones in India by the Indian company. In support of the various arguments advanced, the ld. counsel placed reliance on the following decisions: (i)174 CTR 113 (SC) (ii)246 ITR 569 (Delhi) (iii)183 ITR 43 (SC) (iv)252 ITR 471 (Delhi) (v)48 ITR 186 (SC) (vi) 106 ITR 307 (All.) (vii) 68 ITD 550 (Pune) (viii)Unreported decision of the Tribunal i....
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...., it was quite clear that the Japanese company i.e. the present appellant before the Tribunal had seconded its employees to the Indian company and a part of the salary was being paid to them in Japan and some part of it was being paid by the Indian company and there was therefore a clear nexus. It was emphasized that provisions of section 9 were clearly applicable and vis-a-vis the expatriate employees their income wherever earned was taxable in India. 29. The ld. DR further referred to circulars issued by the Board pertaining to the deduction of tax at source in respect of the payments made outside India and according to him, such circulars had been given wide publicity and an assessee whether it be an Indian company or a foreign company could not after the issue of such circulars contend that it was not aware of its legal obligations. Further, according to the ld. DR it was nowhere provided in the Income-tax Act that before passing an order under section 271C, the Assessing Officer was obliged to pass an order under section 201(1). According to him both were independent proceedings. 30. On the question of reasonable cause, the contention of the ld. DR was that there was none in....
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....2 ITR 471 (Delhi). Lastly according to the ld. counsel the decision reported in 253 ITR 745 (Delhi) supported the assessee's case. 35. We have examined the rival submissions and we have also perused the material on record to which our attention was invited during the course of hearing. The decisions cited at the bar have also been taken into account. At the outset, we would like to say the most of the appeals travelling to the Tribunal vis-a-vis an identical penalty i.e. under section 271C pertained to foreign companies where a part of the salary to expatriate employees is being paid in India and some part abroad but the company which is treated to be in default i.e. the foreign company is one which has a permanent establishment or any other type of office in India. To elaborate further, it is the company based in India, which is treated to be in default within the meaning of section 192 as soon as it emerges that the foreign technicians seconded to it are also being paid salaries in their home country. The case of the present assessee is in the reverse and therefore distinguishable since it is a Japanese company admittedly having no permanent establishment or any type of office i....
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....ther establishment in India. The Chief Representative of Fuji Bank Limited apart from his salary in India received salary from the Bank in Japan as well whereas tax was being deducted at source under section 192 on the salary paid to him in India only. The annual return of TDS filed in Form No. 24 pertained only to the tax deducted at source in India. 37. A survey under section 133A was conducted on the office premises of the Bank at New Delhi and the statement of its Chief Representative was recorded. He admitted in a statement that no tax had been deducted on the amount of emoluments paid in Japan. The Assessing Officer initiated penalty proceedings and during the course of such proceedings, it was submitted on behalf of the Bank that it operated in a number of countries in the world and there was due compliance with the provisions of local laws of the respective countries. It was emphasized that there were many Japanese companies working in India and they were under the impression that no tax was payable on the emoluments paid outside India to their respective employees. A reference was made to an application moved to the Assessing Officer who had jurisdiction over the case whe....
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....of the CIT(A) that provisions of section 9(1)(ii) are applicable but in our opinion the question under consideration is that of penalty under section 271C and in examining the same we cannot lose sight of the bona fide belief and the impression, which the Japanese company i.e. the present appellant exercised with reference to the Indian laws pertaining to deduction of tax at source within the meaning of section 192. Both the sides have cited a number of decisions on the question of a "reasonable cause" but all such judgments cannot be universally applied to the facts of each and every case but in as far as the present appeals are concerned a number of matters have come up before the different Benches of the Tribunal and whereas the Department has been quite liberal in levying penalties, the Tribunal and thereafter the Hon'ble High Courts in many cases have taken a somewhat liberal view opining otherwise. In other words each case has to be decided on its own facts and it would mean that neither are identical penalties levied on an assessee to be deleted and nor it would be a case in reverse i.e. confirmation of such penalties. In our opinion, penalties under section 271C could be at....