2007 (3) TMI 212

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....adcasting. 3. The assessee pays salary to its employees and also some housing allowance. The controversy before us pertains to citizens tax which, it appears, is a statutory payment required to be made by Japanese citizens. 4. The Assessing Officer included citizens tax as a part of the income of the employees on the ground that it was an amount paid by the assessee to its employees. According to the Assessing Officer, tax on this amount was liable to be deducted by the assessee at source. 5. Feeling aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the contention urged was that citizens tax is a statutory levy on all Japanese citizens and is required to be withheld by the employer from....

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.... "In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can....